Write 2 page essay on the topic Equity Market.
Download file to see previous pages…
The most popular method for stock valuation is the ‘Discounted Cash Flow’ technique that takes into account the estimated stock price, dividend rates, and the growth rates together with the discount rate or expected return. It is based on the efficient market hypothesis that says that the listed stock price is close to the estimated fair value of the stock. The model takes into account dividend growth rate and price growth rate to arrive at the expected future price of a stock security.
The practical adjustments that might be required include a better estimation of the stock price through market based valuation of the stock. In addition, market behaviour of the stock must also be considered to arrive at its fair price.
In an efficient equity market, though there is lesser probability of a mis-priced stock and hence lesser probability of generating abnormal rates of returns. however, a financial analyst’s job does not only have to deal with generating higher margins on stock.
A financial analyst is required to consider the market trend and make a decision of purchasing or selling a specific stock and taking a particular position in the market. This would determine the level of profitability that the company can generate.