FUNDAMENTAL

ANALYSIS
Mohammed Umair

WHAT IS FUNDAMENTAL ANALYSIS?

Fundamental analysis is a technique that attempts to
determine a securitys value by focusing on underlying factors
that affect a company's actual business and its future
prospects.
WHY FUNDAMENTAL ANALYSIS?
Fundamental analysis answers the following question
1. Is the companys revenue growing?
2. Is it actually making a profit?
3. Is it in a position strong-enough to outrun its competitors
in the future?
4. Is it able to repay its debts?
5. Is management trying to "cook the books"?

FUNDAMENTAL ANALYSIS
Fundamental analysis can be composed of many different aspects:
the analysis of the economy as the whole, the analysis of an
industry or that of an individual company.

ECONOMY ANALYSIS
The performance of a company depends much on the performance
of the economy if the economy.
The first step to this type of analysis includes looking at the
macroeconomic situation.

ECONOMIC INDICATORS AND THEIR IMPACT ON THE STOCK MARKET

INDICATOR

FAVOURABLE
IMPACT

UNFAVOURABLE
IMAPACT

GDP/GROWTH RATE

HIGH GROWTH RATE

SLOW GROWTH RATE

DOMESTIC SAVINGS
RATE

HIGH

LOW

INTEREST RATES

LOW

HIGH

TAX RATES

LOW

HIGH

INFLATION

LOW

HIGH

IIP/INDUSTRIAL
PRODUCTION

HIGH

LOW

BALANCE OF TRADE

POSITIVE

NEGATIVE

BALANCE OF
PAYMENTS

POSITIVE

NEGATIVE

ECONOMIC INDICATORS AND THEIR IMPACT ON THE

STOCK MARKET
INDICATOR

FAVOURABLE
IMPACT

UNFAVOURABLE
IMAPACT

FOREIGN EXCHANGE
POSITION

HIGH

LOW

DEFICIT
FINANCING/FISCAL
DEFICIT

LOW

HIGH

AGRICULTURAL
PRODUCTION

HIGH

LOW

INFRASTRUCTURAL
FACILITIES

GOOD

NOT GOOD

Company Analysis
It involves a close investigative scrutiny of the companies financial
and non financial aspects with a view to identifying its strength,
weaknesses and future business prospects.

Non Financial Factors

Marketing success
Business Model
Competitive Advantage
Management
Corporate Governance

Company Analysis-Non Financial

Aspects : History, Promoters
and Management

Aspects
: Technology,
Review
Questions

Facilities and Production

Does the company use relevant

technology?

Is there any foreign collaboration?

Where is the unit located?
Review Questions
How old is the company?
Who are the promoters?
Is it family managed or professionally
managed?
What is the public image and reputation
of the company, its promoters and its
products?

Are the production facilities well

balanced?
Is the size the right economic size?
What are the production trends?
What is the raw material position?
Is the process power- intense?
Are there adequate arrangements for
power?

Company Analysis-Non Financial

Aspect: Product range, Marketing, Selling and Distribution
Review Question:
What is the companys product range?
Are there any cash cows among the product portfolio?
How distribution-effective is the marketing network?
What is the brand image of the products?
What is the market share enjoyed by the products in the relevant segments?
What are the effects and costs of sales promotion and distribution?
Aspect: Industrial relations, Productivity and Personnel
Review Question:
How important is the labour component?
What is the labour situation in general?
Aspect: Environment
Review Question:
Are there any statutory controls on production, price, distribution, raw material, etc?
Is there any major legal constraint?
What are the government policies on the industry (domestic as well as related to imports
and exports of the final products and raw materials)?

