Complete Fundamental and Technical Analysis: Step-by-Step Guide (2026)
Today, we will talk about a very important topic that every investor and trader should understand but many people often ignore — Fundamental Analysis Basics. Think about this: if you want to become a partner in a company, what would you check? Only the share price, or would you also look at how much profit the company earns, how strong its finances are, and whether the management is honest and trustworthy?
What Is Fundamental Analysis in the Stock Market?
Fundamental analysis is like checking the full background of a company. It helps us study a company’s financial health so we can understand how strong it is from the inside.
Common Mistakes New Investors Make While Investing in the Stock Market
Before investing money, every investor must properly examine whether their hard-earned money is being invested in the right place or not. Many new investors make the mistake of investing just because a share price looks cheap, without doing any research. Later, when the company goes bankrupt or the stock price falls by 70–80 percent, they blame the stock market instead of their own lack of analysis.
What You Will Learn in This Stock Market Guide
In this guide, we will understand each topic step by step under Stock Market Fundamentals for Beginners, so that our money is invested in the right companies and remains safer in the long term.
PE Ratio Explained: A Key Concept in the Stock Market Fundamentals for Beginners
PE Ratio (Price-to-Earnings Ratio) is one of the most basic and popular tools used by investors. It tells you how much an investor is willing to pay for one unit of the company’s earnings.
Simple Example:
Suppose a company earns a profit of ₹100 and the price of one share is ₹1,000.
- PE Ratio = 1000 ÷ 100 = 10
This means you are paying ₹10 for every ₹1 of earnings.
What to Watch:
- High PE Ratio: Indicates that investors expect high future growth from the company and are willing to pay more.
- Low PE Ratio: Could mean the company is undervalued or has slow growth potential.
If you are planning to buy shares for the long term, always check the company’s PE Ratio. Also, compare it with the sector’s average PE Ratio to make better investment decisions. For final clarity on valuation, you can also use the PEG Ratio, which we will discuss in detail later.
Earnings Per Share (EPS): A Key Fundamental Concept in the Stock Market for Beginners
EPS, or Earnings Per Share, shows how much profit a company earns per share in a given year. It is a useful metric to compare the profitability of different companies easily.
Example:
- Company A: Total profit = ₹1,000, Number of shares = 100
- EPS = 1,000 ÷ 100 = ₹10 per share
- Company B: Total profit = ₹500, Number of shares = 25
- EPS = 500 ÷ 25 = ₹20 per share
This means that Company B earns more profit per share compared to Company A.
Key Point: EPS helps investors understand how efficiently a company generates profit for each share, which is an important part of Stock Market Fundamentals for Beginners.
Company Financial Health for Stock Market Beginners
Key Financial Numbers to Check a Company’s Health in the Stock Market
There are some important numbers that indicate a company’s financial health:
ROI (Return on Investment): Meaning and Importance in the Stock Market
ROI shows how much return a company is earning on the total money invested in the business.
Example:
Total investment (factory, machines, land) = ₹10 crore
Profit at the end of the year = ₹2 crore
ROI = (2 ÷ 10) × 100 = 20% This means the company earned 20% return on its total investment.
ROE (Return on Equity): Meaning and Importance in the Stock Market
ROE shows how much profit a company earns on the money invested by shareholders (equity). A good company usually has a high ROE.
Example:
Shareholders’ equity = ₹5 crore
Net profit = ₹1 crore
ROE = (1 ÷ 5) × 100 = 20%
This means the company generated a 20% return on shareholders’ money.
ROI vs ROE (in brief)
ROI = Return on total business investment
ROE = Return on shareholders’ equity Both metrics are important for understanding company financial health, which is a key part of Stock Market Fundamentals for Beginners.
