Module 3   Fundamental AnalysisChapter 16

The Finale

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16.1 – The follies of DCF Analysis

In this concluding chapter, we will discuss a few important topics that could significantly impact how you make your investment decisions. We learned about the intrinsic value calculation using the Discounted Cash Flow (DCF) analysis in the previous chapter. The DCF method is probably one of the most reliable methods available to evaluate a company’s stock’s intrinsic value. However, the DCF method has its fair share of drawbacks which you need to be aware of. The DCF model is only as good as the assumptions which are fed to it. If the assumptions used are incorrect, the fair value and stock price computation could be skewed.

  1. DCF requires us to forecast – To begin with, the DCF model requires us to predict the future cash flow and the business cycles. This is a challenge, let alone for a fundamental analyst and the top management of the company.
  2. Highly sensitive to the Terminal Growth rate – The DCF model is susceptible to the terminal growth rate. A small change in the terminal growth rate would lead to a large difference in the final output, i.e. the per-share value. For instance, in the ARBL case, we have assumed 3.5% as the terminal growth rate. At 3.5%, the share price is Rs.368/- but if we change this to 4.0% (an increase of 50 basis points), the share price will change to Rs.394/-
  3. Constant Updates – Once the model is built, the analyst needs to constantly modify and align the model with new data (quarterly and yearly data) that comes in. Both the inputs and the assumptions of the DCF model needs to be updated regularly.
  4. Long term focus – DCF is heavily focused on long term investing, and thus it does not offer anything to investors who have a short term focus. (i.e. 1-year investment horizon)

The DCF model may also make you miss out on unusual opportunities as the model is based on certain rigid parameters.

Having stated the above, the only way to overcome the drawbacks of the DCF Model is by being as conservative as possible while making the assumptions. Some guidelines for the conservative assumptions are –

  1. FCF (Free Cash Flow) growth rate – The rate at which you grow the FCF year on year has to be around 20%. Companies can barely sustain growing their free cash flow beyond 20%. If a company is young and belongs to the high growth sector, then probably a little under 20% is justified, but no company deserves an FCF growth rate of over 20%
  2. Some years – This is a bit tricky, while longer the duration, the better it is. At the same time, longer the duration, there would be more room for errors. I generally prefer to use a 10 year 2 stage DCF approach
  3. 2 stage DCF valuation – It is always good to split the DCF analysis into 2 stages, as demonstrated in the previous chapter’s ARBL example. As discussed, In stage 1, I would grow the FCF at a certain rate, and in stage 2, I would grow the FCF at a rate lower than the one used in stage 1
  4. Terminal Growth Rate – As I mentioned earlier, the DCF model is susceptible to terminal growth. The simple thumb rule here – keep it as low as possible. I personally prefer to keep it around 4% and never beyond it.

16.2 – Margin of Safety

Now, despite making some conservative assumptions, things could still go wrong. How do you insulate yourself against that? This is where the concept of ‘Margin of Safety’ would arrive. The margin of safety thought process was popularized by Benjamin Graham in his seminal book titled “Intelligent Investor”. The ‘margin of safety’ suggests that an investor should buy stocks only when available at a discount to the estimated intrinsic value calculation. Following the Margin of Safety does not imply successful investments but would provide a buffer for calculation errors.

Here is how I exercise the ‘Margin of Safety’ principle in my own investment practice. Consider Amara Raja Batteries Limited; the intrinsic value estimate was around Rs.368/- per share. Further, we applied a 10% modelling error to create the intrinsic value band. The lower intrinsic value estimate was Rs.331/-. At Rs.331/- we are factoring in modelling errors. The Margin of Safety advocates us to discount the intrinsic value further. I usually like to discount the intrinsic value by another 30% at least.

But why should we discount it further? Aren’t we extra conservative, you may ask? Yes, but this is the only way you can insulate yourself from the bad assumptions and bad luck. Think about it, given all the fundamentals, if a stock looks attractive at Rs.100, then at Rs.70, you can be certain it is indeed a good bet! This is, in fact, what the savvy value investors always practice.

Going back to the case of ARBL –

  1. Intrinsic value is Rs.368/-
  2. Accounting for modelling errors @10%, the lower intrinsic band value is Rs.331/-
  3. Discounting it further by another 30%, to accommodate for the margin of safety, the intrinsic value would be around Rs.230/-
  4. At 230/- I would be a buyer in this stock with great conviction.

When quality stocks fall way below its intrinsic value, they get picked up by value investors. Hence when the margin of safety is at play, you should consider buying it as soon as you can. As a long term investor, sweet deals like this (as in a quality stock trading below its intrinsic value) should not be missed.

Also, remember good stocks will be available at great discounts, mostly in a bear market when people are extremely pessimistic about stocks. So make sure you have sufficient cash during bear markets to go shopping!

16.3 – When to sell?

Throughout the module, we have discussed buying stocks. But what about selling? When do we book profits? For instance, assume you bought ARBL at around Rs.250 per share. It is now trading close to Rs.730/- per share. This translates to an absolute return of 192%. A great return rate by any yardstick (considering the return is generated in over a year). So does that mean you actually sell out this stock and book a profit? Well, the decision to sell depends on the disruption in investible grade attributes.

Disruption in investible grade attributes – Remember, the decision to buy the stock does not stem from the stock trades’ price. Meaning, we do not buy ARBL just because it has declined by 15%. We buy ARBL only because it qualifies through the rigour of the“investible grade attributes”. Suppose a stock does not showcase investible grade attributes; we do not buy. Therefore going by that logic, we hold on to stocks as long as the investible grade attributes stay intact.

The company can continue to showcase the same attributes for years together. The point is, as long as the attributes are intact, we stay invested in the stock. Under these attributes, the stock price naturally increases, thereby creating wealth for you. The moment these attributes shows signs of crumbling down, one can consider selling the stock.

16.4 – How many stocks in the portfolio?

The number of stocks that you need to own in your portfolio is often debated. While holding many stocks helps you diversify risk, others say holding far fewer helps you take concentrated bets, which can potentially reap great rewards. Here is what some of the legendary investors have advised when it comes to the number of stocks in your portfolio –

Seth Klarman – 10 to 15 stocks

Warren Buffet – 5 to 10 stocks

Ben Graham – 10 to 30 stocks

John Keynes – 2 to 3 stocks

I have about 13 stocks in my own personal portfolio, and at no point, I would be comfortable owning beyond 15 stocks. While it is hard to comment on the minimum number of stocks, I believe there is no point in owning a large number of stocks in your portfolio. When I say large, I have a figure of over 20 in my mind.

16.5 – Final Conclusion

Over the last 16 chapters, we have learnt and discussed several topics related to the markets and fundamental analysis. Perhaps it is now the right time to wrap up and leave you with a few last points that I think are worth remembering –

  1. Be reasonable – Markets are volatile; it is the nature of the beast. However, if you have the patience to stay put, markets can reward you fairly well. When I say “reward you fairly well”, I have a CAGR of about 15-18% in mind. I personally think this is a fairly decent and realistic expectation. Please don’t be swayed by abnormal returns like 50- 100% in the short term; even if it is achievable, it may not be sustainable
  2. Long term approach – I have discussed this topic in chapter 2 to why investors need to have a long term approach. Remember, money compounds faster the longer you stay invested
  3. Look for investible grade attributes – Look for stocks that display investible grade attributes and stay invested in them as long as these attributes last. Book profits when you think the company no longer has these attributes
  4. Respect Qualitative Research – Character is more important than numbers. Always look at investing in companies whose promoters exhibit good character
  5. Cut the noise and apply the checklist – No matter how much the analyst on TV/newspaper brags about a certain company, doesn’t fall prey to it. You have a checklist; apply the same to see if it makes any sense
  6. Respect the margin of safety – As this literally works like a safety net against bad luck
  7. IPO’s – Avoid buying into IPOs. IPOs are usually overpriced. However, if you were compelled to buy into an IPO, then analyze the IPO in the same 3 stage equity research methodology
  8. Continued Learning – Understanding markets requires a lifetime effort. Always look at learning new things and exploring your knowledge base.

I want to leave you with 4 book recommendations that will help you develop a great investment mindset.

  1. The Essays of Warren Buffet: Lessons for Investors & Managers 
  2. The Little Book that Beats the Market – By Joel Greenblatt
  3. The Little Book of Valuations – By Aswath Damodaran
  4. The Little Book that Builds Wealth – By Pat Dorsey

So friends, with these points, I would like to close this module on Fundamental Analysis. I hope you enjoyed reading this as much as I enjoyed writing it.


  1. Raju Shinde says:

    Great job. Thank you for such a detailed information. Awaiting for other modules also.
    Thank you.

  2. Prashant Warrier says:

    Great job!!!! Fantastic content…….It was a delight reading this……I hope to put it in practice to build long term wealth…Thank you

  3. CGGiri says:

    Dear Karthik,

    At the outset, thanks a lot for sharing set of “Wonderful & Excellent” chapters for Long Time Investors like us… Really appreciate & keep Great going….

  4. raja says:

    Good work! Apart from the books you recommended, is there any book for fundamental analysis that you consider the best? Thanks!

  5. S.Vasudevan says:

    Really wonderful .But I feel rather bookish and exhausting and at the end may find most blue chips over priced.Only at bear market bottom may one be able to buy reasonably priced shares. May be P/E ratio and comparing with peers can help.
    Retail investors may not find it practicable and buying in declines and in parts ‘quality’ stocks may be more possible.
    But then what is quality!

    Kindly note I enjoyed reading and really touched by your covering financial management in a few pages.

    • Karthik Rangappa says:

      Thank you so much 🙂

      If you could kindly highlight why you thought it was bookish it would help. In fact one of the objectives of Varsity was to make sure the content is not bookish and in fact be very practical. So your suggestions will really help us deliver better content. Thanks.

  6. Chetan says:

    A great initative from Team Zerodha. Picking Original AR and explaining it through out with example is what made this a winner. People from Non Financial Background can easily understand.

    Hope Zerodha will have Screeners Introduced soon on similar lines which will help the investing Community.

    Thanks Team Zerodha.

  7. raja says:

    I’m pursuing MBA finance. How can i become equity research analyst? I would like to concentrate on fundamental analysis. what are the important topics i should cover?

    • Karthik Rangappa says:

      A through understanding of FA and a CFA from CFA Institute (USA) will brighten your chances of becoming an Equity Analyst.

  8. Ajit Kumar says:

    Thanks for uploading the lessons. Walking us through an example was really helpful. I plan to analyze few stocks based on these lessons in next few days.
    I was wondering, wouldn’t institutional investor be the first to do fundamental analysis of a company? And by the time a retail investor start evaluating a stock, wouldn’t a good company will already get overpriced by institutional investors by then?

    • Karthik Rangappa says:

      Ajit – The institutional investors have a major disadvantage. Their size! Contrary to the popular belief, by the time they identify a stock to invest, it may actually be a bit late. I have seen this happening over and over again in the markets. Would suggest you read this book ‘One up on Wall Street’ by Peter Lynch. In the book Peter Lynch clearly discusses how advantageous it is to be a retain investor in terms of spotting good investing opportunities.

  9. Ajit Kumar says:

    Does volume have a role to play in buying decision of a stock? In other words should we bother analyzing the fundamentals of a company whose volumes are relatively small?

    • Karthik Rangappa says:

      FA is a different thought process all together. The focus in only on business, corporate governance, sustainable moats, and numbers. Everything else is secondary. If you look at quality stocks that have generated wealth to shareholders they were all undervalued and lacked market interest before they really too off. Which also means in the initial days volumes were really low in these counters. So I suggest you stay focused on the business and leave aside volumes and other other such parameters.

  10. pravin kumar solanki says:

    Sir, if you can translate it in hindi or hinglish(mix of hindi & english), it is also very useful to north & middle state indians.

    • Karthik Rangappa says:

      This may not be possible at the moment as we have limited resources available. But surely sometime in the future this should be possible.

  11. Raman says:

    When is the next module going to be uploaded ??

  12. sushil 12 says:

    tremendous job sir … now lets conquer future and options market 😛

  13. Mukesh Tolani says:

    Hi Karthik,
    I happened to come across this. You have done an excellent job here by explaining Fundamental Analysis in the most pratical manner., worth implementing. Looking forward to make some long term ‘wealth-creating’ investments using these. 🙂
    Once again., appreciating the wonderful effort from your side.

    • Karthik Rangappa says:

      Thanks Mukesh. In fact the idea behind Varsity is to ensure we focus on the practicality of the subject. If the content is not actionable, then it will be just another portal giving gyan 🙂

  14. Raman says:

    I want to know about funtur trading and next module is going to come only in mid jan.
    Please suggest me somebook which i can go through before that

  15. Nikhil Kale says:

    Thanks a lot.I cannot belive its FREE…& so much information is available.
    Since inception ZERODHA always have something innovative to offer.
    Looking forward for F&O MODULES & ZERODHA Pi………and lot more
    Thank You again.

    • Karthik Rangappa says:

      Thanks Nikhil. Did you read this post which explains why we have kept this free? We are working on F&O module, parts of it should be out soon. Stay tuned 🙂

  16. Kaushik R.Phatak says:

    These chapters are well written, with a proper examples, when and where required. The language used, or the approach used while writing these chapters is more friendly, such that we are immediately able to connect ourselves with it. I would like to thank you(KARTHIK RANGAPPA) for writing these chapters, and to zerodha (the team and Mr. Nitin Kamath) for taking such initiative for us.
    Reading these chapters helped me a lot in understanding the basics of the share market, which includes overview of the market, technical analysis, and fundamental analysis, similarly I understood how the companies are formed, which parameters are important to rank or scale the company, and how one (CEO, managers) should look after his or her company such that their investors shall not worry much.
    Thanks again for the initiative.
    And I hope we will soon be reading the remaining chapters.