Strengths

Weaknesses

Latest Technology
Lower delivered Cost

Loose controls

Established products

Untrained labour force

Committed manpower

Strained cash flows

Advantageous location

Poor product quality

Strong finances

Family funds

Well- known brand names

Poor public image

Opportunities

Weaknesses

Growing domestic
demand

Price War

Expanding export
markets

Undependable component

Cheap labour
Booming capital markets
Low interest rates

Intensive competition
Suppliers
Infrastructure bottlenecks
Power cuts

SWOT
ANALYSI
S

FACEBOOK SWOT

Industry intelligence
An industry intelligence is a business tool carried out to assess profit potential and
the complexity of a particular industry.
1. Industry intelligence is assessed based of key factors relating to the industry
such as the history of the industry,
2. Analysis of the industries financial performance,
3. Industry life cycle,
4. A review of how differing trends such as seasonal fluctuations affect the
industry,
5. External influences on the industry such as government laws and
6. A review of levels of competition both present and future for the specific
industry.

Porters Five Forces- Industry

Analysis:
1. Industry rivalry: Indicates degree of competition among
existing firms, cut throat competition leads to reduced profit
potential for companies in the same industry
2. Threat of substitutes: Availability of substitute products or
services will limit a firms ability to raise prices
3. Bargaining power of buyers: It represents powerful buyers
have a significant impact on prices
4. Bargaining power of suppliers: It highlights powerful
suppliers can demand premium prices and limit your profit
5. Barriers to entry: it includes threats of new entrants that
can act as a deterrent against new competitors

Industry intelligence
An industry intelligence is a business tool carried out to assess profit
potential and the complexity of a particular industry.
Industry intelligence is assessed based of key factors relating to the
industry such as the history of the industry,
analysis of the industries financial performance,
industry life cycle,
a review of how differing trends such as seasonal fluctuations affect the
industry,
external influences on the industry such as government laws and
a review of levels of competition both present and future for the specific
industry.

Porters Five Forces- Industry

Analysis:
1. Industry rivalry: Indicates degree of competition among
existing firms, cut throat competition leads to reduced profit
potential for companies in the same industry
2. Threat of substitutes: Availability of substitute products or
services will limit a firms ability to raise prices
3. Bargaining power of buyers: It represents powerful buyers
have a significant impact on prices
4. Bargaining power of suppliers: It highlights powerful
suppliers can demand premium prices and limit your profit
5. Barriers to entry: it includes threats of new entrants that
can act as a deterrent against new competitors

Competitors intelligence
Competitors intelligence in international business is an assessment of
the strengths and weaknesses of current and potential competitors.
It involves primarily two activities:
1. obtaining information about important competitors and
2. using that information to predict competitor behavior.
Most firms face four basic types of Competition:

1. Brand competitors, refers to competition with

different brands offering with similar features, prices
and benefits to the same potential customers.
2. Product competitors, offer same product class but
with offer different benefits, features, and prices.
3. Generic
products
satisfying
benefit or

competitors, are rival firms offering

which are different but are capable of
the same basic want or provide the same
utility to the prospective customer.

4. Total budget competitors, primarily focus on

prices, they compete for the limited financial
resources of the same customers.

Various types of competition

Product
Sedans
(Large
Cars)

Soft Drinks

Movies

Colleges

Need

Brand
Competitors

Transportation

Maruti Suzuki, Ford

Hyundai, Toyota
Honda, Nissan

Jeeps,
Rental cars,
Hatchbacks, SUVs, Bikes, BMTC,
Minivans, MUVs
Metro.

car-sharing, ridesharing, liftsharing

Coca-Cola, Pepsi,
Tropicana, Frooti
Minute Maid, Appy

Tea, Coffee,
Badam Milk, Fruit
Juice, Lime soda,
Butter milk.

Tap water,
Prasadam
(given in
religious places)

Candy, Pani puri,

Pop corn, Vada
pav, Pakoda.

Avengers,
Cable TV, Pay-perSpiderman, Ice
view on DTH, DVD
age, Shrek,
rentals
Batman, Immortals,
Mission Impossible.

Sporting events
like IPL, Music
Concerts,
Exhibitions,
Melas.

Relative and
friends house,
reading, Parks,
Museum.

St. Josephs, Christ,

Jain, Jyoti Nivas,
Mounts, Kristu
Jayanti

Books, Internet,
Apprenticeship,
Seminars.

Public Colleges

Refreshment

Entertainment

Education

Product
Competitors

Distance
Education,
Community
college.

