Importance of fundamental analysisBack

The systematic studies help to check the health of economy ,sector and company ,one can identify the problem and opportunities by doing this. Fundamental analysis have various parameters by using them we can do the valuations . Some of the fundamental parameters are so power that gives very accurate results and the name of such parameters are p/e ratio and market cap to GDP ratio . Lets understand about these ratio first we discuss p/e ratio this ratio is very helpful to make you understand that if you make an investment at perticular price then how much return you can expect in a year or you can say that if you want to get 1 rs as your return then how much rs you must invest to get 1 rs . P/e ratio is very helpful to analyze the risk and return of the asset class . The second ratio market capital to GDP ratio this great formula is given by great legendary investor Mr Warren buffet . This ratio tells you about the index valuation in comparison with GDP many intelligent investors using this parameter to value the index . If the value of this ratio is above 100 market is expensive and if below 100 then market is undervalued . We can say this is very useful to predict the market top and bottom we have seen in past experiences that whenever market is over 100 valuation market supposed to correct and when market is below 100 market supposed to bounce back. Fundamental analyst using the parameters and predict market index,sectors performance and companies share Targets