Are really Markets react because of Fundamental News?

There will be always good and bad news flowing in the markets. Media always highlight the news if there is any rally or correction in the market. Does really market react for these bad or good news.  when there is a correction in the market, the correction is being attributed to the bad news at that time.

But if we could see other news that came on that day, you could come to know that there were good news at that time also. But the media completely ignore the good news and highlight the bad news as the action in the market is down.

 

Likewise, when there is a big rally in the market, it is being attributed to the good news that is coming at that time. But if we check the other news, we could see some bad news also. But the media would highlight the good news, because, the market is up at that time.

When Tsunami came to the shores of most of the Asian countries, and took the lives of more than 3 lakh people, the Indian Stock Market rose substantially on that day. Normally, Market should have come down on that day for the bad news. But it actually rose.

This shows that market never care for the fundamental news. It is always taking its own technical course, irrespective of good or bad news.

Likely Behaviour of Automobile Sector in 2011

The Automobile sector grown at 25% in 2010 in India. It is one of the sector which performed well during 2010 along with Pharma and Banking sector. This year also it can grow as it grown last year.

The main strength of the sector is, it can grow when the economy is in growth path. The growth of this sector depends upon industrial growth and growing upper middle class people in India.

If the Economic growth of India continues as it is growing now in 2011 also, then we can expect the middle class to grow. If the income of this group increases, those people having two wheelers will buy cars. The recent incident of  buying of 150 luxury cars costing around 40 lakhs in Gujarat is an example of the potential of this sector.

But it also have some drawbacks. If stock market and economy in doldrums then this sector is likely to see a negative growth. Comparing to Auto companies which manufacture HMVs, LMVs, the companies which manufacture two wheelers and cars can grow in 2011.

Will Fundamental Analysis of Stocks work for forecasting its share price?

There are many opinions on analyzing stocks. The tools of analyzing a stock price is fundamental analysis and Technical Analysis. These two tools are different forms of analysis. One doesn’t depend on other.

Some people say, Technical Analysis is the best method to forecast the share price but some say fundamental analysis is the best way. Let us discuss the pros and cons of these two methods.

Technical analysis is done based on historical price movement of the Stock. This price is the ultimate result of the demand and supply. No individual can alter the demand and supply on his own. So, the price will always reveal the real value of that particular stock at that particular time. Any expert on Technical analysis can some what predict the stock market.

In case of Fundamental analysis, the data cannot be reliable as it can be subject to manipulation. The previous years performance can not be repeated this year also. A good growth projected based on demand and supply of its products cannot be also reliable. Even if it happens as per the projections, it need not be reflected in the share price.

We have seen many quality stocks haven’t moved inspite of bull market in other stocks and we have seen many fundamentally worst performing stocks moving up. The inference is, fundamental analysis doesn’t the have the edge to project the future prices.