Generic
Total Budget
Competitors Competitors

Profitability
A.(a) Gross profit Margin
(b) Net profit Margin
(c) Earning power
(d) Return on equity
(e) Earning per share
(f) Cash EPS
B. Financial Statement Analysis
Trading, P& L A/C Analysis
Balance Sheet Analysis
C.

Ratio Analysis
Liquidity Ratios
Leverage Ratios
Profitability Ratios
Activity / Efficiency Ratio

Outcome of FUNDAMENTAL ANALYSIS

The end goal of performing fundamental analysis is to produce a
value that an investor can compare with the underlying assets
current price in hopes of figuring out what sort of position to take
with that security(under priced = buy, overpriced = sell).
Valuation of Stock
The intrinsic value of a share is the present value of all future cash flows
INTRINSIC VALUE = DIVIDENDS + CAPITAL APPRECIATION

Investment decision:
1. If the market price of a share is currently lower than its intrinsic
value, such a share would be bought because it is perceived to be
under-priced.
2. A share whose current market price is higher than its intrinsic value
would be considered as overpriced and hence sold.

PRICE QUALITY MATRIX

PRICE

YESTERDAYS
BLUE CHIPS

EMERGING
BLUE CHIPS

LQ
HP

HQ
HP

MQ
MP
LQ
LP
NON
BLUE CHIPS

EVERGREEN
STOCK

HQ
LP
TURN AROUND
STOCK

A blue-chip: Stock of a large, well-established

and financially sound company that has
operated for many years.

QUALITY

PRICE QUALITY
MATRIX

The non-blue chips

a. Feature:
These shares are of low quality and hence are quoted at
low
prices.
b. Should we buy:
Just ignore them until there is an upswing in their fortunes.
c. But Why?
You should not buy something simply because it is cheap.
Remember, what appears cheap may ultimately prove very
expensive.

Emerging blue chips

a. Feature:
High Quality, High - Price (HQHP)
b. Should we buy:
Hold on to them.
c. But Why?
They are current stars, popular and command a high price. As
long as their glamour last, such shares perform well in the market.
But be careful, partial booking of profits at high price may be
desirable.

PRICE QUALITY
MATRIX

Yesterdays blue chips

a. Feature:
Low Quality, High - Price (LQHP). You can call these the
stocks with the hangover effect
b. Should we buy:
Such scrip's should be sold fast. Do not look at such a share
again until the company returns
to the growth track.
c. But Why?
You can call these the stocks with the hangover effect. Once
they had the market on a high but they are more or less banking
on
their past glory now. Once this fact is recognized, the market
downgrades such stocks and their prices tumble.
Emerging blue chips

a. Feature:
Medium Quality, Medium - Price (MQMP): These are steady
scrip's.
b. Should we buy:
Dont be in a hurry to sell them.
c. But Why?
They can last for two to three generations fairly intact. Hold on to
them.

TECHNICAL
ANALYSIS

What to Expect?
a. Introduction to Technical Analysis
b. 3 Hours is too less a time to expect anything w.r.t Technical Analysis,
theres too much out there
c. Expect just an introduction to what is technical analysis
d. Get yourself convinced by end of the presentation that technical
analysis is good enough to buy and sell stocks.

Introduction
Should I take a long position? Should I take a
short position? What is going to be the price
tomorrow, next week or next year?

Technical analysis is the attempt to forecast stock prices on the

basis of market-derived data.
Technicians (also known as quantitative analysts or chartists)
usually look at price, volume and psychological indicators over
time.
What wiki says?
Technical analysis is a security analysis discipline for forecasting the
future direction of prices through the study of past market data, primarily
price and volume.

John J. Murphy:
TA is the study of market action, primarily through the use of charts, for
the purpose of forecasting future price trends.
Bottom Line:
Technical analysis is a method to predict the future behaviour of securities, with
the use of past data.

How to do Technical
Analysis?

Trend
time horizons that vary greatly

Do charts
Speak?

