Pratyush Harlalka

What comes to your mind when you read these words together? You might be thinking of multiple computer setups with colourful charts displayed on them and a professional person shouting to get the trades right so as to make his/her pocket dearer ( in the form of commission).

Or you might picturise a professional going through the annual report or quarterly report of companies to dig the relevant qualitative and quantitative data which may in turn help him to draw his recommendation in the form of Equity Research Report.

Those mind-boggling professionals are called Equity Research Analyst. The former ones are called Technical Analysts and the latter ones are called Fundamental Analyst.

So what’s the difference between the two?

Technical analysts:  These are the finance professionals who make the trades studying various charts and indicators.(example- Bollinger Bands, Fibonacci Retracement). Everyday lots and lots of financial data is created on the respective exchanges. They analyse the price movements and market psychology through trading Softwares and try to discover the trends getting established via different chart patterns. On the basis of their judgement, decisions are taken whether to short or go long. They are less focused on historical data or financial statements as compared to fundamental analysts.

Fundamental Analyst:  These are the professionals who make recommendations on the basis of the financial statements of the company( annual report or quarterly report- depending upon the period covered in research report). They focus on to know the Intrinsic Value of shares i.e. what the price actually should be, according to their analysis.

For calculating intrinsic value, various valuation methods/ financial models are present (ex:  DCF approach). After finding intrinsic value, it is compared with the Current Market Price(CMP) of the underlying security.

If the Intrinsic value in more than CMP, it means the stock is under-valued and vice-versa. Undervalued stocks hold good for BUY recommendation and over-valued holds good for SELL recommendation.

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February 2024