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Fundamental Analysis of Securities
Sector wise Analysis
A single company's performance can be heavily influenced by the sector in which it operates. We tried to select securities from different sectors so that we can diversify our portfolio. First we selected few sectors like Banking, pharmaceuticals, IT and infrastructure then we did peer to peer comparison within these sectors and selected the securities by doing fundamental analysis.
The securities was selected by doing the following analysis
Price to Earning
We analyzed the PE ratio of the securities. We selected the securities which had the lowest PE ratio compared to its competitors in that particular sector. E.g. in Banking sector, PE Ratio of PNB was low compared to ICICI Bank, HDFC and Kotak Bank.
EPS
We also analyzed the EPS of every security the one with high EPS and low PE ratio was selected. Again the EPS was compared to the peer operating in the same sector.
On the basis of the PE Ratio and EPS we selected the securities we wanted to invest in as on 16/02/2016 and the securities selected were PNB, Wipro, Tata Steel, Infosys, Glenmark and Larsen and toubro.
After selecting the security we calculated the intrinsic value of these securities. To calculate the intrinsic value we first calculated CAGR with current years EPS to determine expected EPS and to decide whether growth should continue at that same rate. With Expected EPS and PE ratio we got the intrinsic value which shows the actual price of the security and then compared it with the current market price so as to determine whether or not it is overvalued or undervalued.
On the basis of these analysis we invested in securities which are underpriced.