Stock Price trend of Jet Airways

Do charts Speak?
Consider the basic assumptions presented by Robert D. Edwards and John
Magee in the classic book, Technical Analysis of Stock Trends:
Stock prices are determined solely by the interaction of demand and supply.
Stock prices tend to move in trends.
Shifts in demand and supply cause reversals in trends.
Shifts in demand and supply can be detected in charts.
Chart patterns tend to repeat themselves.

Stock Price trend of Jet Airways

Technical analysis is based on one major assumptiontrend. Markets trend.

Traders and investors hope to buy a security at the beginning of an uptrend at a
low price, ride the trend, and sell the security when the trend ends at a high price.
Although this strategy sounds very simple, implementing it is exceedingly
complex.

Different Kind of Charts used:

1. Line charts

Charting the Market

2. Bar charts

Chartists use bar charts, candlestick, or

point and figure charts to look for patterns
which may indicate future price movements.

3. Candlestick
s

They also analyze volume and other

psychological indicators (breadth, % of bulls
vs % of bears, put/call ratio, etc.).
Strict
chartists
dont
fundamentals at all.

care

about

Candlesticks

Drawing Bar (OHLC) Charts

A candlestick chart is a style of bar-chart used primarily to
describe price movements of a security, derivative, or
currency for a designated span of time.
It is a combination of a line-chart and a bar-chart, in that each
bar represents the range of price movement over a given time
interval.
A chart that displays the high, low, opening and closing prices
for a security for a single day.
High

High
Close

Open

Each bar is composed

of 4 elements:

Open

Close
Low

Standard
Bar Chart

Low

Japanese
Candlestick

Standard
Bar Chart

Japanese
Candlestick

Open
High
Low
Close

The wide part of the candlestick is

called the "real body" and tells
investors whether the closing price
was higher or lower than the opening
price (black/red if the stock closed
lower, white/green if the stock closed
higher).

Line Chart
A style of chart that is created by connecting a series of data
points together with a line.
This is the most basic type of chart used in finance and it is
generally created by connecting a series of past prices together
with a line.
A line chart can give the reader a fairly good idea of where the
price of an asset has traveled over a given time frame.
Infosys

Head and Shoulders

This formation is characterized by two small peaks on either side of a
larger peak.
head-and-shoulders chart pattern
H&S Top
Head

Right Shoulder

Left Shoulder

Inverse Head-and-Shoulders
This is a reversal pattern, meaning
that it signifies a change in the trend.

Neckline

H&S Bottom
Neckline

Left Shoulder

1. Rises to a peak and subsequently

declines.
Then, the price rises above the former
peak and again declines.
2. And finally, rises again, but not to the
second peak, and declines once more.
3. The first and third peaks are shoulders,
and the second peak forms the head

Right Shoulder

Head

In this pattern, the neckline is

a level of support or resistance.

Formation of the pattern:

1. Left shoulder: Price declines and
moves higher.
2. Head: another Decline occurs to a
lower level.
3. Right shoulder: Price then moves
higher and moves back lower, but
not as low as the head

How to Trade the Pattern?

It is very important that traders wait for the pattern to
complete.
In the head and shoulders we are waiting for price action to move
lower than the neckline after the peak of the right shoulder.
For the inverse head and shoulder, we wait for price movement
above the neckline after the right shoulder is formed.
H
S

Sell
Signal

Support
Level

Double Bottom Example

Buy
Signal
support
Level

Double Tops and Bottoms

These formations are similar
to the H&S formations, but
there is no head.

Double Top

These are reversal patterns

with the same measuring
implications as the H&S.

Target
Target

Double Bottom

Trends
The meaning of trend in finance isn't all that differentfrom
the general definition of the term - a trend is really nothing
more than the general direction.

A trend represents a consistent change in prices (i.e. a

change in investors expectations)

A trendline is a simple charting technique that adds a line

to a chart to represent the trend in the market or a stock.

Types of Trend
Uptrends

Types of Trend
Downtrend

Types of Trend
Sideways Trend

Support and Resistance

Support level is a price level where the price

tends to find support as it is going down

Support and Resistance

Resistance Level is a price level where the

price tends to find resistance as it is going up

Importance of Support and

Resistance

Support and resistance analysis is an important

part of trends because it can be used to make
trading decisions and identify when a trend is
reversing.