  17. t rama says:

    Sir, Great Job, educating house wife`s like me on Investing. Is it require to put Stop loss for the stocks selected for long term Investing.

    • Karthik Rangappa says:

      Thanks. Stoploss is mainly from the perspective of validating the moats based on which you have invested. In other words, as long as your investment reasons are valid you continue to stay invested, else you exit.

  18. Hemanth says:

    Hi Karthik,
    Great Job….You have given excellent information on fundamental analysis …heart fully i am thanking u for this effort..Waiting for Option Module.

  19. Hemanth says:

    Yes I found it. karthik i clearly understood fundamental analysis was helpful for long term investments.And I Knew technical analysis was for short term trading in this we were using Chart patterns , candlestick patterns and technical indicators. Can U plz suggest me , Should we use all are these patterns are needed or any one of them(i.e., charts/candlesticks/indicators) is enough for short term trading.

    • Karthik Rangappa says:

      I would suggest you master candlesticks, that is more than sufficient for a clean and elegant trading set ups.

  20. Saurabh says:

    Too Good. Highly enlightening.
    But I am not convinced with max 15 stocks in portfolio. Is the only reason against more is that you will not have time to track it?

    • Karthik Rangappa says:

      Well the returns and risk go hand in hand. Higher the risk you take higher is the possibility of a good return. When you have 1 stock in your portfolio you are taking maximum risk…therefore maximum return. However when you 5 you are spreading your risk and therefore lowering your risk. De-risking is good, and I personally believe a 12 – 15 stock diversified portfolio is fair. Higher the number of stocks, you are not only re-riskinng a lot, but like you said managing and tracking them also becomes an issue.

  21. Pathaknitin18 says:

    Sir what is overweight, underweight & netural? Will this come in next chapter

    • Karthik Rangappa says:

      Overweight = when you highly bullish on the stock and you purchase more of the stock in your portfolio
      Underweight = When you are not so bullish (note this is different from being bearish) but still believe you are reluctant to sell it
      Neutral = When you neither feel bullish or bearish about the stock

  22. Jitendra Joshi says:

    Please provide PDF download option for this module as well

  23. Abhijit Gayen says:

    Very well written, nicely structured article without using too many financial jargon. I wish you have would have little more detailed the discussion on ideal portfolio in terms of number of stocks / sectors, diversification need, max % of fund in a particular stock etc. However overall an excellent job. Please make the articles available in a single pdf document, if feasible.

    • Karthik Rangappa says:

      Thats a nice topic Abhijit! Thanks for the suggestion, maybe I will take this topic up – Stock selection and portfolio management!

  24. A G says:

    Excellent article, thoroughly enjoyed reading. Fundamental analysis of a financial companies (Banks, NBFC) is completely different from manufacturing or other services company. Will appreciate if you write a module on basics of analysing financial sector explaining terms like NII, GNPA, NPA, CASA etc. Thanks.

    • Karthik Rangappa says:

      I’ll be honest – analyzing financial companies such as banks and insurance is not an easy task..will need time to simply the topic and present it here.

  25. jaganathan says:

    Fantastic lessons . Your works making me feel i am learning something day by day. Thank you so much .

  26. kap says:

    IN the chart given . The arrow points Piercing pattern,But the volume is low ,i.e, below prev 10 days average. But the stock price went up. why is that? .

  27. kap says:

    i have so many doubts regarding some charts . i hope you dont mind me asking ,it here.Thank you.

  28. kap says:

    in the below image. the pattern is bearish engulf.what does adx,macd,bolinger,rsi indicate ????….wether to buy or sell ?? .

  29. kap says:

    i have gone through the indicators chapter. For example. if the rsi is 0-30 (over sold) & 70-100 (overbought)..what to do when its inbetween 30-70 . like 35,45,60 . in what way these numbers useful?.

  30. kap says:

    Can i call the below pattern as bullish harami,cause prev is uptrend….. or is it spining top/double bottom ??…

  31. kap says:

    can i call the last three candle as 3 white soldiers.? i hope the prev trend is up.

  32. kap says:

    is the last 3 candles form evening star?. sorry to disturb you with more pics. thank you .

    • Karthik Rangappa says:

      Not really, for an evening star the 3rd candle should have a length (range) greater than the 1st candle (P1), which is missing here.

  33. kap says:

    So if the rsi shows 35 or 45 or 50,it means nothing ,so no use of rsi at those readings. thanks a lot for your reply.they help me to understand more .

  34. kap says:

    The image which i showed you previously (3 white soldiers).It was supposed to go up today as it was bullish. but today it went down. The volume was ok,And i hope the indicators where also fine. why it went down today?…i have attached the pattern image and the indicators image.Thank u .

    • Karthik Rangappa says:

      Like I said, none of the patterns guarantee any price movement. Patterns only increase the probability but its certainly not a guarantee.

  35. kap says:

    Indicators image

  36. kap says:

    1. you have advised to look for prior trend. how long should we consider for this. For example,if p1 & p2 forms bullish engulf.can i look for downtrend of 5days or 14days or ???…..which would be sufficient to analyse this.

    2. First we check 3 to 4 days for a recognizable pattern,then we go to other steps.But u have Given a lookback period of 6months to 1year. And upto two year while analysing S&R.

    For rsi look back period is 14days ..etc
    then where to use this lookback period of 6 months to 1year ?..

    Thank u for your valuable replys

    • Karthik Rangappa says:

      Minimum 5-8 trading session amounting to at least 5% decline (in case of bullish patterns) or 5% increase (in case of bearish patterns).

      In case of RSI its just about getting a perspective.

  37. nishu says:

    hello sir if i have to purchase amibroker then after i also want to data i.e. which EPS is more than 20 in both NSE & BSE which data feed is suitable for me

    • Karthik Rangappa says:

      Amibroker gives you price and volume data. Fundamental data is not available. For Fundamental data, I would suggest you check out capitaline.

  38. nishu says:

    if i purchase amibroker, then i want to find out the list of companies which EPS is higher than 20 and PE is less than 10 in BSE and NSE both. so which data provider is useful to me. which data provided provide NSE & BSE both data. whenever i know GLOBAL DATA FEED only provide NSE(F&O) not NSE (CASH) & BSE. So any other data provider which can i use in amibroker who provide NSE & BSE (F&O & CASH BOTH) Please guide me sir……….. thanks

  39. Akshay says:

    the intrinsic value of torrent pharma is 529- 646 . But it is currently priced at 1200. But the p/e ratio is 11 which may be considered good and the company is doing well . But the price is considered over priced according to calculations . Is it a good option to buy it now or look for another option ? Is a software that can calculate the intrinsic values ?

    • Akshay says:

      Pretty much every stock is over valued . So how do we predict which stock to buy ?

    • Karthik Rangappa says:

      PE and DCF valuations are two different valuation techniques. However, as you may have observed, the 2 stage DCF has many input variables, any slight variation can lead to erroneous output. I’d suggest you double check all these input variables.

      I’m not sure about any s/w that does these calculations.

  40. Lakshmi says:

    Hello sir ,
    I’d like to know as to how a bonus stock issue as in case of Infosys affects the intrinsic value of the stock ?

  41. rohan says:

    According to ratio calculations Pageind stock looks expensive.
    I bought it
    around 11700 now it has fallen more.
    So according to qualitative aspects I should hold it or is it overpriced and sell it?

    • Karthik Rangappa says:

      This is a highly subjective discussion – what I find as inexpensive can be expensive for you and vice versa. Given this, I would not be happy to buy Page at such valuations.

  42. Sai Sreedhar says:

    Once again, thanks for the modules Karthik!
    I would like to know usually how many days a company takes to release their annual report after they have made an announcement of the financials? for eg. this year, Infosys has announced its financial results on 15th April, usually how many days after that the company takes to release the Annual Report?

  43. CHAITANYA KALE says:

    Market Guru,
    If intrinsic value is almost double compare to current market price and other ratios are OK is it a good time to invest in such stock for long term horizon ?

  44. Chadur sin says:

    Hello Karthik,

    It’s Chad again.. I finished reading the entire series and I am feeling much much more empowered than before. As I had also said in my previous comments, I cannot thank you enough for your single handed effort.
    And as I had said, here is my consolidated list of questions on all chapters. I have tried to find most of the questions in the comments first but I may have missed any. In that case, please point me there.
    1. How does it affect the P/L statement and cash flow statement when an asset is written off?
    2. When the business is export based, how to take rupee depreciation into consideration?
    3. When the parent company is Indian and all its subsidiaries are overseas, even then the stand alone results do not matter?
    4. Isn’t lower the inventory the better? Is there any ratio of inventory to revenue which justifies it?
    5. Shouldn’t inflation be taken into consideration while calculating average FCF or for that matter any YoY average values?
    6. How to determine discounting rate? Is the discount rate same as inflation or is it the opportunity cost for other safe investment means? Does it vary across industry/sector?
    7. When do dividends matter while calculating FCF or making DCF? (In the days when price is much more than the face value and where dividends are offered on face value, generally cash flows from dividends are meagre. But sometimes, small and medium core companies with large promotor holding try to offer dividends making it a function of number of shares and not the actual profit. How to take that into account?)
    8. While calculating FCF why to consider only OCF? Why not cash flow from investing activities too? What if the net cash flow is negative for years? How to calculate FCF then?
    I am immensely grateful for your time which you might take out to answer these questions.

    Sincere Regards,

    • Karthik Rangappa says:

      I’m glad you liked the contents Chad. Here you go, in the same sequence –

      1) When an asset is written off the direct impact would be on depreciation value, which would decrease in P&L, and therefore increase the bottom line. In cashflow, depreciation is added back to net profits to get the cash flow from operations….so since the value would reduce, the CF from operations would go down a tad bit.

      2) Usually, companies dealing in forex would hedge their currency exposure so minimize the impact of currency fluctuation.

      3) Nope, always stick to consolidated

      4) Lower inventory can be tricky – isit low because there is demand for the products, therefore company is not pushing, or isit low because its getting sold like hot cakes? Obviously, the latter is desirable. Inventory number of days and inventory turnover ratio will help you answer these questions.

      5) We bring back FCF to present value by discounting, this takes care of inflation

      6) Varies across industries….and across the size of a company. For example for a company like infy, i’d be happy to take 10-11% discounting rate…but for a smaller company, I would expect a higher return. The rate that you consider comes from your personal valuation experience.

      7) Dividends do not play a role in DCF calculation

      8) For any company cash flow from operations is what matters – after all this is what they are supposed to do i.e make money by running a profitable operations. Cash flow from other activities are incidental to the business and cannot be forecasted. Hence we stay conservative and take only the cashflow from operations. If the net cash flow is negative, then it just means that the company is operationally weak…you should not even considered investing in such companies unless you believe the turnover is around the corner.

      Good luck, and happy investing!

      • Chad says:

        This is amazing Karthik. Thanks a lot for taking your time out once again. BTW, I researched one of the references you had quoted (Prof. Dr. Aswath Damodaran) and I found on his website some very valuable data which can help determine the complex unknown factors such as industry wide discounting rate or overall cost of capital required for DCF modelling.
        I hope it might be useful to other fellow investors as well visiting this site.

        Thanks and Regards,

        • Karthik Rangappa says:

          Great! AD is a genius when it comes to business valuation, you need a lifetime and more to learn things from him 🙂

          • Ak says:

            Karthik, Great writing all the way, thanks for sharing, but for the first question, a write off of the asset will have a negative impact on the same periods P&L no? as it is a debit on the expense side. So I don’t know how bottom line is going to crease just because there is no depreciation ? Please comment

          • Karthik Rangappa says:

            Not really – write off is quite common when the asset ages and cannot be depreciated further. Won’t really impact the P&L.

          • Ak says:

            Thank you Karthik. I was more referring to your earlier answer to Chad ” When an asset is written off the direct impact would be on depreciation value, which would decrease in P&L, and therefore increase the bottom line.”. I think you are right that it will increase bottom line from the next fiscal year, but for the current year it will create a big dent if it is an active asset, so bottom line will decrease. May be it is just me, on how I read your answer, never mind. Wonderfully written articles, continue your good work.

          • Karthik Rangappa says:

            On the contrary, why would the company risk writing off an active asset? They would probably do this repay debt. Not a good sign at all.

  45. Aditya says:

    Sir i have thoroughly completed both TA and FA modules. Now i am confused as to which approach to take towards investing? TA or FA?

  46. MSP says:

    Hi Karthik,

    May God bless you and Zerodha team, i have never expected, in life time, i would be able calculate intrinsic value for a company by this understanding.


  47. hiten shah says:

    sir how can we calculate intrinsic value of a commodity company

    • Karthik Rangappa says:

      Like any other company! You will have to dig deep into the business model and make a fair assessment on all the variables involved in revenues, expenses, working capital etc.

  48. Gautam says:

    hey nice work
    would u write book on fundamental of commodity and forex or
    can u suggest me some books??

  49. jswalia888 says:

    hi karthik am fresher here
    i enjoy it so much simple and easy to learn
    in real life am also steel trader am gain so much knowledge here

  50. Hi sir,
    Recently i read varsity module of Fundamental Analysis part.
    I am very much impressed the way you guys have developed it…its just awesome…special credits to you Karthik Sir.
    My request is to send me the excel sheet that author claims to have made for the Fundamental Analysis purpose.
    At the end of DCF chapter (5.2 module), Author claims that he has made a excel with formulas so that we can download it and use it for practice. but i could not find the excel sheet there sir.

    Kind request to reply.