What a Company Owns: Key Assets and Financial Strength (Balance Sheet Overview)
| Metric | Meaning | Example / Explanation |
| Reserves | Money a company saves from its annual profit for future use. | A company saves part of its ₹100 crore profit every year for expansion or emergencies. |
| Cash Flow | Shows cash coming in and going out from business operations. | Positive cash flow means the company has enough cash to run its operations smoothly. |
| Book Value | Amount of money left if the company closes, sells all assets, and pays debts. | If a company sells all assets and clears debts, remaining ₹50 crore is its book value. |
| Dividend Yield | Percentage of investment received as dividend. | Share price = ₹100, Annual dividend = ₹5 → Dividend Yield = (5 ÷ 100) × 100 = 5% |
Note: Understanding these metrics is an important part of Stock Market Fundamentals for Beginners, helping investors evaluate a company’s financial health and make informed decisions.
Real-Life Analogy
Think of it like a fixed deposit. You invest ₹100,000 in an FD. The bank gives 5% interest. You earn ₹5,000. Dividend yield works similarly, but the difference is that FD gives a fixed return, whereas dividend from shares is not fixed and can vary.
Valuation and Growth Metrics in the Stock Market for Beginners
- PEG Ratio (Price-to-Earnings to Growth Ratio)
- PEG Ratio can be considered an advanced version of the PE Ratio. While PE Ratio only tells you the current price relative to earnings, PEG Ratio also takes growth into account.
Formula: PEG Ratio = PE Ratio ÷ Annual EPS Growth Rate
What to Watch:
If PEG Ratio is less than 1, the company may be undervalued.
If PEG Ratio is greater than 1, the company may be overvalued.
Thumb Rule: Investors often look for companies with PEG Ratio less than 1.
Simple Example:
Company A:
PE Ratio = 20
Earnings Growth = 20%
PEG = 20 ÷ 20 = 1 This means the price and growth are balanced, and the share is considered fairly valued.
CAGR (Compound Annual Growth Rate) for Stock Market Beginners (2026)
CAGR shows how fast an investment is growing on an annual basis.
Example: Suppose a company’s profit was ₹100 three years ago and today it is ₹133. CAGR indicates that the profit has grown at an average rate of 10% per year.
CAGR allows you to compare revenue and profit growth over multiple years and understand the company’s performance trend.
| Term | Meaning | Example |
| Fair Value | The true value of a company based on its financials and growth potential. | If a company’s fair value is ₹500 per share, this is its estimated real worth. |
| Overvalued | When the share price is much higher than its fair value; buying at a high price may lead to losses. | Share price = ₹700, Fair value = ₹500 → The share is overvalued. |
| Undervalued | When the share price is lower than its fair value; the stock may have higher future growth potential. | Share price = ₹350, Fair value = ₹500 → The share is undervalued. |
Note: Understanding fair value, overvalued, and undervalued stocks is an important part of Stock Market Fundamentals for Beginners and helps investors make informed decisions.
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Operating Margin: Meaning and Importance in the Stock Market
Operating margin shows how much profit a company makes from its core business operations, before interest and taxes. It helps investors understand how efficiently a company is running its business.
| Metric | Meaning | Example |
| Operating Margin | The percentage of revenue left after covering operating expenses. | If a company earns ₹1,000 revenue and its operating expenses are ₹700, the operating profit = ₹300. Operating Margin = (300 ÷ 1,000) × 100 = 30%. |
| Interpretation | Higher operating margin means the company is more efficient and profitable. | A company with 30% operating margin is more efficient than one with 15%. |
Note: Operating margin is a key metric in Stock Market Fundamentals for Beginners as it indicates how well a company converts revenue into profit from its core operations.
Simple Example:
Suppose there is a company with revenue of ₹100 crore and operating expenses of ₹70 crore.
Then, the operating profit is ₹30 crore, calculated as ₹100 crore minus ₹70 crore.
Calculating Operating Margin:
The operating margin is calculated as (30 ÷ 100) × 100, which equals 30%.Interpretation:
This means the company earns ₹30 profit from core business for every ₹100 of sales. It indicates that the business is running efficiently.
Quarterly Results: Meaning and Importance in the Stock Market
Companies announce their quarterly results every three months. These reports provide information about revenue, profit, and other financial data. Investors and analysts review these results to estimate the company’s potential future growth or decline.