Aware: Support and

Resistance levels
Support

and Resistance levels are

highly volatile

Traders

should not buy and sell

directly at these points as there may
be breakout also
A support is plotted at the daily low price
and resistance at the daily high price.

Breakout
The

penetration of support and

resistance level is called breakout

Traders Remorse
Returning

to the level of support or resistance

after a breakout is called traders remorse.

Resistance <-> Support

Moving Averages
A simple moving average is formed by computing the average
(mean) price of a security over a specified number of periods.
While it is possible to create moving averages from the Open, the
High, and the Low data points, most moving averages are created
using the closing price.
For example: a 5-day simple moving average is calculated by
adding the closing prices for the last 5 days and dividing the total
by 5.

Continuing our example, if the next closing price in the average is

15,
then this new period would be added
and the oldest day, which is 11,
would be dropped.

Moving Averages
An indicator is anything that can be used to predict future
financial or economic trends.
Leading (Bullish)-Above average
Leading - These types of indicators signal future events.

Lagging (Bearish)-Below Average

A lagging indicator is one that follows an event.

1. Relative Strength Index (RSI)

2. Moving average convergence divergence (MACD)
3. Fibonacci Retracement

1. Note that all moving averages are

lagging indicators and will always be
"behind" the price.
2. When prices are trending, moving
averages work well.
3. However, when prices are not trending,
moving averages can give misleading
signals.

Moving Averages

DOW
THEORY
Bhavishyavaani of Stocks

 How Dow Theory was made?

Dow theory was formulated from a series of Wall
Street Journal editorials authored by Charles H. Dow
from 1900 until the time of his death in 1902.

Introduction
and
Historical
Perspective

What is Dow theory?

These editorials reflected Dows beliefs on how the
stock market behaved and how the market could be
used to measure the health of the business
environment.

Who made Dow theory?

Due to his death, Dow never published his complete
theory on the markets, but several followers and
associates have published works that have expanded
on the editorials.
Some of the most important contributions to Dow
theory were William P. Hamilton's "The Stock Market
Barometer" (1922), Robert Rhea's "The Dow Theory"
(1932), E. George Schaefer's "How I Helped More
Than 10,000 Investors To Profit In Stocks" (1960) and
Richard Russell's

The Dow theory

on stock price
movement is a
form of technical
analysis that
includes some
aspects of sector
rotation.

 Dow first used his theory to create the Dow Jones

Industrial Index and the Dow Jones Rail Index (now
Transportation Index), which were originally
compiled by Dow for The Wall Street Journal.
Dow created these indexes because he felt they
were an accurate reflection of the business
conditions within the economy because they
covered two major economic segments: industrial
and rail (transportation).
While these indexes have changed over the last
100 years, the theory still applies to current market
indexes.
1. Dow believed that the stock market as a whole was a
reliable measure of overall business conditions within
the economy.
2. By analyzing the overall market, one could accurately
gauge those conditions and identify the direction of
major market trends and the likely direction of
individual stocks.

Dow
Theory
Dow himself never
used the term Dow
theory nor
presented it as a
trading system.

Six basic tenets of Dow theory

1. The market has three movements
2. Market trends have three phases
3. The stock market discounts all news
4. Stock market averages must confirm each other
5. Trends are confirmed by volume
6. Trends exist until definitive signals prove that they have
ended

1. The market has three movements

Dow theory identifies three trends within the market:

primary, secondary and minor.
Primary Trend
The "main movement", primary movement or major trend may last
from less than a year to several years. It can be bullish or bearish.

Secondary Trend
The intermediate trends are corrective movements, which may last
for three weeks to three months. The primary trend may be
interrupted by the intermediate trend.

Minor Trend
The short term trend refers to the day to day price movement.

Most proponents of Dow theory focus their attention on the

primary and secondary trends, as minor trends tend to include
a considerable amount of noise.
If too much focus is placed on minor trends, it can to lead to
irrational trading, as traders get distracted by short-term
volatility and lose sight of the bigger picture.