    • Karthik Rangappa says:

      Thanks for the kind words Amit. I plan to have a module on Financial Modelling soon, this will cover all the formulas and more.

  51. KP SRIKANTH says:

    Thanks for relentless efforts to educate beginners.
    Thanks Karthik and your team.
    Its really amazing material

  52. sat says:

    really useful article sir…thanks….do the companies consider same method while giving bonus shares or in stock split? when company split the share does it match undervalue( or right value) of that stock with that price ? isnt it good buy opportunity if other conditions(financial,P/L ) are okay?

  53. KP SRIKANTH says:

    could you suggest some best stock screeners other than

  54. B PRASAD says:

    First of all thanks for material.
    Even though I got insight in calculating intrinsic value. How can I create myself my financial ratios numbers? Like GPM > 20% RoE > 25% etc.

    • Karthik Rangappa says:

      These are simple formulas which you can apply on stocks. Alternatively, you could use something like Ratestar or morning star to look at the ratios.

      • B PRASAD says:

        IN chapter 12 of FA 12.4 IN THE TABLE YOU written GPM> 20% ROE>25% ? how did you come up with these conclusions ? Are these numbers of these ratios preferred safe investment like that? if so why?
        I mean why did n’t YOU choose as ROE > 19% GPM > 15%? thats my question
        I do not have any problem in calculating these ratios.

  55. Harish Balgi says:

    Reading this module was very satisfying. Concepts explained in simple manner. This is my third module. Keep the good work going. One question. We didn’t cover one of the popular valuation ratio – PEG. According to you how important is it.

    • Karthik Rangappa says:

      Thanks for the kind words, Harish.

      There are way too many financial ratios, all of which helps us develop insights. Thought it was practically impossible to cover all of them 🙂

  56. HYDRO says:

    when would you launch financial modelling course?

  57. akashbarman says:

    Dear Sir
    I am okay with the growth concept which can be arrived at by using CAGR .
    But how did you estimate the required rate of return ?
    I have read about the CAPM model to predict the required rate.
    All the factors in CAPM i.e RF , Beta can be however known .
    Can you please give a real life situation of calculating Market risk premium , thereby Required rate of return?
    Thanks in advance

    • Karthik Rangappa says:

      I tend to keep the model conservative, where the cost of capital (WACC) is higher and the growth rate is lower. There is no rigid number here…apply the numbers based on the company and the industry it belongs to.

  58. Manish Agarwal says:

    Hi Karthik, From few days, I have been reading Economic times Markets Page, and I find stories of people who have become a millionaire by picking stocks early which then became a multibagger giving skyrocketing returns.

    My question is how to pick a multi-bagger stock which is not on the radar of smart money yet. I mean, out of 4000 stocks listed on NSE there should be a system in place to evaluate and eliminate and come to a one or few names that could be further evaluated. Checking each and every stock does not seem to be a practical idea.
    Also, One factor that was common was to identify a strong and dedicated management. Others were futuristic business, scalability, etc. The problems with these kinds of factors are: They are subjective, not easily translated to numbers.

    Does this call for a new chapter for Varsity — Identifying Multi-baggers.

  59. Waqaar says:

    Hi Sir,
    If we invest it for long term, then we should be bothered about daily noice. But what is the percentage change which we should not consider for daily noice for small,mid and large cap ?

  60. Prink!le says:

    Hi Karthik,

    It was really nice going through the module. The whole module was very basic and easy to understand. Keep up the good
    work !. God bless you !

  61. KP SRIKANTH says:

    How to calculate return of market indices Like nifty50, BSE Auto etc of particular financial year?

    • Karthik Rangappa says:

      They are two different indices!

      • KP SRIKANTH says:

        I do know that they are different indices. My question is why nifty50 value is smaller than nifty bank. Nifty bank has 12 bank stocks and nifty50 has 51 stocks. How can the value of nifty50 has smaller value than niftybank considering the fact that usually more number of stocks included in an indice should have more value technically right?

        • Karthik Rangappa says:

          Index is a portfolio. Banks have rallied very well over the years and so have their share prices. The effect of the increase in share price is captured very well on a portfolio of 12 stocks versus a portfolio of 51 stocks. In other words, a portfolio with a lesser number of stocks tends to out perform/underperform a portfolio with more number of stocks.

  62. Arghya Das says:

    Hi As Per The Cash Flow Statement The Closing Bal Is 2928.63 But As Per The Balance Sheet It Is 2945.67, Why Is It So?

    • Karthik Rangappa says:

      Ideally, the number should match, need to figure out why these are not matching. I’d suggest you go through the notes associated with the schedule as well.

  63. SONJOE JOSEPH says:

    Dear Karthik ,

    Just did a study on Cochin Shipyard Ltd since its going to be listed in the market. Did a study of Annual Reports of CSL from Mar-12 to Mar-16 and as per the analysis the DCF price band buy level is coming around between Rs.98 to 80. In the mean while they have fixed the price band from Rs.422 – Rs.432/-

    I will be sending the working file at your email id. Please do check it whether my calculations are right and come out with your opinion. For me I won’t buy the Cochin Shipyard Ltd IPO since its expensive. For me the buy price is between Rs.98 to 80.


    Sonjoe Joseph.
    (There is no scope of file attachment here do reconsider it)

    • Karthik Rangappa says:

      Sonjoe, I’m really sorry but I’m not sure if I can go through the excel sheet. However, my guess is that you may have not really taken a relevant growth rate for the cashflows. Please do double check all the variables.

      • SONJOE JOSEPH says:

        Dear Karthik,

        In the case of ARBL Example you have taken the maximum growth rate as 18% and minimum growth rate as 10%. Further u have told that if its a mature company then u will take the maximum growth rate as 15% and minimum growth rate as 10%. The company under consideration “Cochin Shipyard Ltd” has just released the IPO. While analyzing the annual report just got the following figures:-

        1. CAGR Revenue Growth = 7%
        2. CAGR PAT Growth = 10%
        3. CAGR EPS Growth = 10%
        4. CAGR G/P Margin = -2%
        5 CAGR PAT Margin = 2%
        6 CAGR ROE = -13%
        Avg Free Cash Flow for the last 5 years = 175.80 Crore

        As per the above figures for the calculation of DCF Model what should be the maximum and minimum growth rate? Among the 6 CAGR Growth rates above which one should i take for the maximum and minimum growth rate.

        Do explain it me clearly.


        Sonjoe Joseph.

        • Karthik Rangappa says:

          The growth rates are not so impressive (assuming the numbers are correct here). Anyway, when you assume forward looking rates (such as the growth rate), you will have to consider the business prospects of the company. For this, you will have to see what the management has to say…based on this, I’d would assign the growth rates.

          • SONJOE JOSEPH says:

            Dear Karthik,

            In the Cochin Shipyard Ltd Annual Report 2015-16 under “Management Discussion and Analysis Report” its said that ” The Indian Defense Shipbuilding market looked promising with the published reports indicating a growth of 10% CAGR in Navy outlay during the period 2000-2014. As per published report the estimated defense sector opportunity in shipbuilding in the next 10 years is above `4,00,000 crores”

            So under this circumstances can i give a maximum growth rate is 10% and minimum growth rate as 5 % in which the share price good buy will be around Rs.61 to 50. Even if i give an extreme value say maximum growth grate 25% and minimum 15% then the buy price will be around Rs.149 to 122 which will be near to the present book value of Cochin Shipyard which is Rs.153. Even the sales per share is Rs.186/-

            Just give me your opinion regarding the growth rates.


            Sonjoe Joseph

          • Karthik Rangappa says:

            Yes, I think the growth rates are fine!

          • SONJOE JOSEPH says:

            Dear Karthik,

            So which growth rate i should take for the max and min growth rate? Is it 10 to 5 or 25 to 15. Well the company talks about 10% growth rate in which case the best buy price is Rs.61 to 50/-


            Sonjoe Joseph

          • Karthik Rangappa says:

            I’d suggest you stick to 10% growth rate.

  64. Venkat says:

    Hi Karthik,

    in PDF fage no 11. you have caluclated ROE in two ways

    1)ROE=Net profit margin X Asset turnover X Financial leverage

    2)ROE=Net Profits/Avg share holders equity

    The above results has different values. Which one we have to prefer while calculating the ROE.

    Thanks in Advance


    as you said as company matures it doesn’t grow much so we take 3 to 4% growth after 10 years. For companies like TCS Infosys and other very good companies which are very old and as per your defination they are mature, what percentage of growth for initial 10 years we can take for these companies. how can we apply DCF model for analysis of INTRINSIC VALUE of these companies at present time.


  66. Arghya Das says:

    Sir Can You Please Teach Us Another Valuation Model Like Dividend Discount Model Or Any Other Model That You Find Most Convenient After DCF Model.

  67. Arghya Das says:

    Hi What Actual Total Capital Employed Is? Is It Short Term + Long Term Liability? Or It Is The Entire Equity & Liability Side? Anotheer Question Is What Is Net Worth? How To Calculate It?

  68. Praveen says:

    Hi Karthik,

    May i know where can i download the stock valuation spreadsheet that was used for Amaraja Batteries example. Please let me know.


  69. Aniket Agrawal says:

    Hi Karthik,
    How can i do fundamental analysis in the middle of the year and what are the other methods available that could be used to buy shares for long term.

    • Karthik Rangappa says:

      Yes, you can. You could look at the latest Annual reports, formulate your opinion on the business, check if the stock is valued correctly…and all this while tracking the latest quarterly results. So yeah, you can do FA anytime you wish.

  70. Aviral says:

    I did a DCF valuation analysis for a financial services stock and the valuation is coming out to be 1300 while the stock price is 40. It can be noted that the FCF was only positive this year and negative the past two years. What do you think of such a scenario. Is it a legit valuation?

    • Karthik Rangappa says:

      Nope, clearly something wrong here, Aviral. Also, please do not use this technique to value a bank of any BFSI company. It can give skewed results.

  71. Mohamed Jaafari says:

    I have read most of your chapters and I wanted to thank you for your effort putting all this work together. Your hard work is highly appreciated. Honestly, you are one of the best I have seen at simplifying things in the stock market yet covering almost everything in details too. I am an aerospace and mechanical engineer but I have always had an interest in investment and stock so I have been looking back and forth for quick clear explanations of the stock market for beginners. I only bought and sold stocks 6 times when I was younger. Now as a grad student having more free time, I want to focus and spend more time on the market and you are helping me with the important early steps so THANK YOU Kathrik.

  72. LOY says:

    Can you please suggest some books that would help in understanding the economy and how its policies moves the stock market ?

  73. Sanjay Dubey says:

    Apart from the ones mentioned in 16.1, what are other points a beginner should watch out for while doing a DCF analysis?

  74. JF says:

    Wow, great quality content Mr. Karthik. It must have taken an extraordinary effort to create this from scratch. Also, I really must appreciate that you respond to every comment made. I’ve recommended this course to all my friends.

    This is just another reason why Zerodha stands out from the rest. #RESPECT

  75. kiranintouch says:

    Thanks Very Much again for the useful content Karthik !!
    I feel motivated to take up CFA after reading your modules.
    Regarding CFA, is it sufficient if we are able to understand and reproduce content provided as part of reading sessions provided at
    Alternately, if there is any better approach to target clearing CFA Level I, request to provide the same.

    • Karthik Rangappa says:

      Kiran – If you plan to give CFA, I’d suggest you pick up the content from the CFA Institute. Use the content here as supplementary reading.

  76. V Vivek says:

    Hi Kartik,

    In these days it’s difficult to find companies which can be compared with one another. For eg. A company may be manufacturing boilers and water treatment equipment. The second company maybe making boilers and air pollution control equipment. In these two companies how do we compare the financial ratios as their balance sheets and profit and loss account would include the other products they sell. I’m assuming that they both are strong competitors in the boiler manufacturing business.

    How do we do this ?

    • Karthik Rangappa says:

      This is where your skill of analyzing the industry comes into play. You will have to identify the near matching company to compare. Also, in a sense you are right – no two companies are similar.

  77. Rajat Jain says:

    Thanks for making such a wonderful content, I was a novice in Investment and started reading your material. Initially I didn’t thought that I would be able to cover this whole module but I couldn’t resist myself to complete it as you made it so interesting by explaining with a live example of a prominent company by taking its Annual Report.
    While also last few chapters were somewhat difficult to understand maybe due to my less exposure to technical Accounting details but somehow I was able to get the accent of it.

  78. Gulshan says:

    hello sir

    sir when you add relative valuation method in vansity ?
    thank you

  79. Ashish says:

    This is so great Sir. Reading your contents(particularly FA module) has made me really regret studying B.Sc instead of B.Com. The more I read about stocks and business valuation the more I realise how interesting Finance as a subject is.

    Thank you so much for your hard work Sir.
    I’m indebted to you.

    P.S., I have a personal question Sir, Are you a Kannadiga?

  80. sai Kiran says:

    Thank You so much for writing this. Learnt lots of concepts. I value each & Every word written..

    Please wish me the best, as i am really interested to become a full time investor.

    Thank You Karthik

    Warm Regards
    Sai Kiran

    • Karthik Rangappa says:

      Sai Kiran…i’m glad to know you liked the content here. Wishing you all the very best 🙂

      Keep learning and stay profitable! Good luck.

  81. Pawan says:

    Hi Karthik,
    Its very good module help a lot in trading and investing. As you talked about financial modeling in previous chapters but haven’t uploaded it. so please share some insights about financial modeling as soon as possible.
    Thank you!

    • Karthik Rangappa says:

      Pawan, yes, financial modeling is something on the agenda. However, will put this module up next year, maybe after the current model on Trading Systems is done.