Technical Analysis is the study where traders analyze stock charts to predict future prices. Unlike fundamental analysis, technical analysis does not focus on a company’s financials. Instead, it examines patterns in price and trading volume. Traders use this method extensively to make short-term trading decisions.
Technical Analysis Basics in the Stock Market for Beginners
Support and Resistance in the Stock Market: Meaning and Examples
Every stock price moves within a range, and support and resistance are two important levels within that range.
Support: This is the price level where the stock price stops falling and starts rising again. Buyers become active at this level. For example, if your friend always buys something at ₹50, then ₹50 becomes his support level. Similarly, in the stock market, when a stock repeatedly stops falling at a certain point, that point becomes its support level.
Resistance: This is the price level where the stock price stops rising and starts falling. Sellers become active at this level, meaning people start selling at this price.
Example: Suppose HDFC Bank’s share has been trading between ₹1,400 and ₹1,500 for the last six months. The support level is ₹1,400; whenever the price reaches this level, buyers push it up. The resistance level is ₹1,500; whenever the price reaches this level, sellers bring it down.
Breakout and Breakdown in the Stock Market: Meaning and Examples
Breakout and breakdown occur when a stock moves beyond its support or resistance level.
What Is a Breakout in the Stock Market? (Beginner’s Guide)
A breakout happens when a stock rises above its resistance level. This indicates that buyers are very strong, and the stock price may go even higher. Traders often look for buying opportunities after a breakout.
Example: If HDFC Bank’s share breaks the resistance level of ₹1,500 and rises to ₹1,550, this is considered a breakout.
What Is a Breakdown in the Stock Market? (Beginner’s Guide)
A breakdown occurs when a stock falls below its support level. This indicates that sellers are very strong, and the stock price may fall further. Traders often look for selling opportunities after a breakdown.Key Note: Remember, technical analysis is not a science but a skill. Understanding patterns and making the right decisions is very important.
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Trading Mechanism Explained: Practical Concepts Every Beginner Must Know
| Concept | Meaning | Example |
| BID Price | The price at which buyers are willing to buy shares. | If you offer ₹100 for a share, this is your bid price. |
| ASK Price | The price at which sellers are willing to sell shares. | If a seller quotes ₹102, this is the ask price. |
| Spread | The difference between the bid and ask price. When buyers and sellers agree on a price, the trade is executed. | Bid = ₹100, Ask = ₹102 → Trade happens when a common price is agreed. |
Note: Think of the stock market like a vegetable market. Buyers quote a price, sellers quote another, and the trade happens when both agree. Understanding bid, ask, and spread is an important part of trading mechanics for beginners.
Margin Trading and Leverage Explained for Stock Market Beginners
These two concepts are very powerful for traders.
Margin Trading: This means taking a loan from the broker to make a larger trade.
Example: If you have ₹10,000 and the broker provides 5x margin, you can trade up to ₹50,000.
Leverage: This is the power of margin trading. 5x leverage means 5 times the profit or 5 times the loss. It involves high risk but also high reward.
What Are Order Types in the Stock Market? (Beginner’s Guide)
When trading, you will encounter two main order types.
Market Order: This order is executed immediately at the current market price, giving you the best available price.Limit Order: This order is used when you want to buy or sell at a specific price.
Example: If you want to buy Tata Motors shares at ₹600, you place a limit order at ₹600. The order will be executed when the price reaches ₹600.
Square-Off and GTT Orders in the Stock Market: Meaning and Examples
a. Square-Off: This means closing your open position. Intraday traders square-off their positions by the end of each day.
b. GTT (Good Till Triggered): This is a special type of order.
Example: You want to buy a share at ₹400, but the current price is not yet reached. You place a GTT order, which remains valid for one year. The order will be executed automatically when the price reaches ₹400.
Example: You want to buy a share at ₹400, but the current price is not yet reached. You place a GTT order, which remains valid for one year. The order will be executed automatically when the price reaches ₹400.
Settlement Cycle (T+1) in the Stock Market: Meaning and Process
When you buy or sell shares, it takes some time for the transaction to be settled. In India, the standard settlement cycle is T+1, which means Trade plus one day. For example, if you buy a share today (Monday), it will appear in your Demat account on the next working day (Tuesday). Similarly, when you sell, the money will be credited the following day.