1. The market has three movements

Tata Motors - 2 years

Primary
Trend
The "main
movement",
primary
movement or
major trend
may last
from less
than a year
to several
years. It can
be bullish or
bearish.

Tata Motors 5 years

Tata Motors 1 years

Kingfisher Airlines 5 years

Kingfisher Airlines- 2 years

Kingfisher Airlines 1 years

He postulated three types of price

movements over time:
(1) major trends that are like tides in the ocean,
(2) intermediate trends that resemble waves, and
(3) short-run movements that are like ripples.

2. Market trends have three phases

Dow theory asserts that major market trends are composed of

three phases:

Primary Upward Trend (Bull Market)

The first stage of a bull market is referred to as the accumulation phase,
which is the start of the upward trend. This is also considered the point at
which informed investors start to enter the market.
The accumulation phase typically comes at the end of a downtrend, when
everything is seemingly at its worst.
But this is also the time when the price of the market is at its most attractive
level because by this point most of the bad news is priced into the market,
thereby limiting downside risk and offering attractive valuations.
However, the accumulation phase can be the most difficult one to spot
because it comes at the end of a downward move, which could be nothing
more than a secondary move in a primary downward trend - instead of being
the start of a new uptrend.

The first phase is the accumulation phase, where the asset quietly
goes up without too much attention being paid by the general
public, and few people participate. This is the dirt cheap phase of
gold when only true believers assumed positions

Uptrend
Primary
Market)

Lower Peaks ---Buy--Up Tread

Upward

Trend

(Bull

2. Market trends have three phases

Dow theory asserts that major market trends are composed of

three phases:

Primary Downward Trend (Bear Market)

The second phase is the awareness phase, where seasoned
professionals and a few more sophisticated funds take their
positions.
The general public begins to take notice and some people
participate, driving prices higher at a little faster pace.
This is also a more volatile phase, where we could see more
substantial daily price swings.
It is in the second phase where we see the most painful
secondary corrections (Where we currently are).
This phase will also be characterized by persistent market
pessimism, with many investors thinking things will only get
worse.

Uptrend
Primary
Market)

Higher Peaks---Sell--Down trend

Downward

Trend

(Bear

The Panic Phase

Every major primary bull market ends up with a
wildly speculative third phase, which is the
panic phase, where the public and crowd rush
head-long into the market, driving prices up
exponentially
In the panic phase, the market is wrought up
with negative sentiment, including weak
outlooks on companies, the economy and the
overall market.

3. The stock market discounts

all news
Stock price represents sum of all hopes, greed, fears and expectations
of all the traders and investors and stock price discounts all
informations.
What Informations Stock Market Discounts?
Stock Market quickly reflects informations in its price, as soon as any
information or news is available about stock, market will discount all such
information weather its related to past, present and also for the future
therefore, it becomes easy to analyze future price movements on the basis
of technical analysis.
So, the person who is following technical analysis for them Dow theory
states that stock market discounts all information in stock prices so one
doesnt need to follow other news and informations like rate of interests,
company announcements and all such information will be reflected in price
so all you have to keep an eye on is the stock price movements.

3. The stock market

discounts all news
What Stock Market Doesnt Discounts?
Stock Market doesnt discounts natural calamities like Tsunami,
Earthquakes etc. All such information doesnt discounts stock market
prices.

4. Stock market averages must

confirm each other
Under Dow theory, a major reversal from a bull to a bear
market (or vice versa) cannot be signaled unless both
indexes (traditionally the Dow Industrial and Rail
Averages) are in agreement.

5. Trends are confirmed by

volume
Dow believed that volume confirmed price trends.
When prices move on low volume, there could be many different
explanations.
But when price movements are accompanied by high volume,
Dow believed this represented the "true" market view.
If many participants are active in a particular security, and the
price moves significantly in one direction, Dow maintained that
this was the direction in which the market anticipated continued
movement. To him, it was a signal that a trend is developing.