  82. Vignesh says:

    Thank you very much karthik.
    The entire module is extremly helpful.
    I am already recommending this series to all my friends.

  83. jyotshna says:

    Number of stocks in portfolio should not be more than 15-20, then why
    1.) Mutual fund.
    2.) Liquid fund.
    3.) FII
    These funds have more than 40 stocks, why they select so many ?

  84. Dr.rajesh reddy says:

    Thanks for material.. I finished reading.. I understood partially.. I can understand thoroughly if i goes through second time.. Mean while kindly reply.. What is investible grade attribute means? (in simple terms… )

    Hoping for reply..
    Thank you

    • Karthik Rangappa says:

      Investible grade refers to the criterion which qualifies an investment. Think of it as a checklist you need to run through before you make an investment in the stock.

  85. Niranjan says:

    Hello Karthik,

    This is great stuff and the flow of concepts from chapter to chapter is simply exceptional. This is a great help for people like me who aren’t from financial background. I had always felt most of the books on fundamental analysis and valuation were theoretical and lengthy. These concepts definitely provides a firm ground from where one can further enhance his/her knowledge on investment fundamentals.

    Thank you and Zerodha team for such a great initiative and to teach all these concepts for FREE !!

  86. S K Goldar says:

    Karthik ji,

    Thank you very much for giving so much informaiton about Fundamental studies as well as other topics, which you have covered. I would like to request you, if you can make vedio on each topics for prospective investors/beginners. I know it is realy a taugh task but beleive me your vedio will be an Bible for stock market (because listening creats more impression on mind rather then reading)..


  87. Arghya Das says:

    Sir Can You Please Explain What Is Loan Disbursements & Loan Outstanding?

    • Karthik Rangappa says:

      Loan outstanding represents the debt the company owns. Loan disbursement is perhaps the loan expected to be given out.

  88. Barjinder says:

    Extremely good module with lots of experience and pratical knowledge filled in.

  89. Uday says:

    Hi Karthik,

    Amazing Stuff you have here!
    Doubt regarding “Shareholders’ Equity” calculation required in ROE:
    The suggested formula of “Share Capital + Retained Earnings – Treasury Shares” is a bit tedious to find and calculate, especially finding retained earnings. Further, Investopedia gives the definition as “Total Assets – Total Liabilities”. But these two methods give different numbers most of the times. So which one to pick & how to get the SE in a convenient manner? For e.g., can we pick the “Shareholders Funds” or “Total Equity” or “Equity Attributable to Owners of the Company” or “Share Capital + Reserves & Surplus” or some other variation which can be directly picked from the balance sheet.


    • Karthik Rangappa says:

      I’d suggest you stick to “Shareholders Funds” or “Total Equity” or “Equity Attributable to Owners of the Company” or “Share Capital + Reserves & Surplus”.

  90. Feroj says:

    Great job sir, i am very much Contented about the service that you are providing in this platform, now i am confident to be an investor . But Still little difficult to analyse the balance sheet of bank,.
    It would be a nice if there is little about financial institutions.

    • Karthik Rangappa says:

      Feroj, I’m glad to note that. Banks balance sheet is a little tricky. Will try and put up some material sometime soon. Thanks.

  91. Nitin says:

    Hi Sir,
    Can you please add a separate chapter on corporate governance which will cover topics like
    1) what are corporate governance issues
    2)All other things which are mentioned in corporate governance section of annual report
    when reading through corporate governance section of annual report it is very hard to interpret whether company has good corporate governance or not.

    • Karthik Rangappa says:

      1) I’m not sure if I can do justice to this topic – in fact, I’d love to learn more about it myself
      2) All the basic things that you can look at and analyze – I’ve discussed it already in the chapter.

  92. Raj says:

    With respect to market valuations, which tool or website would you suggest to analyze how fairly or expensive market indices are with respect to p/e, p/b, d/y, eps and others across Indian and global stock indices.Also, is there a module to walk me through such concepts for better analysis?
    Thank you.

  93. Avinash says:

    Sir, Is value investing also done with the same steps of fundamental analysis.?

  94. Saurabh Sehgal says:


    Easy to comprehend and invaluable learning you have imparted through this module on Fundamental Analysis. Thanks!

  95. Bhavani says:


    Thanks for the detailed explantion, learning everything about stocks in here, it’s awesome. Could you explain the terminal growth rate! Why do you choose only 4 %or less? I assume growth rate used to calculate future value is the fixed deposite rate or bank interest, the minimum rate at which money is compounded in India. Isnt it?

    Awaiting your answer.


    • Karthik Rangappa says:

      The terminal growth rate is the rate at which you expect the free cash flow of the firm to grow perpetually. Perpetual because a company generating cash, logically can go on forever. However, the rate at which it will generate cash declines, hence the terminal growth rate is often set at low single digits, to roughly meet the inflation averages.

  96. Vina says:

    Is there a way to learn “How to use Zerodha Pi”?

  97. Anil says:

    Thanks zerodha varsity team

  98. chidambaram says:

    Hi Sir,
    1.As per technical analysis is “Markets discount everything ” -all known and unknown information in the public domain is reflected in the latest stock price.Then how come as per fundamental analysis the stock could be a undervalued stock.Won’t there be a reason for the stock price to be that low?
    2.Why margin of safety is not calculated for upper intrinsic band value?Isn’t it that similar to intrinsic value band ,margin of safety can also be a band?
    3.If the margin of safety is 30% and intrinsic value ban is +10% and -10% , then if we buy a stock at margin of safety price and sell above the upper intrinsic value band then its that almost all Fundamentally analyzed stock can give only 50% (30%+10%+10%)?
    4.As per DCF Analysis,the cash-flow for the entire life span of the company is predicted and their present value is calculated and if that is the intrinsic value band,then how come a stock price can move above this level ? Because as per your statement ” One thing is clear at this stage, whatever is the cost of this machine, it cannot cost more than Rs.50,00,000/-. Think about it – Does it make sense to pay an entity a price which is more than the economic benefit it offers? ” and ” This also means, the value of all the future cash flows from the pizza machine in today’s terms is Rs. 32,80,842. So if George has to buy the pizza machine from Vishal, he has to ensure the price is Rs. 32,80,842 or lesser, but definitely not more than that and this is roughly how much the pizza machine should cost George.” in pizza example .
    5.Does this above statement mean that when the price is above the intrinsic band value should we need to sell the stock? As all future cashflow (benefits) is factored in for this band and as by anyhow company can’t ripe more than this level , then why do you say to stay invested till “Disruption in investible grade attributes” !
    6.How come stocks move out of the intrinsic band value (above and below)?Because no one will buy a product with more cost than that it is actually worth of and no one will leave the product when its at a cheap price.This implies that stock price should not move behind the IV band.But in reality it does move away away.How this is happening?
    7.In a paper umbrella pattern, what is the percentage of upper shadow that is permissible to have?
    8.How to identify primary and secondary trends?
    9.As per your statement ” For example if you are considering a long trade based on candlesticks, then look at what the primary and secondary trend is suggesting. If the primary trend is bullish, then it would be a good sign, however if we are in the secondary trend (which is counter to the primary) then you may want to think twice as the immediate trend is counter to the long trade.” ,my question is that in TA the patterns we use are all trend reversal pattern,then how come the trade direction can be inline with the secondary trend?

    • Karthik Rangappa says:

      1) This is true, however, the discount/premium is a short-term reaction, best suited for the trading position. The deep value discount you are talking about is fundamentally based and has a long-term implication.
      2)The margin of safety is mainly from a buying perspective, hence you look at the lower levels.
      3) Yes
      4) Can you kindly elaborate your concern?
      5) Yes, you can consider a breach above intrinsic value as a signal to sell
      6) You are assuming that everyone values the market fairly, this is not true
      7) less than 0.5%
      8) Look at Dow theory
      9) Not all are trend reversals.

      Also, please dont mix questions from different topics in the same thread, this may create confusion to others reading for the first time.

  99. Saurabh Sehgal says:

    Dear Karthik,

    If a company falls under investable grade attributes. But promoters / promoter group share holding is less than 50%, what is your reading on it?

  100. Arghya Das says:

    Sir In My Final Year Of BBA I Have 2 Submit A Research Report Under The Guidance Of An Expert. Will You Please Be My Guide?

  101. Saurabh Sehgal says:


    A company’s stock is trading at about 45% less than lower intrinsic value, but P/E is 33 times. Should I consider buying it?

  102. chidambaram says:

    Hi Sir,
    1. what ever may be the investible grade attribute, IV band is the fare price for that stock considering(accounting) all the investible attribute and above that its over valued.So how does it make sense to hold on to a stock above the IV band since investible attribute is present.
    2.What if the price of the stock is is trading at lower IV band level, but it does not have any sign of reaching margin of safety price.In that case can we buy at lower IV band price?
    3.In the entire bull market run, does the value investor can’t do anything and remain quite ? Since a good stock would come to margin of safety level only during bear market.IF so what if the bull market last for many years together(more than 5-8 year) !!
    4.what if we are buying the growth stock at a price little above IV band.Wont that stock growth since it has a good growth opportunity?Does this Valuation technique should be strictly followed for a growth stock also?
    5.if a growing company is spending (investing) in capex (equipment,production units,etc ) largely, then that will produce more free cashflow in future right?Then in that case why do we subtract capex from operating cashflow for FCF calculation?
    6.If we buy a stock exactly at IV band value today, does that mean that our money will just compound at particular % (say 5% ((18+10)/2-9%)incase of ARBL example) in future and we would get back our money with just 5% future value?
    7.In Annual reports, numbers are differing.In 2015-16 annual report the number given as of march 31 2016 is differing with the 2016-17 annual report number given for march 31 2016 in .Why is this difference and which should be considered while calculation?
    8.If DCF is the valuation technique to be used to find the fair value,then what is the use of other valuation ratios (PE,price/Book value.etc)
    9.If the FCF is what a shareholder enjoy then does FCF and book value need to be same? Because i hope book value is what that belong to the share holder.( “The “Book Value” of a firm is simply the amount of money left on table after the company pays off its obligations.”).
    10.Can we first calculate IV band for a stock (stage 3) and if the price is below that, can we proceed to equity research stage1 and stage 2.Because if the price don’t fall below that value ,we can simply avoid the stage1 and stage 2 which i hope would take more time than stage3?
    11.I have calulated IV band for CochinShipyard and found it to be 179-219. with last 6 year average FCF and FCF Growth rate for first 5 years 18 % and next 5 year @ 10% and discount rate 10% and terminal growth rate 3.5%. will you be able to verify whether that IV band value is correct ?

    • Karthik Rangappa says:

      1) Markets are all about variations – you don’t buy when you see the stock is overvalued, but no harm holding it. For example, HDFC Bank always traded at high PE, but the stock has performed phenomenally well.
      2) If you are ok with some amount of risk, then maybe you can 🙂
      3) Yes Sir, nothing much to do in Bull markets. You just accumulate cash so that you can deploy this in your portfolio when the cycle changes
      4) The band is a guideline, you are free to work around these levels. There are times (although very rarely) when I’ve bought stocks higher than 5-10% of the upper band
      5) Yes, it is supposed to generate free cash flow. We subtract because of its cash outflow.
      6) No necessary, remember business landscape is dynamic so things can change quickly. But a company built on great foundation can be resilient to these changes.
      7) Always take the restated numbers, on a consolidated basis
      8) DCF is just one of the techniques. You also have relative valuation 🙂
      9) Both are different. FCF is forward-looking whereas book value is as on the current equity
      10) You can, no harm in experimenting
      11) No sir, unfortunately, time is a constraint for me. Apologies for that.

  103. Akhil says:

    hi Karthik

    i was doing DCF for Lupin

    i have following problem

    i see lupin had a huge out go for 2016 ( acquisition ) hence its cashflow is negative this puts the FCF avg for a toss

    basically it distorts the valuation. i understand that acquisition is cashflow positive for future ( or negative
    i this case how should be go about it

    2. Can you possibly share a bank or a Financial Institution dcf model. preferably a screwed up one not a straight forward one like HDFC . the reason being i was doing yest bank and i didn’t understand it at all.

    • Karthik Rangappa says:

      Akhil, I get that. One way to deal with this is by capitalizing the benefit of this acquisition over the next few years. After all, a company makes such transcation for either startgic reasons or from a pure financial perspective.

      I’m not really confortable with banks, hence I’d not be the best person for this.

  104. chirag says:

    hi sir ,recently read your finale chapter,here u mention in checklist that to filterout stock just go through nifty5o stocks and 1stpoint is to look around recognisable candlestick pattern,priortrend,and volumes,etc so my question is suppose today i have to take the trade,then do i have to see yesterday candlestick pattern ,and yesterday volumes,to carry out todays trade.
    the way i am thinking in these way is because in first 20-25minute while filtering out stock we cant confirm the pattern correctly

    • Karthik Rangappa says:

      Yes Chirag, looking at yesterday’s closing and volume gives you a fairly decent sense of what is likely to happen today – this is especially true when there is momentum in the market. But do remember, these are just estimates, no guarantees in the market.

  105. Saket says:

    Hi Karthik,

    This is really informative and helped me understand it much better. I just have one doubt;
    If a stocks clears all the three stages and its current price also falls way below the price after discounting the margin of safety, that would surely be a buy with strong conviction, but do I have to put stop-loss to take into consideration the possibility of occurrence of some exceptional behaviour in the market?
    And if yes, at what price shall I put the stop-loss?

    • Karthik Rangappa says:

      No, remember, you are doing this investment for long-term. The concept of stop-loss is short-term in nature.

  106. chidambaram says:

    HI Sir,
    If IPO’s are overpriced then why do institution subscribe for it.In almost all IPO’s there are some or the other FII,DII,HNI subcribing.If the IPO overpriced then why do this smart money people subscribe ? In Anchor investor portion also these people subscribe. Why so?

