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Saba AroraNISM SERIES – XV: RESEARCH ANALYST CERTIFICATION BY- CA NITIN GURU
Chapter 1: Introduction to Research Analyst Profession
Primary Role of Research Analyst
Research Analysts (RAs) help their clients take investment decisions. There is Research – collection of
information from various sources and then Analysis – processing of data to take decisions. Data and
information is imperative to the function of the research analyst. Information about the macro and
micro economic factors, industry – specific information and company – specific information. RAs spend
lot of time, interacting with the companies and other, accumulating data, analyzing it and arriving at a
buy , hold or sell call. Research Analysts are defined by the nature of analysis they do.
Sell - side Analysts – They typically publish research reports on the securities of companies or
industries with specific recommendation to buy, hold, or sell the subject security. These analysts work
for firms that provide investment banking, broking, advisory services for clients.
Buy - side Analysts – They generally work for money managers like mutual funds, hedge funds, pension
funds, or portfolio managers that purchase and sell securities for their own investment accounts and
on behalf of their clients.
Independent Analysts – They work for research originators or boutique firms separate from full service
investment firms and sell their research to others on a subscription basis. They also provide
customized research reports on the businesses on specific requests.
Role of a research analyst is that of a selector – to do comprehensive study of companies, evaluate
their past performance, analyze how a company is expected to perform in the future and make
recommendation based on this analysis.
Primary Responsibilities of a Research Analyst
Research Analysts’ primary role is to understand and evaluate the growth of industries and companies.
Understanding Economy:
The following are their focus areas:
1. Change in various macro-economic factors like – National income, inflation, interest rate and
unemployment rate
2. Fiscal and monetary policies and their impacts on the economy
3. Flows from Foreign Direct Investment (FDI) and Foreign Portfolio Investors (FPIs)
4. Savings and investment patterns.
5. Global factors that impact the GDP growth based on export and import transactions
Understanding Industry:
Research Analysts need to understand thoroughly the regulatory environment prevalent in the
industry , business models , competition , operating factors , sensitivity of demand to price changes ,
consumers’ behavior etc.
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NISM SERIES – XV: RESEARCH ANALYST CERTIFICATION BY- CA NITIN GURU
Understanding Companies:
Qualitative understanding is more about understanding why a particular business is better when
compared to its peers, what are the strengths and weakness of the business model. Quantitative
understanding would be more mathematical in nature.
Basic Principles of Interaction with Companies/Clients
Additional principles that analysts must keep in mind while talking to the management of a company.
Pre-meeting Research:
Before going to meet a company’s management, they must thoroughly learn about the company’s
products, industry and competitors. Analysts must be familiar with the financial information of the
company, also read previous year’s annual reports.
Independence and neutrality of view:
Analysts must have an unbiased opinion and should always hold their independence. Not reveal any
information which is not available in the public domain.
Network:
Use their network to acquire more contacts relevant to the research, person who is responsible for the
important activities would be the most relevant contact. Competitors and other stakeholders of
business such as suppliers, distributors, retailers and customers can also provide meaningful inputs to
analysts in the research process.
Clarity of Questions:
Time with management would be effectively used if analysts have clear and specific sets of questions
in mind. Once analysts are done with research and research report is prepared, they need to
communicate their findings to the clients. Guidelines that an analyst could follow in their
communication with the clients.
1. Must be realistic in suggesting companies to their clients.
2. Written research reports, should be simple, clear and concise.
3. Conflict of interest should be disclosed beforehand.
4. Assumptions, if any , must be clearly stated in the research reports.
5. Abbreviations/Jargons should either be avoided or explained clearly in simple words.
It is expected that RAs would perform their role with utmost sincerity, honesty and ethics without any
bias, following all the rules and regulations as specified by SEBI both in words and spirit.
Important Qualities of a Research Analyst
1. Good with numbers
2. Good Excel (spread sheet) and other data analytical tools
3. Clarity in financial concepts
4. Ability to read and comprehend financial statements and reports
5. Ability to ask pertinent questions
6. Attention to details
7. Communication Skills – Written and Verbal