6. Trends exist until definitive

signals prove that they have ended
It relates a physical law to market movement, which states that an
object in motion (in this case a trend) tends to continue in motion
until some external forces causes it to change direction.
Dow was a firm believer that market remains in a trend. It may
deviate for a while because of noise but it will return as soon as its
effect is over.
There are many trend reversal signals like support/resistances,
price patterns, trend lines, moving averages. Some indicators can
also provide warnings of loss of momentum.

Summary
1. The market has three movements
2. Market trends have three phases
3. The stock market discounts all news
4. Stock market averages must confirm each other
5. Trends are confirmed by volume
6. Trends exist until definitive signals prove that they have
ended

The Dow Theory is a market timing

strategy based upon technical
analysis.

EFFICIENT
MARKET
HYPOTHESIS
The Collective Wisdom

Concept
A market theory that evolved from a 1960's Ph.D. dissertation
by Eugene Fama.
The general concept of the efficient markets hypothesis
is that financial markets are "informationally efficient" In other words, that asset prices in financial markets
reflect all relevant information about an asset.
In consequence of this, one cannot consistently achieve returns
in excess of average market returns on a risk-adjusted basis,
given the information available at the time the investment is
made.

Forms of Market Efficiency

There are three major versions of the
hypothesis: "weak", "semi-strong", and
"strong".
The Weak form of EMH
weak-form efficiency), postulates that future stock prices cannot be
predicted from historical information about prices and returns.
In other words, the weak form of the efficient markets hypothesis
suggests that asset prices follow a random walk and that any
information that could be used to predict future prices is
independent of past prices.
The Weak form of EMH
In an weak market efficiency, fundamental analysis can help you predict prices. How?
Fundamental analysis is based on public information about a company (reported
earing, profit, assets etc.)
Since even updated public information is not spread freely and easily, some people
know that information, but not all people.
The "knowledge" public with this information can use it to do fundamental analysis to
help them predict share price and beat the people who don't know it.
But technical analysis is still not effective, because it's based on past share prices. (We
assume all people know past prices)

Hero Honda split, little short-term

impact, more long-term negatives

The news of the split drove the stock price down to Rs1,560 on
15th December from a high of Rs2,062 on 30th Novembera
24% fall in a fortnight.

Forms of Market Efficiency

There are three major versions of the
hypothesis: "weak", "semi-strong", and
"strong".
The Strong form of EMH
All relevant information flows instantly and super quickly.
At any one time, anyone and everyone already knows all relevant
information about a share/stock.
No body can earn money by using any information to "analyze" and
predict future share price movements (up or down).

The Weak form of EMH

The strong form of EMH assumes that current stock prices fully reflect all
public and private information.
It contends that market, non-market and inside information is all factored
into security prices and that no one has monopolistic access to relevant
information.
It assumes a perfect market and concludes that excess returns are
impossible to achieve consistently.

Insider trading in Ranbaxy?

Apr 10, 2014,
Over six trading days, prior to the announcement of its
acquisition by Sun Pharma on Monday, Ranbaxy shares rallied
34%. Could it be a case of insider trading?
On 7th April, Ranbaxy Laboratories Ltd (Ranbaxy) announced
about its acquisition by Sun Pharmaceutical Industries Ltd (Sun
Pharma) in $4 billion deal. Because of this announcement,
Ranbaxy share price opened 10% up and made its 52-week
high at Rs. 505 on BSE before it ended lower. But why was
there a sudden rise in volumes and prices over six trading
days, prior to this takeover?

Forms of Market Efficiency

There are three major versions of the
hypothesis: "weak", "semi-strong", and
"strong".
The Semi-Strong form of EMH
What if a market in a certain country has something in between
"Strong" and "weak" Market efficiency?
We usually call it "Semi-strong" market efficiency.
Information moves and flows semi-quickly (but not too quickly, not
as in case of "strong" market efficiency)
So company officers/insiders/relatives/friends know information
slightly in advance of the public and have slight advantage over
normal investors like you and me.
Inside information may give advantage, but public information is
useless.
Fundamental and technical analysis is of no use