    • Karthik Rangappa says:

      Well, most of the institutions have a leverage play here. They subscribe to the IPO by paying as little as 5-10%, the rest of the funds are financed.

  107. Adishwar says:

    Hi Karthik!
    My question is why do different Brokers report of same company have different Key ratio? Some ratios are very different and some are very close. I know this could happen because the market price of shares keeps on changing but what about other ratios. I was just comparing E.I.D parry report from Axis Direct vs Edelweiss website for the year 16-17 and results are varying from ratios to ratios.
    When I was doing my own fundamental research I was getting very close results but not the same why?

    • Karthik Rangappa says:

      I’ve noticed this as well, but I have no cue why this happens. Usually, the difference arises when you take standalone versus consolidated. Anyway, for this reason, I prefer to always calculate my own ratios 🙂

      • Adishwar says:

        Yeah! I think doing your own analysis is better and safe options. After some practises I am getting used to it and less time is being consumed.

        All thanks to you Karthik! ?

  108. Saurabh Sehgal says:

    Dear Karthik,

    Stock of a company has doubled from FY12 to FY17, whereas its PAT CAGR for the same period (5 yrs) is just 1%. Why it must be so?

  109. Saurabh Sehgal says:

    Dear Karthik,

    Promoter holding in ITC is 0%. Would you suggest buying its stock provided it fulfills other investable traits.

  110. Omkar Shrivardhankar says:

    Great Source for any Beginner….!!!
    Thank You Sir.
    It’s Time for practical research.

  111. Pinakin Kadiwala says:

    Hello Sir,
    Nice work, clearing concepts in easy and understandable language. For a Beginner this is just Priceless. Just want to know, Are the ratios all the same for screening a Banking or a finance stock. I am finding really difficult to screen banking stock with the approach. Kindly help us to clear those doubts as well.

    • Karthik Rangappa says:

      Banks are slightly different. But for stocks in other sectors, this should do. Good luck 🙂

  112. Akshay says:

    Hi Karthik!
    Please suggest some good books on mutual funds.

  113. Sunil says:

    Hi Sir,

    First things first, a well composed, comprehensive and lucid article on Fundamental analysis.
    Thanks a ton for helping the investment community in this way.

    I would like to know when you are planning for the Financial Modelling course, because this course complemented by Financial Modelling would be a killing. Hope you have plans on that?

    Again, my heartfelt thanks for your great work.

  114. Vaibhav says:

    Value investing and dcf is the same thing?
    If not then sir can you please give us some teaching of value investing.

    • Karthik Rangappa says:

      DCF is a method to value a business. If a good business is trading at a deep discount to its true value, then investing in this stock can be an example of value investing.

      • vaibhav says:

        can you please teach us the philosophy of value investing, which is practised by Warren Buffett.

        • Karthik Rangappa says:

          I’m myself a very amature value investor, Vaibhav. I’ll try and share whatever I;ve learnt so far sometime soon.

  115. Karthik Rangappa says:


  116. l_earn_err says:

    Sir, Some queries popped up…..

    (1) Regarding timing of selling a stock:

    It’s understood that we should be ready to sell a stock once the company stops exhibiting investable attributes. But….

    What about a position of selling the stock after long term i.e. after 2/3 years?
    What if I need money after 2/3 years desperately and the market is down/bearish when I am about to sell my stocks for the need of money?

    (2) What parameters to include in the checklist in place of inventory turnover and inventory days etc. for FA of software / IT / consultancy companies??

    (3) Please guide us about FA of banks, NBFC (getting hullabaloo that Bandhan Bank might be good for long term) !

    • Karthik Rangappa says:

      1) In this case, you have no option but to liquidate your position and take a hit. This is the reason why you need to invest only patient capital in the stock market

      2) These ratios should be really low as software is a service-oriented industry

      3) I’m not the right person to discuss this sector

      • l_earn_err says:

        Thanks for replies, Sir.
        May you have 48 hours, get enough time to upload FA of banks, relative valuation and enhance the FA module further.
        One of your ‘Fire-power’ is that you’re a great ‘Simply-Fire’ (simplifier). Hence, we’re waiting that part from you!

  117. l_earn_err says:

    At the finale of FA module, let me tell you, Karthik sir, that……
    Zerodha varsity is the sole reason because of which I opened account with Zerodha !!
    Your seminal work will go a long way in educating people about stock matket.
    Just a request…….
    Please keep remembering your motto and keep varsity always free on the line of MOOC. This is USP of Zerodha varsity!
    Without varsity, Zerodha will be just like any other street brokers.

    Will keep asking Questions/doubts…….

    • Karthik Rangappa says:

      Thanks for the very kind words 🙂
      Yes, I can assure you, Varsity will always be free and I will continue to answer the queries here. Good luck and happy learning 🙂

  118. shama aggarwal says:

    thanks a lot for sharing your knowledge. please keep posting more. we are waiting.

  119. Philips says:


    After going through Zerodha Varsity, i decided to move my account from another broker to you provided Zerodha customer services is good. Anyone with Zerodha, please comment.

  120. Guru says:

    Hi Karthik,

    Thanks for thee excellent content. Thoroughly enjoyed learning right from reading annual reports to calculating the intrinsic value of a stock. Varsity is a treasure. Kudos to you and your team.

    I would like to learn about mutual funds. Can you please advise if you have any modules published on this topic? I did a search in varsity but can’t find it.

    Kind regards,

  121. RAJ says:

    how do you take the financial statement in excel from the annual report and merge 5-year financial statement?

  122. Omkar Pandit says:

    Hello Karthik Sir,
    Sir my humble request to you is if you have time, can you do one module on doing fundamental analysis of banking & NBFC stokcs?

  123. Sundeep says:

    Sir is it necessary to develop an investing philosophy in the market? Also, it would be really helpful if you can write up on some of the investment hacks . Like following the big HNI’s and investors to see what they’re investing in. And such hacks.

    • Karthik Rangappa says:

      Yes, you certainly need to have an investment philosophy before making an investment. ‘Investment Hack’, seems like an interesting idea 🙂

      • Sundeep says:

        Sir I’ve two questions
        1. Could you tell me what your investment philosophy is? And what do you think about investment philosophy such as contrarian investing? Do you think that ever works in our country?
        2. I was analysing Brigade enterprises. And unlike your analysis on Amarraja Batteries, the PAT margin and EBITDA margin for last 5 years doesn’t seem to have any trend at all. It is just random like stock price. What do I make out of this?
        Please shed some light on these sir. As always, thanks in advance.

        • Karthik Rangappa says:

          1) Well, it may sound cliched, but I like investing in fundamentally good stocks for the long term. My long term can be in excess of 10 years ;). If you give your contrarian call time (provided you are right), it will certainly work!

          2) I’d avoid companies which have volatile set of numbers

          • Sundeep says:

            1. Are you saying that even if other numbers add up, if there is no trend in PAT Margin YOY you’d avoid it? Can you please explain the logic behind that sir?

          • Karthik Rangappa says:

            Ideally, the company you invest in should generate PAT and should also ideally increase year on year. Dont you think its desirable?

          • Sundeep says:

            I agree that it is desirable to have companies to generate PAT and it should increase YOY. But my question was, in this case, there is a clear indication of increase of PAT YOY. But there is no particular trend in PAT Margin. I’m asking, provided everything else is right with the company would you still avoid it? Mind you, PAT is positive all the years with increasing numbers. Thank you.

          • Karthik Rangappa says:

            Sundeep, usually when I’m stuck in such situations, I check how the peers are doing. If this company still stands out, then maybe there is something more to it 🙂

  124. Sundeep says:

    In fixed assets to equity ratio you say that for the lesser it is the better. But isn’t it the other way round sir? After all, all the fixed assets belong to shareholders. So the higher the number the better, right? What am I missing here?

  125. Sundeep says:

    Sir I know you’ve been planning to come up with a module on Mutual Funds. But could you suggest me some resources/ books on MF’s related to India? Also it would be helpful if you can tell me the way you first learned about MF’s. I’m only asking because I could not find anything online. Thanks a ton.

    • Karthik Rangappa says:

      Exactly why we intend to have a module on MF, Sundeep 🙂
      Unfortunately, I’m not sure of any good resources on this topic which is comprehensive.

  126. Sundeep says:

    In fixed assets to equity ratio you say that for the lesser it is the better. But isn’t it the other way round sir? After all, all the fixed assets belong to shareholders. So the higher the number the better, right? What am I missing here?

    • Karthik Rangappa says:

      Actually, you also need to check the FA turnover ratio. High fixed asset and low turnover is no good.

      Coming to your question – yes, higher is better. Not sure why I’ve mentioned the other way round. Let me check. Thanks.

  127. Ramesh kumar says:

    Hi, Mr Karthik, You are doing great job, thanks for your publishing. Downloaded PDF files only accessible through Dropbox, please fix to get via Google Drive too. Also some modules have no table of contents, it causes some difficulty to reach particular content.

  128. subham Kumar says:

    Firstly sir “Thanks a ton”.I have been reading your modules whenever I get free time to learn.And all these months of reading have given me a great incite on the art of trading and Investing through your explanation sometime even looks as spoon feeding .



  129. Subhrajyoti Saha says:

    Great Article. I read every single word and it made a lot of difference in my thinking about investing and gave me a structure on which I can further build on. Thanks a lot. You are a rock star in my book.

    • Karthik Rangappa says:

      Hey Subhrajyoti, thanks for the kind words! You are the rock start for taking time out and putting in the efforts to learn, happy learning 🙂

  130. Amit mavani says:

    Hi sir
    I want to ask stock specific question

    One company promoter holding increase by 5% company’s sales and profit is increase but not cash flow and
    most of fundamental not fit this criteria .
    Can I buy on base of peters holding increase ?

    Your view ?

  131. Aditya Makode says:

    Your content is mind blowing! The way with which you have explained everything is pretty helpful for a layman to understand. Also, the live examples which you have included while explaining the theory is valuable. No one in the market has as good content as Zerodha has!

    Good job!

  132. Sundeep says:

    Sir with zerodha coming up with stock reports with a third party, I’m not sure how to efficiently use it. If the report has a perfect 10 rating then should I just go ahead and invest in it? If not, what’s the practical use of these reports?

    • Karthik Rangappa says:

      Sundeep, 10 is a perfect score and qualifies as a buy. It’s best if you use the report in conjunction with your own analysis.

  133. Shrey Bhandari says:


    In fundamental analysis where should we have to place our stop loss. ??

  134. Ajinkya Sawrikar says:

    Now since that we have concluded the topic I wanted to ask you something. We have talked about index valuation in the previous chapters right ? Now my question is do we need to check the PE ratio of an index, say Nifty 50 while I purchase a particular stock ? Currently the PE ratio of Nifty 50 is around 26.5 which is highly overvalued so is it even the right time to purchase a fundamentally sound stock ?

    • Karthik Rangappa says:

      Ideally, you should look at the valuations of the stock. For example, the index could be at 26.5, but if the stock you are tracking has come down to a low valuation, say 12PE, then you should go ahead and buy it.

      • Ajinkya Sawrikar says:

        Thanks for the reply. Honestly without you guys I wouldn’t have gained so much of knowledge. Our community is active in the comments section too which is a great thing. Seriously guys I appreciate what you guys do👏

  135. sundeep says:

    Sir how do you cope up with market falls such as the one going on now? How do we take rational decision when the stock you had bought only a few months back declines to half of its value? Do you still place conviction on your research or sell it off? Please advice. Thanks.

  136. Sundeep says:

    Sir how do you cope up with market falls such as the one going on now? How do we take rational decision when the stock you had bought only a few months back declines to half of its value? Do you still place conviction on your research or sell it off? Please advice. Thanks..

    • Karthik Rangappa says:

      Yup, this really depends on the conviction you have. Frankly, I’ve been dispassionate about this fall, I’ve added a bit more, but certainly not worried.

  137. Arvind Yaragunti says:

    I haven’t seen anything like this explained so clearly and concisely. I have thoroughly enjoyed reading, which hardly is my hobby but you seem to have changed. Also the Investor mindset which is so important in this Life of volatility ; it applies to all aspects of Life. Thank you so very much.

  138. Srinivas says:

    Sir, i received a excellent information from these 16 chapters. I was searching for fundamental analysis from last 2 years and now I am able get right stock with this information. Than q very much sir

  139. Shubhendu Garg says:

    Thank you so much for priceless knowledge provid to me thx boss

  140. Sundeep says:

    Sir you’ve said already that DCF is not a thorough valuation of a business as it holds lot of assumptions about the future. Now I’m not expert in finance but I always felt that DCF was not enough because it doesn’t take the assets and liabilities of the business into account while valuing. It doesn’t work well with companies with negative cash flow or other financial and banking companies. My question is what is the best resource to understanding theory on business valuation? Please shed some light into this sir. I greatly value your input. I love varsity. Thanks a lot.

    • Karthik Rangappa says:

      Sundeep, from my experience the best way to look at this is to use DCF on a case to case basis. A mix of relative valuation and DCF should help you a great deal in estimating the value.

  141. Sundeep says:

    Hi again sir. I do have one more question. Would you be comfortable giving out the name of the major stocks in your portfolio? I’m not asking it as an investment advice, purely educational one. It would be greatly helpful to know insights from the kind of stocks you pick. Thanks a lot.

  142. Ramaiah says:

    Hi Sir,
    Do we need to consider the face value of share while doing the fundamental analysis.Because face value is different of share to share.

    Ramaiah Madala.

  143. Santhosh S says:

    A big thanks for putting this together. I can imagine the effort that went into this.

