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NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Research

In equity research, a 'top-down' approach to analysing a stock begins with which of the following?

A top-down approach starts with the macro economy, moves to the industry or sector, and finally analyses the individual company. This general-to-specific order differs from the bottom-up approach, which starts with company-level fundamentals and works upward.

  1. AStudying the economy and then the industry before the companyCorrect
  2. BStudying the company's balance sheet first and then the industry
  3. CStudying the price chart of the stock before anything else
  4. DStudying the promoter's shareholding before the economy

Explanation

The top-down approach moves from the general to the specific: economy, then industry or sector, then the individual company. Starting with company financials describes the bottom-up approach, so that option is wrong.

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