Stock Market Settlement Cycle Made Simple (T+1 & T+0)
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1. Standard Cycle: T+1
Currently, T+1 is the standard settlement cycle in India. This means that any shares purchased today will be credited to your Demat account on the next working day, and the money from selling shares will also be available the next day.
2. Optional Cycle: T+0
SEBI has introduced T+0, or same-day settlement, as an optional cycle. This is currently available only for selected stocks, mainly the top 500 companies. It is not mandatory, and brokers and investors can choose to use it. The trading window for T+0 settlement usually closes by 1:30 PM to ensure that settlement is completed by 4:30 PM on the same day.
3. Future of Instant Settlement
SEBI had also planned for “Instant Settlement,” where both shares and money would be settled immediately. However, as of October 2025, the implementation has been postponed. For 2026, the fastest option currently available remains the same-day (T+0) settlement. These are some important trading technical terms that every investor should know. You can practice their practical use on your trading platform to become more confident in the stock market.
Frequently Asked Questions (FAQs) – Stock Market for Beginners
What is the first step to learn Stock Market Fundamentals for Beginners?
The first step is understanding how the market works, which includes opening a Demat and Trading account. Beginners should focus on learning basic terms like Nifty, Sensex, and how to analyze a company’s financial health before investing their hard-earned money.
Is Fundamental Analysis necessary for long-term investing?
Yes, absolutely. Fundamental Analysis is the backbone of long-term investing. It helps you look at a company’s “Kundli”—its earnings, debt, and management quality—to ensure you are buying a strong business at a fair price.
What is the difference between a Market Order and a Limit Order?
A Market Order executes your trade instantly at the current available price. A Limit Order allows you to set a specific price at which you want to buy or sell. This gives you more control over your entry and exit points.
How can I identify if a stock is overvalued or undervalued?
You can use the PE Ratio and PEG Ratio to check valuation. If a stock’s PE is much higher than its industry average without high growth, it might be overvalued. Conversely, a low PEG ratio (below 1) often suggests a stock might be undervalued.
Why is the T+1 settlement cycle important in Stock Market Fundamentals for Beginners?
Understanding the settlement cycle is crucial because it tells you when your shares or money will be available. In 2026, India primarily follows the T+1 cycle, meaning shares reach your Demat account one business day after the trade. Keeping track of Stock Market Fundamentals for Beginners helps you manage your liquidity better.
What are Support and Resistance levels in Technical Analysis?
Support is the price level where a falling stock usually finds buying interest and stops dropping. Resistance is the level where a rising stock faces selling pressure and stops climbing. Identifying these levels helps traders find the right time to enter or exit a trade.
Can I start trading with a small amount of money?
Yes, you can start with as little as ₹100 or ₹500. The key to mastering Stock Market Fundamentals for Beginners is not the amount of money you start with, but the discipline and knowledge you build over time through consistent learning and practice.
What is a GTT order and how does it help?
GTT stands for “Good Till Triggered.” It is a special order that remains active for up to a year. You can set a target price, and the order will only execute when the market reaches that specific price, saving you from monitoring the screen all day. Mastering such tools is a vital part of understanding Stock Market Fundamentals for Beginners.
Conclusion Stock Market Fundamentals for Beginners
This guide on Stock Market Fundamentals for Beginners is designed to help you understand the basics of the stock market in a clear and practical way. Concepts like ratios, margins, and analysis methods become easier when you learn them step by step. By building strong fundamentals, beginners can make more informed decisions and avoid common mistakes. Learning Stock Market Fundamentals for Beginners is the first step toward becoming a disciplined and confident investor in the long run.
Disclaimer
The information provided in this article is for educational and informational purposes only. It does not constitute investment advice, financial advice, or any recommendation to buy or sell any securities. Stock market investments are subject to market risks, and past performance is not a guarantee of future results. Readers are advised to do their own research or consult a SEBI-registered financial advisor before making any investment decisions. This content on Stock Market Fundamentals for Beginners is meant only to improve financial awareness and knowledge.