  144. Neel says:

    Hi Karthik,
    Loved your work and effort to keep educating us. I wanted to ask which software would you recommend to analyse financials and follow updates. Also can you add few more valuation models like P/E , P/R etc. which you think are important. Thanks!

  145. Satya says:

    Hi Karthik,
    When there were some rumors about DHFL and YES bank, those shares got severely affected .
    Could you please let me know why the ICICI share price is not affected even though there are allegations on Ex CEO.

    • Karthik Rangappa says:

      Interesting question, Satya. One needs to see the possible extent on the impact on the market cap, if it is not much, then there won’t be much damage.

      • Satya says:

        Thanks Karthik for your response. Doesn’t come under corporate governance issue. Loan to Videocon has come out. But there might be many during her period. Really don’t understand why traders are not treating as this incident as fraud..

        • Karthik Rangappa says:

          Well, alpha is created when you get to spot something before the market does. However, the trick is to have enough conviction on your thesis and actually act upon it.

  146. vaibhav raj says:

    I want to know that what happens when a person purchases a stock of a company before the merger. Example what is the return that a person will get if he had bought Satyam share after the after huge fall and before the merger with Mahindra.

    • Karthik Rangappa says:

      The returns are not really dependent on the merger, Vaibhav. This depends on the way the company evolves post the merger.

  147. vaibhav raj says:

    can u explain in detail what is “investible grade attributes” explain in when to sell?

  148. Pavan Gumaste says:

    Thank you so much for clarifying detail on FA. I searched on FA but didn’t get satisfied as much on this zerodha varsity I learned relevant information to pick a good stock. You done a good job..
    Query, I bought 3 company on the basis of checklist. In that one company share price decrease 15 to 18% , know I add more to make the average or sell the share? These 3 Company which I purchased for only 1 year to hold..

    • Karthik Rangappa says:

      Thanks, Pavan. I’m really glad you liked the content here!
      Btw, it really depends on your conviction on the business. If you are convinced that the business will do well, then maybe you should buy more.

  149. vishant says:

    frist of all thank you for such a great modules.
    my qustion is i want to make my creear in finacial feild i wan to ask you CFP (certified financial planner) Is good ?

    • Karthik Rangappa says:

      CFP is great if you want to get into Financial planning. CFA is great if you want to move towards asset management and FRM for a career in risk management.

  150. MSP says:

    Hi Kartik,

    If i have to buy a bank or NBFC, what are the main parameters to look for a good bank or NBFC for long term investing.


    • Karthik Rangappa says:

      I’m not an expert in this, however, you will have to look at, at least the following things –

      1) NPA provision
      2) Net interest income
      3) Net interest income margin
      4) Book value

      It is not just looking at these numbers, it is about studying the trend and things that affect them.

  151. Harish says:

    this entire module is easily one of the best content ive ever come across…period! great work karthik and team 🙂

  152. a k mitra says:

    dear Karthik
    when we do fundamental analysis it should be on standalone basis of the company or on consolidated basis? secondly do the technical and fundamental analysis both to be carried out or either one to be opted?

    • Karthik Rangappa says:

      Consolidated is always better.

      TA vs FA depends on your time frame. TA is its for short term, FA for long term investement.

  153. Amit mavani says:

    Hi sir
    If company’s revenue are more than its market cap since 5 years is it good point ??

  154. Amit mavani says:

    Thanks for reply

    One more IT company have annual sales is 4817 cr and M cap is 1330 cr this type of scenario since 3/4 years .
    According to u Is it good ??

  155. Kumar says:

    Please write chapters on mutual fund investments and Small cases at the earliest as Zerodha is offering to trade these products on its trade terminal.
    Thanks a lot in advance

  156. rahul says:

    Thank u for this module it helped me lot.Im BBA finance graduate working as a equity dealer in HDFC . what are the new skills to be learned for successful career.can u pls reccomend any courses or certifications

  157. Yash says:

    thanks for the Wonderful content sir
    Sir Ian getting problem in finding stock from this huge univers of stock
    Plz help me to filter
    Thanks again for this content
    Thank you

  158. Sundeep says:

    Although you have done an excellent job of demystifying FA on stocks, I do feel each sector needs to be analysed with separate set of tools.
    1.Can you let me know a book which deals with sectoral analysis?
    2. How do we develop a framework for each sector? Please point me toward a resource or something. Thank you.

  159. sunil says:

    DCF method is applicable for every sector stock like fmcg, banking & finance, IT,consumer goods etc.

  160. sunil says:

    while calculating ROA you told formula ROA=(net income +interest*(1-tax rate)/Total Average Assets.
    You mentioned intrest amount 7 Cr. But in P & L finance cost of ARBL f y 13-14 is 7.18 million. Is there is any typing mistake or something else.Please claryfy.

  161. sunil says:

    Hi Sir,
    While calculating the share price in DCF model you added Net Debt = Current Year Total Debt – Cash & Cash Balance.
    In current year total debt we have to take Long term Debt only or we have to take short term debt also.

  162. krutuparna says:

    the pdf version of this module contains so many technical errors (ex: chapter 9 is repeated), it need to be resolved

  163. Eshan says:

    Hi Karthik,
    I have read through the “The Intelligent Investor” by Benjamin Graham and he recommended to invest equally among stocks which make the 50 of S&P or DJIA; something like an Index Fund. What are your views of investing in Index Fund in India? I don’t have enough time in my hand to spend 15-16 hours to research a company.

    • Karthik Rangappa says:

      Indexing is amazing and works wonders, even for people who have the time to research stocks. I’d recommend people to do that. I prefer a low-cost Index ETF instead of an ‘actively managed’ index fund.

  164. Praval Shah says:

    Very informative content coupled with a simple yet interesting layout.
    The explanation via an example from the Indian capital markets really helps. Great work Team Varsity.

  165. Nikhil says:

    Hi Karthik,

    Regarding the advice to sell when the company does not hold on to the investible grade attributes, is it only about the Stage 1 and Stage 2 attributes or the Price as well.

    Let’s say I invested in a stock that had good investible grade attributes and at a fair price. After a few years, if the company still has qualifies Stage 1 and Stage 2 but the price now is way above it’s intrinsic value, should I sell the stock?


    • Karthik Rangappa says:

      Nikhil, you will have to look at it from an overall perspective. Good quality stocks can be undervalued for a long time, this is ok as long as the business metrics are heading north. So you will have to keep a tab on both price and business metrics. But yes, do keep an eye on the valuations, if it is way beyond the intrinsic value, you can consider selling it.

  166. Deepak Keshari says:

    its Great

    please also provide some knowledge and strategies on intraday

  167. Kiran Shetty says:

    Hey Karthik,

    Awesome content.
    I just wanted to get a zest of this statement, while you say that, “it’s not a good sign if company is trying to get into multiple business areas, as it diverts its focus from its main business”
    What would be your say about IRCTC, keeping the above statement in mind? IRCTC is now into Railways, catering, tourism, hospitality and packaged drinking water… ?? is this a good move?

  168. Rahul says:

    Hey Karthik,

    Thanks for this amazing content. I have a small doubt. I understand the form of investing thought in this module is value investing. Are there any other forms of Fundamental analysis?. Just curious as I have seen Mutual funds having various types of funds like growth, value etc..

    • Karthik Rangappa says:

      Rahul, there are many different styles. The next module (13th) is on Financial modelling. This will help you get some insights.

  169. Satish Manjarekar says:

    Really superb , it’s like Bible for investor . Nobody could explain us like you .
    Thanks sir

  170. Venu says:

    I initiated a trade on Reliance(Bracket order) at 1566.3 with target 16 (1560.3) and trailing stop loss of 9.4 (1556.9) with a stop loss of 10.9 (1577.20)
    The stock went up to 1553.4 and reversed but trailing stop not executed. May I know the reason why my trailing stop not executed?
    Kindly consider my request and reply to me

    • Karthik Rangappa says:

      Venu, I think some of the values are wrong. Anyway, I’d suggest you please call our support and they’ll explain this in detail.

  171. Jaleesh Rahman Buhari says:

    Dear Karthik
    Fantastic Work! Great Job!
    May the almighty shower you with all the success and peace in your life!
    I pray to almighty to provide you with good health and wealth to continue your selfless service!



  173. Alok says:

    Hey Karthik

    Thanks for such an superlative overview on fundamental analysis which was much needed for education for rookie investors.

    I was researching on one of the small cap companies and I found it suitable for most of the parameters listed by you. However, it has very low institutional holding(MFs) but fair FPI holding. Is it a cause of concern?


    • Karthik Rangappa says:

      Not really Alok, Institutional holdings may not have happened due to low float, but you as a retail investor do not have this concern. In fact, this is the biggest strength of retail investors.

  174. Jaleesh Rahman says:

    Dear Karthik
    I have gone through the complete Fundamental Analysis but I have not gone through Technical Analysis module. Can I start my FA research for investing? Or should I need to go through other modules like – TA, Fin Modelling, etc., before I start my FA research? Thanks.

  175. Arvind says:

    U r a true gem. Lots of love from my side.
    Thanks brother.

  176. Dr Channa Hubli says:

    Hi Karthik Sir,
    Great Efforts at Teaching basics. Learnt lot of things in Zerodha.

  177. Love Arya says:

    First of all I would like to thank you sir for your efforts the content u made is just amazing the way u deliver the concept is absolutely stunning. I must say readers have enjoyed a lot sir ji.

    Sir, I’ve a query regarding intrinsic value calculation.

    I have seen the excel sheet u share for intrinsic value calculation. But Sir as i Calculated the data of ARBL for recent years the intrinsic value comes to as low as in range of RS 48-59. I don’t know where I’m making mistake please guide me sir.

  178. Love Arya says:

    Thanks a lot Sir ji. Hope u will guide us like this in future also. I found myself lucky to have u as my mentor and feeling grateful.

  179. Anshul Galav says:

    Great analysis and easy reading step by step material. Thanks Karthik😃

  180. Karan says:

    Dear Karthik,
    I can’t thank you enough for the work that you are doing for the community.
    I felt incredible joy going through the modules. The content was pure gold, the explanations were super simple and the examples were amazing. The certificates from your mobile app are the cherry on top.
    Thank you from the bottom of my heart. 🙂

  181. Shivam says:

    Hey karthik!
    First of all thanks to you and Zerodha team who are working so hard teaching ammateurs like us. It is because of your varsity that I have developed interest in Financial Markets and now I am prepping for CFA L2. I know it would not be appropriate but I just want to ask do you guys provide Internship oppurtunities in Equity Research because I want to make my career in Financial Markets and do Valuations but couldn’t find on-field oppurtunities.
    It would really be great if you could help me on this!

    • Karthik Rangappa says:

      Happy to note that, Shivam. Good luck for CFA. Unfortunately, we don’t have any internship opportunities in Zerodha. Anyway, I think its best if you can speak to our HR directly about this.

  182. Abhijeet says:

    Hey Karthik,
    This is one of the best primers on the topic of fundamental analysis out there. I’m a beginner in investing and I’ve read the Intelligent Investor, Little Book that beat the market and a few others, but this one does a great job in consolidating all the key concepts for the readers.

    A big thank you for the excellent work and making it available to everyone out there!

  183. Robin says:

    Hi Karthik,
    First of all big ups to you providing this beautiful material. I have read about value investing for months, now to make the actual final step to buy the ones I shortlisted.
    How do you decide how many stocks to buy in a company especially let’s say my portfolio has 5 of them to create substantial wealth for the future?

  184. Robin says:

    And how much capital would you suggest to me to invest in stocks?
    I just completed my final year of ug studies and monthly income is around 1L. How should I divide my overall income into these investments? I am looking for a more detailed explanation on this.

    • Karthik Rangappa says:

      Congrats, that is a great starting salary 🙂

      I’d recommend you start with at least 50% savings in an equity fund. Alongside, you can also start by building your own Eq portfolio. Stay away from F&O till you are comfortable with trading and investing in EQ.

  185. Kumar says:

    Best fundamental Analysis I have gone through it. Very Insightful, Practical and well structured right from the beginning module. Finally, A Big Thanks to You and Your Zerodha team.

  186. Jitu says:

    It will be very helpful if you will share a chapter on how to analyse best Corporate Governance practises in companies.

    • Karthik Rangappa says:

      That will be tricky, but an interesting idea. Will make note of this and write a note on it as soon as I can.

  187. Zubair says:

    I read fundamental analysis chapters. It was very lucidly explained. I have plans for investing only. Is there any advantage in reading technical analysis in that case? One question I have is this? Will Fixed assets always depreciate? For example land bought by company for its plant. Land value can appreciate. Isn’t it?

  188. Kailash says:

    Hi Karthik,
    I enjoyed reading the Fundamental Analysis module, thank you for the great content. I found the DCF model very useful and practical. applied it to companies in my portfolio and it was startling 🙂
    Question: Can we use this model for Banks and NBFCs? Besides, how do we approach evaluating companies with significant capex and debts but low net operating cash flows
    Thank you.

    • Karthik Rangappa says:

      Not really. I’d suggest you avoid using this for banks and NBFCs. The treatment for companies with significant capex and debts but low net operating cash flows is still the same. Btw, with -ve cashflow you cannot apply DCF.

  189. Daniel Abraham says:

    Q1.) IN SCREENER.IN THE PE ratio is changed on the basis of the price. since pe is related to earings of a company how can the movement of PE be on a day to day basis without the release of a new quarter or annual report to note the change in earnings

    Q2.) why is the past info of only three years taken for dcf? I s there any specific reason behind it? In the book intelligent Investor Graham suggests to consider atleast 7-10 years of data.

    Q3.) What is the difference between diluted and basic shares? which one must be considered for total equity shares?

    Q4.) what is a goodwill in asset column?

    • Karthik Rangappa says:

      1) While earnings is constant, price changes daily
      2) Times have changed. Too hard to make such long term predictions
      3) diluted
      4) The premium received over an above the fair value on an asset sale.

  190. Debabrata Ghosal says:

    After reading and re-reading varsity modules, no other materials appear to be readable… it’s really wonderful to see your lucid and crystal clear explanatios…thanks a lot for providing us with such valuable insights…
    In the first step of dcf model we are calculating avg free cash flow by adding cash from operating activity and capital expenditure… but, let’s say, if the capital expenditure is so high in recent time that the sum becomes a negative value, then how can we proceed to future cash flow and so on?

    • Karthik Rangappa says:

      Thanks for the kind words 🙂

      DCF does not work for -ve CF. However, if its one time CAPEX, then maybe you can spread the amount over a couple of years.

  191. Divyam says:

    If i want to be a fundamental investor only,and not engage in trading and speculation.
    What modules of varsity should i complete?and which ones can i completely ignore?

    Here is what i planned?
    1)introduction to market
    2)technical analysis
    3)fundamental analysis
    4)future trading
    5)Options theory
    6)market and taxation
    7)currency,commodity,government security
    8)personal finance
    9)mind over market

    While ignoring
    Options strategies,risk management and trading psychology,trading systems

    Please guide me on this,given that i dont want to do trading or speculation,just fundamental investing

    As a suggestion,Varisty has grown a lot in size and content and a guide on how to use varisty,which order to go in modules,what can be skipped etc …such a guide will help a newbie a lot

  192. Divyam says:

    Also wrt the question above,after varsity what resources should I read in order of priority sir?

  193. Kailash says:

    Karthik, hope you are staying safe
    Thanks for your thoughts on my DCF query. A follow up q if i may
    how do we evaluate instrinsic value for NBFC and Banks
    can we please have an appendix in the Fundamental analysis module

  194. Raghav Bansal says:

    Marvelous work Karthik bhaiya! Had fun reading and learning through all these chapters of fundamental analysis. You are really in the right direction of providing financial knowledge to everyone at no cost. Hats off!

  195. Nidhin Raj says:

    Mr.Karthik Rangappa thanks a lot for sharing your knowledge. Each subject is well explained with simplified examples, have learned a lot during this lockdown. The narration of each chapter is well organized. Looking forward to read next module.

  196. ANKIT says:

    hi karthik .
    any good source i can read about sectors which will help me in stock selection like banks auto airline etc. how can i know more about sectors
    any website
    any link
    any source .
    plz share

  197. CA Rohith Srinivas says:

    Hai Mr. Karthik,

    This was a detailed explanation on fundamental analysis. Hands off for the patience in creating such an elaborated explanation along with the link to practicality.

  198. Rohith says:

    What are the main ratio while analysis of bank or NBFC ??
    Ex : CASA etc.

  199. richard says:

    thanks po katatapos kulang… salamat sa tyaga…Godspeed po.

  200. Akash says:


    Kindly have a brief module of ALTMAN Z Score, Modified C Score and F Score. Also kindly explain what are their importance and how to compute them ?


  201. Kartik says:

    Hello Sir,

    I read the book – The Little Book that Beats the Market. There was a magic formula mentioned in the book. So, I want to know whether that magic formula still gives good results in the current market scenario and how to use this magic formula for the Indian Stock Market. Is there any tool that could help me apply the magic formula for Indian Stocks?


    • Karthik Rangappa says:

      It is based on fundamentals, so it is quite relevant. I think Screener has preset filters to identify stocks under the magic formula criteria.

  202. Kartik says:

    Should we use this magic formula approach during this uncertain Coronavirus market situation or wait for a few months?

  203. Nikhil Khetan says:

    Hi Karthik,

    I have two queries on which I would like your opinion.

    1. I used the DCF model to value a company. The intrinsic share price after incorporating the Model Error and the Margin of Safety came out to be in the range of the current Market price of that share.
    Is a stock considered cheap when the Market price is around the intrinsic price from the DCF model or should the Market price be below the price from the model for the stock to be considered cheap?

    2. Should a value investor ever buy a stock that is already part of an Index? I am asking this because if a stock is part of an Index, it would automatically be bought by a lot of MFs and other institutions which would raise the stock price above intrinsic values.


    • Karthik Rangappa says:

      1) It is considered cheap if the stock price is below the intrinsic value.
      2) Yes, as long as you get it at a great value 🙂

  204. Vaibhav says:

    Sir, I have read all the Fundamental Analysis modules that you wrote and let me tell you that I have become a fan of yours today. The way you wrote was very easy to understand and apply the methods for a newbie like me. You have truly inspired me. I wish to meet you one day in person and thank you for inspiring me. Wish you best. Keep winning 🙂

  205. Shivam says:

    Sir, I read the book (The Little Book that Beats the Market) which you have recommended above. I came to know about the Magic Formula approach and also, a company called Smallcase has also created an investment technique using the same Magic Formula Approach called Magic Formula(

    So, should I try to invest by myself or it is better to use Smallcase’s Magic Formula. I am a beginner in trading/Investing.

  206. Ronak P says:

    Thank for this immensely valuable content!

    I do have a question though;

    Assuming that we hold a stock of a well known company not having great fundamental qualities, should we wait for it to become better or book our losses?
    Also what should one do if a good stock has been purchased at higher prices?

    Do suggest something to get better at qualitative analysis.

    Thanks again!
    (and yes, I am looking for free advise😰

    • Karthik Rangappa says:

      If you have a fundamentally weak stock, you should get rid of it the moment you realise it. No point hanging on to it. Good stock bought at a higher price, well, unfortunately, you cannot do much, depends on how much higher. You may just have to wait for it to get to a better price point and sell 🙂

  207. Prabakaran Selvaraj says:

    Thanks a lot for your time & effort in creating this highly values content. I really liked the examples you have given to explain the concept which helped me to understand easily.

    I have few question,
    1) I understood that we shouldn’t buy the overvalued stocks but some stocks with momentum is performing well even though it is overvalues, How we should consider those stocks?
    2) Can I start with the book “The Intelligent Investor”?

    Thanks once again for providing the financial literacy at free of cost!

    • Karthik Rangappa says:

      1) When you buy stocks based on momentum (even though they are fundamentally strong), then the play is on momentum and not really the business strength. The only measure is to keep tight SLs and ride along the momentum

      2) Yes please.

      Good luck!

  208. gaurav bhootna says:

    thanks for all the efforts u have put …
    can u tell me how to get access to the annual general meetings of the company and the access to the conference call of the company?

  209. Divanshi Agrawal says:

    Thankyou so much for your valuable information and time you’ve put into making these priceless notes. I hope I put this knowledge into use. these notes are actually great and understandable by beginners. The way you wrote actually made readers read them with full interest and concentration without considering it to be STUDY

  210. Chandhana says:

    Thank you! Very informative!

  211. Arun Kumar Balla says:

    Reading all these chapters is probably the best thing I did during this lockdown period. Done nothing but this module for the last 3 days. Did go through each and every detail explained in these chapters. I thoroughly enjoyed and loved learning fundamental analysis. I look forward to doing a detailed analysis before buying any stock. Thank you so much, Sir, for such an amazing explanation. This is such an invaluable content!!!

  212. Anirudh says:

    Sir, I highly respect you. You have done some colossal work here. I literally have no words to describe my respect for you Sir. This is some highly effective and useful piece of information you have come up with. The fact that team Zerodha and yourself have decided to educate people like us who have no clue whatsoever about investing completely for free is highly commendable. Please keep up the good work. Hopefully one day, I will also be teaching people about investing and clarifying their doubts.
    Thank you so much for all of this.
    Looking forward to learn more.
    Best Regards for you and team Zerodha

  213. Aniudh says:

    Thank you so much

  214. yash says:

    sir, for now, I just want to focus on long term investing, do the next three module(f&o, etc) has anything to do with long- term investing ? Also, after finishing this, I have decided to read many books on investing and now I’m starting with the the intelligent investor and I want to become a great investor no matter what it takes. so, do you have any suggestions for me? and apart from that, do you think I’m starting with the right book? if not, suggest me a good book to start with. Thanks sir, I owe a great debt of gratitude to you, the person who helped me start off my investment carrier. 🙂

  215. Gaurav R says:

    Hi Karthik, been through all 3 modules of Varsity till now, and I have to this is some very valuable content that you’ve provided! Even to a newbie like me, everything seems perfectly explained and so easy to understand. I have a couple of queries –
    1. I’ve completed the TA and FA module now, and you mention that TA is usually for short term trading and FA is for long term investments. How do you pick between trading or investing? And what would you recommend for someone who is completely new to the market?
    2. If I look to get into short term trading, perhaps swing trading as you suggested, should I be looking at the candlestick charts of my opportunity universe daily?
    3. If I look to get into investing using FA, how do I identify stocks or organisations to invest in? Both NSE & BSE have a large number of scrips and I don’t think performing FA for all would be feasible.

    • Karthik Rangappa says:

      1) Gaurav, this depends on your risk-reward temperament, expectations from the market, capital, and patience :). If you are new, I’d suggest you invest and get a grip on markets, as you gain more experience in markets, move to trade shorter terms.

      2) Yes, that’s right

      3) I’d suggest you stick to Nifty top 100 as your universe and try to build a portfolio of 12-15 stocks.

  216. Gaurav R says:

    Hi Karthik

    1. Could you elaborate a little? For example, I know that if you’re willing to take a little higher risk, one should look at trading, where as if you’d like to keep risk at minimum, it’s better to invest. Likewise, on the patience part, higher patience means investing while lower patience means trading. (Please do correct if this is wrong.) Could you tell a little more about the ‘expectations from the market’ and the ‘capital’ factors?

    2. and 3. Got it, thanks a lot!

    • Karthik Rangappa says:

      1) Patience boils down to just that, for how long you are willing to hold the position and what kind of returns you expect. For example, I buy RIL and expect 25% on the investment, then I know I’ll have to be willing to hold for at least a year or so. By expectation, I mean what to expect in terms of returns. 25% return on a single stock per year is possible. But is it fair to expect that on an intraday basis? I don’t think so. You just need to be aware of this and have realistic expectations.

      Good luck!

  217. Gaurav R says:

    Alright, great, thanks a lot!

  218. Manish Khiyani says:

    Hi Karthik,
    I am extremely grateful to you for sharing such valuable content with us and that too for free. Three months back, I started looking for educational content regarding personal finance, stock market education, etc. I wanted to take control of my finances and find valuable options. For someone like me finding varsity turned out to be a goldmine of knowledge and new opportunities. This module on FA is pure gold, I feel much more confident and educated enough to start investing. I would suggest Varsity to every one of my friends looking for financial education. Thank you very much for doing this. I wish you lots of wealth and health.

    • Karthik Rangappa says:

      Manish, thanks so much for the kind words and encouragement. I’m really glad that you liked the content here and I hope you continue to like it going forward. Happy reading!

  219. Roshan says:

    Hello sir,
    I am not able to follow the line “but no company deserves a FCF growth rate of over 20% “. What does it means FCF growth rate every subsequent year should be 20% and more

  220. Roshan says:

    I have 2 queries
    Q1. What is difference between FCF and retained earning?

    Q2. What is difference between the retained earning, reserve – surplus and FCF


    • Karthik Rangappa says:

      1) Retained earning is the profits made for the year, purely from revenue/sales perspective. FCF considered all the cash inflow and outflow (like CAPEX etc)
      2) Retained earnings (PAT) flows into the Reserves.

  221. Roshan says:

    Ok sir, bit confused, so what should be FCF growth rate,

    • Karthik Rangappa says:

      The growth rate in FCF depends on the company/sector right? An old company in the traditional sector will continue to grow slowly. However, a new age company in a new sector (Swiggy for example) will continue to grow rapidly.

  222. Roshan says:

    Sorry to bother you again,
    please correct me
    Retained earning means PAT
    Reserve – surplus means FCF (?? ) If not please correct me

    • Karthik Rangappa says:

      Retained Earnings is PAT. No Reserves – Surplus is not FCF. Have explained FCF in the chapter itself, please do have a look at it.

  223. Roshan says:

    Thanks sir!!

  224. Hemachand balla says:

    Thank u Karthik ji
    With lots of respect

  225. Raj says:

    Thanks! Karthik explained the concepts in a simple and understandable way. This will go a long way in educating the Indians. Financial Literacy is much needed and you are making it possible.

  226. John Singh says:

    Hi Karthik,
    Can you please let me know where I can get a brief overview of all the Sectors and Industries in Indian Stock Market. Searched all over the internet but could not get any explanations for sectors and industries. It would be helpful if you can guide me as I am stuck here. Thanks in advance.

  227. manish surve says:

    hi karthik
    in detail deep knowledge given about fundamental research of stocks.thank u.

  228. Yash Bajpai says:

    I have a question. Why can’t you buy shares of a company that has good investible grade attributes, since it means the price will go up even if the value is more than the intrinsic value. For example, you held on to ARBL shares at 720 which means you were expecting the company to grow. So why cant someone buy the share at that price with the same expectation. In the end you make a profit regardless of the intrinsic value of the stock. Is it just that you will not get a good return?

  229. Yash Bajpai says:

    so there is no harm necessarily in buying shares above intrinsic value. Thank you for your efforts

  230. Yash Bajpai says:

    I asked the question because for the time you dont find an attractive stock, is it not better to stay invested than not invest at all?

  231. Yash Bajpai says:

    Okay. Got it. Thank you for all the help. This has really helped me get started. Amazing lessons

  232. Harsh Kr says:

    After diving deep into YouTube for understanding fundamental analysis , passing upon 2-3 best channels. I felt many of the important concepts was still missing.

    And then I found this module, which is BEST of the BEST to easily learn and clearly understand fundamental analysis. Best wishes to the creator.

  233. Mridul says:

    Hello Karthik

    I am very thankful to you for providing such material. I have questions that I would like to ask you.

    Small cap which have high growth potential but is it possible for them to have moat mean they don’t have brand value yet, pricing power, etc.

    I read last 5 year annual report of a small cap company and

    Should I read annual report of top players in competing or competitors with same market cap? And how many competitors would you study and last how many years report of those?

    Many many thanks for the content and the webinars too.

    • Karthik Rangappa says:

      Regardless of the company, you need to ensure that the company has a moat. That matters. Yes, you should read the annual report of other companies to get a sense of how the industry landscape is.

  234. AKS says:

    I just finished this modules. It is full of useful informations and I hope I’ll apply these formulas before investing.

  235. Anand says:

    Great content karthik rangappa, thanks a lot.

  236. Satya says:

    Hi Karthik,

    How the failed delisting news made Vedanta to hit lower circuit? What is the thought process behind this?


  237. Aswanth says:

    Thank you so much for explaining DCF valuation with real example. but let me ask you one question what do if FCF amount is Negative instead of positive
    How to calculate then and what is the difference between Ben Grahams Intrinsic value and DCF intrinsic value. For me it is coming different amounts.
    I want to know which one should consider DCF one or Ben Graham one.

    Again, Thank you for making these modules, it helped me a lot to understand the financial statement but to be honest Other reading materials are boring.
    Still struggling to understand the annual report. sorry for making it long. and again thank for making these modules.
    God Bless You all Time

    • Karthik Rangappa says:

      Aswanth, DCF is not applicable for negative cash flow. YOu’d rather opt for the Graham approach. Happy reading 🙂

  238. Aswanth says:

    That means negative FCF mean it is not valid to Calculate DCF ; i should avoid that company.
    Why do Graham Formula’s is different from DCF?

  239. Satya says:

    Hi Karthik sir,

    Infosys posted good results today, but still share price has fallen. What is the reason?

    Thanks & Regards

  240. Aswanth says:

    how can i find total dividend paid out for that year. Some companies shows Interim dividend, Proposed dividend, Special dividend
    and some companies only shows the dividend per share for that year. Where can i find the original dividend paid out for that year in Annual report.
    please help.

    • Karthik Rangappa says:

      Look for dividend payout section in the annual report, they would have given you the entire split. Usually for most companies its just one dividend per year.

  241. Aswanth says:

    Dividend payout section means in the director reports the dividend section

  242. Aswanth says:

    which intrinsic value should i take the Ben graham one or DCF because in one company i used both of them in Ben graham formula its overvalued and DCF formula it was undervalued. Why is that?

    • Karthik Rangappa says:

      Why is that — well, maybe the company is really undervalued, and it could be undervalued for a reason 🙂
      Which value should you take, – there is no preference here. Pick the one in which you have a higher conviction and the one which you feel has lesser modelling errors.

  243. Aswanth says:

    both are showing intrinsic value but different value make it confusing.

  244. Aswanth says:

    Don’t feel bad if it come to cash I take DCF. But I prefer Ben Graham one.

  245. Aditya Singh says:

    Thanks for this, Zerodha!

  246. Moses says:

    This is regarding the constant updates of DC, how do you apply this from the usage of annual report to quarterly report? How can we apply the quarterly values in the DCF model?

    • Karthik Rangappa says:

      Its hard to update considering quarterly updates only contain P&L. At best you can update the revenue model and other P&L assumptions.

  247. Sunny Bhadra says:

    Sir, what if someone had bought shares of a company but the shares are not traded on the stock exchange anymore but the shares are still in the demat account ?
    Is it possible that the shares might trade again on the stock exchange ?
    Is there any way to sell those shares ?
    Example – SRS Limited.

  248. Sunny Bhadra says:

    There’s no other way except to sell it on the exchange ?

  249. Sunny Bhadra says:

    Ok. Thanks.

  250. Aswanth says:

    Sir why do the values of DCF intrinsic value differ from Ben Graham’s Intrinsic value.

  251. Aswanth says:

    That means I have to choose between these two right
    If I gets a negative fcf then how can I get an intrinsic value.

  252. Sunny Bhadra says:

    Sir, in one of your youtube video on Volatality Based Stop Loss you calculated the 1 SD for Idea for a one year data.
    Will not my answer be same if I use Bollinger Band and change the setting from 20 to 260 Days (i.e. 1 Year Data) and use 1 SD.
    Then will not have to caculate it myself using excel right ?

  253. Sunny Bhadra says:

    Ok Sir. Thanks.

  254. Niharranjan Nayak says:

    valuable lessons

  255. Kumari says:

    Thanks for making me understanding financials statements etc., very clearly explained with examples. great job and useful for many like me. thank you once again.

  256. Mohammad Mubeen says:

    That’s still awesome that you reply towards our questions and answers 💯🎉🎉

  257. Trace says:

    Hello Karthik,

    I hope you are well.

    Would you include a section on how to go through quarterly results, balance sheets, cash flow analysis of banks/nbfc/holding companies?

  258. Chandu says:

    Sir i followed the steps done by you while I calculated the intrinsic value where I got 1078 after deducting the margin of safety 30% 1078 while the market price is 714 hence I declared the stock is undervalued and other checklist was good,if you don’t mint shall I share my calculations so that I can get corrected of I’ve done any mistakes

    • Karthik Rangappa says:

      Chandu, I’m not sure if I can check these calculations. IOC is a popular stock. Not sure of it is so undervalued, especially in a bull market. PLease do check the calculations again, just to be sure.

  259. Chandu says:

    Sir company name is IOL Chemiclas and pharmaceuticals I started to dig into the company because of FII have increased there shareholding from 2% to 6.5% I checked in screener to whether my FCF where right it was around 100 during March lows and now it is 721 almost it has 7x now by DCF I found that it has still undervalued.
    Thank you sir!

  260. Chandu says:

    Sir and the company PE is 10 where the ROE is 55% and ROCE is 61.32% it’s my calculation, when I got such huge calculations I checked in screener whether I’m crct and in screener it’s not exact but it’s in the range I calculated when. I compared to peers there ROE AND ROCE is low for peer company like biocon but PE is very high like for peers like 30,40 and industry PE too is way above 9 and it’s other confirmation that it is undervalued. While calculating RoE I checked debt too there is no long term debt in balance sheet and company clearly stated it in their annual report they have cleared their debt

    • Karthik Rangappa says:

      Possible Chandu, I’d suggest you look at the annual reports of the company along with the reports of the peers as well. YOu will gett valuable insights into their industry.

  261. Shyam Agrawal says:

    When I found the intrinsic value band of sbi card using fcf it is negative. Why is it like that?

  262. Shreya says:

    Just have one word.. Perspicuous..

    Thank you, Karthik 🙂

  263. Trace says:

    Dear Karthik Sir,
    I trust you are well.
    Companies release it’s annual balance sheet once a year which shows all its assets and liabilities and the amount of debt the company is carrying.

    For example say a company takes a massive loan in the second/third quarter of the financial loan. I am not a fan of companies that have loans and prefer debt free companies. I will only find out about this when the company releases its new balance sheet next year. Is there a way around this?

    Also can you please mention how to read a bank/nbfc balance sheet please? It is important as these companies basically run the market in all economies.

    • Karthik Rangappa says:

      Most often the decision to take a debt (especially large ones) is not overnight. If there is an intention, they will hint at this in the annual report, else they will make a public announcement and it gets released via circulars to the exchanges.

  264. Trace says:

    Dear Sir,

    If a company has debt of 50 cr while its Market Cap is 1500. Is it safe to say that 50/1500 of the company is funded by debt?
    Or do we have to use the enterprise value?

    • Karthik Rangappa says:

      Hmm, a tricky proposition this one. You will have to consider many other factors, but if it were decision-based on just the debt part, I’d hesitate.

  265. Trace says:

    Dear Sir,
    You have not spoken much about enterprise value.
    Do we consider enterprise value for our company valuations?

  266. Trace says:

    Dear Sir,
    Would you please include understanding banks and nbfc financial statements in that module?

  267. kiran Ravindra kanoj says:

    I am speechless by the efforts that you have put in. I hope I can pass this knowledge ahead to the people I interact with. There are many paid courses are out, but none can match this. Thank You, Karthik!

    • Karthik Rangappa says:

      Thanks for the kind words, Kiran and I think your thought of passing this knowledge is quite impressive. Good luck!

  268. Sanit says:

    Sir,Can you do case studies on a large cap,mid cap,small cap companies.From qualitative analysis to price valuation(end to end analysis).
    Please 🙂

  269. SwatiS says:

    Karthik.. I have gone through the first three modules sequentially. Wonderful insights and cannot thank you enough.
    Quick question .. Do we need to go through the modules sequentially or can i go directly to another module for example Personal Finance ? Your suggestion please.

    • Karthik Rangappa says:

      Swati, thanks for the kind words. Yes, you can go directly to Personal FInance. However, few modules are connected, for example, the module on trading systems is connected to derivatives.

  270. Ramju says:

    Dear Sir,
    Can you explain why people create holding companies?
    Why are holding companies valued so less, for example, if Maharashtra Scooters has a 3.15% stake in Bajaj Finance a 330000 cr company yet Maharashtra Scooters has a market cap of 4300 cr. That 3.15 % stake is valued at around 10000 cr.
    This does not make sense right?

  271. Jethuson says:

    Namaste sir,
    Can you explain one thing to me?

    Alembic Ltd Owns 50-60% of Alembic Pharma and Alembic Pharma has a small stake in Alembic Ltd.
    How exactly does that work?

    For example, if Alembic Pharma has a good quarter and its price rises and gives a dividend, this would increase Alembic Ltd’s valuation as they have received a sizeable chunk in dividends and their investment value goes up. This obviously causes Alembic Ltd share price to go up which ends up causing Alembic Pharma’s invest to increase. So isn’t this going in a circle? I must be missing out something.
    Please explain?

    • Karthik Rangappa says:

      Mostly likely the holding of Alembic Pharma in Alembic Limited will be to fulfil some statutory requirement, hence I’m guessing this won’t have an impact.

  272. Jethuson says:

    Dear Sir,
    Can you explain why people create holding companies?
    Why are holding companies valued so less, for example, if Maharashtra Scooters has a 3.15% stake in Bajaj Finance a 330000 cr company yet Maharashtra Scooters has a market cap of 4300 cr. That 3.15 % stake is valued at around 10000 cr.
    This does not make sense right?

    • Karthik Rangappa says:

      The purpose of a holding company is just that i.e. to hold shares of the company. The incomes are depended on the dividends and the holding company will never sell shares to gain from capital appreciation, so the value of the stake does not really matter. Hence the low valuation.

  273. Gaurav Ramnani says:

    Hi Karthik, had a small doubt. I believe I read somewhere that Fundamental Analysis for banking stocks needs to be done slightly differently (probably because they tend to have a lot of debt iirc), could you explain this in more detail? Thanks!

  274. Jethuson says:

    Hello Karthik Sir,

    To follow up with my question,
    Lets say Maharashtra Scooters sells it 3.15% stake in Bajaj Finance. Wouldn’t it stock price increase considerably?

    But owning equity stock is nearly as liquid as Cash. If maharashtra scooters gets bought over by another company, I’m sure they will take it into account that maharashtra scooters owns 3.15% of Bajaj Finance?

    • Karthik Rangappa says:

      Yes, that would will have a positive impact on the stock price. That’s right as well. Btw, Eq cant be compared to Cash, given that EQ is volatile.

  275. Jethuson says:

    Dear Sir,

    I still do not understand why the company is undervalued despite holding a substantial stake in other companies.
    Sure equity is volatile, But that stake it owns would be considered an asset in its Balance Sheet right?
    So the company owns more assets than its market cap?

    This doe not seem to add up sir.

    • Karthik Rangappa says:

      Think about it, if I hold 10kgs of gold, you know that the value of it is worth the price of 10kgs of gold multiplied by its market price. This is based on the assumption that at some point I will sell this gold. On the other hand, what if I told you that I will never sell this 10kg gold? What value will you ascribe it?

  276. Jethuson says:

    Dear Sir,
    Thank you for your prompt reply.

    I understand what you are saying, but who is to say that Maharashtra scooters or said holding company will not sell those shares.
    For example if Maharashtra scooters sold of Bajaj Finance before the March covid drop at 4000 and rebought it at 1900. Wouldn’t that have made a big difference? How does the market automatically assume that the said company will not sell of its shares

    Like Berkshire hathaway is a holding company that is valued very high.

    • Karthik Rangappa says:

      I’m surprised they did that. I’m not sure. Usually, these companies trade at a discount because there are no triggers to rerate the stock, highly predictable cash flow, no business model, holdings are forever. Equities appreciate for the exact opposite reasons.

  277. Gaurav Ramnani says:

    Oh that’s alright. Any resources you could point me to where it’s explained?

  278. Jose helm says:

    Hello Karthik,

    I hope you are doing well.

    Can you explain how small cap/micro cap stocks are manipulated by operators ?

  279. Jose Helm says:

    Dear Sir,

    This is mainly for penny stocks.

    What about larger companies like BHEL, ADANI Green, Ruchi Soya. All these companies have terrible financial data yet they are rising almost all the time.

    For example Ruchi Soya, was 14 in Jan2020 and and 1300 in June2020. Rising 5% everyday while everything was dropping cause of the pandemic.

    Can you care to explain?

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