Nism

Parth Verma I The Valuation School
NISM XV
Chapter 1
Introduction to Research Analyst Profession
Learning objectives
• Primary role of Research Analyst 7 Companies
• Basic Principle of interaction of research Analyst S Clients
• Qualities of Research Analyst
1.1 PRIMARY ROLE OF RESEARCH ANALYST

They don't have time
-
• Investors/ Clients wants to invest in Stock market BUT
- They are not in stock
market as full time
• So they hire SEBI Registered Research Analyst to help them in their Investment
Decision.
• Research is a time consuming process.

For example:
While buying a smartphone,
• Research Analyst(RA) collects data/information about
you research about
• camera
1. Micro and Macro economics. • Brands
S -> • Price range
small ( Individual unit) Big ( Aggregate means total) • Battery ,etc
Example: Example:
• Individual customer behaviour • whole economy (GDP)
• Individual sector /market etc. • Inflation
• Employment/ Unemployment etc.
2. Industry Analysis related to your selected company on which research is to be done.

3. Company information about management and decisions and other factors.
• Economic information or data from Government Statistics/ Data provided
by RBI
local information
• For global data, - International Monetary Fund (IMF)

- Asian Development Bank (ADB)
- World Bank.
• For company specific data, - Annual Report (AR)

- Quarterly Result
- DRHP etc.
Analysis & Decision making Process = Qualitative + Quantitative factors.
Management Quality
( ethical Company's performance in terms of
' perspective)
profit,revenue,cash,etc l
• That's why it's for RA's important to interact with your company.
• Types of Research Analyst :
Sell side Analyst. Buy side Analyst Independent RA
Parth Verma The Valuation School

A. Sell Side Analyst. B. Buy Side Analyst

• publically available • For own investment
• Specific recommendation to buy,sell and hold. • Example:
• Income through brokerage Mutual fund
• Example : Investment Banks, Brokers. Pension fund, etc
Not for own investment Generation of brokerage
Asset Mang Company

(fund manager) has a
Angel Broking Demat team of
&
1
&
T
Research Analyst
Publish a
Research Report
Client buy/ sell stocks by Research on particular

Research Report. stock / security
X S
Now the company can act upon the result

of the research to buy,sell and hold for
their own on behalf of their clients.
C. Independent Research Analyst
+ Full time RA / Boutique firms +. No brokerage ( like sell side )

·
+ sell their research on subscriptions
e+. No own benefits / Investment
basis ( may be monthly, annually, (like buy side)
quarterly, etc) +. They also provide customised
⑲
+. Anyone can be a client

⑲ reports.
# Investor
# Institution , etc.
Apart from above 3 categories : -

Newspaper ,media, Tv also provide research report.
m Research
analyst
Study of a
Company
=>
s
Analyse expected
Evaluate past
performance
performance
1.2 PRIMARY RESPONSIBILITIES OF A RA :

RA should know about
↓ ↓ ↓
Economy Industry Companies
ECONOMY
• British economist John Maynard Keynes believed

Government can change the economic performances
P
-By changing/ adjusting tax rates
>
Government spending
• Focus areas for economy :-
1 Various macro economic factor
1 Monetary and Fiscal policies
1 Saving and Investment pattern
1 Flow from Foreign Direct Investment ( FDI ) & FPI
1 GDP Growth, Import, Export Transaction
More in chapter 5
Industry understanding :
• you either know everything about the industry, or maybe parts of it
• Whichever company you are researching about, it's important to learn
about the industry too at the same time
• Topics like business models, operating factors etc are needed to be
understand
Companies understanding :
There are 2 main factors to understand here

Quantitative Qualitative
Profits, Revenue Management ethics, etc

(All number games)
(Balance sheet, Strength and weakness of the

Income) business model
Comparison with peers
Example : Rahul Dravid & Virendra Sehwag : Both are great players but different style, same in business.
Depending on the nature of the business, the research can vary according to
their business model, financials ,etc.

1.3. INTERACTION WITH COMPANY / CLIENT
Internet has a lot of information already but it's always better to

communicate with the company's management
(One on one communication helps always as it is not necessary everything
in internet is correct)
But management can mislead the RAs too
By showing all the positives about company, therefore
Cross checking is important.
Things to keep in mind during meeting :

: When Research Report is done
• meeting se pehele khud thoda research karke aana
Communicate / handover to client is called as Pre Research Meeting.
Company ke baare mein sab pata Hona chahiye
meeting se pehele.
• Independence & Neutral view :

RA collects data / information + Unbiased opinion
+ Independent view
( khud ka dimaag & research bhi use karo bas

company management ya other sources per data k liye
must be from a reliable or dependent mat Rehena , na bias hona)
trusted source
• Network
+ " network is your Net - Worth"

+ Info about company from supplier, distribution or
Recommendations even from customer from competitors and so on..
• Clarity of Questions
give it to the clients + Ask / Prepare with crystal clear question

+ Time mang proper hona chahiye for smooth and clear
answers from management.

Some GUIDELINES to follow :
• Report must be simple, clear & concise. • Isliye independently Bina

emotions & personal
• Non biased report. agenda se report banana.
• Conflict of interest should be

disclosed before for transparency • Agar kuch assumptions
hai toh disclose / note
Agar RA khud US's company k shares mention karna padega.
hold karat hai Jiski research report usko
banani hai apne clients k liye
• Avoid hard words/ tough
Yaha par psychology & emotional impact words/ jargons.
kar Sakti hai.
• It's advisable to use recording devices while
Interviewing with management

Communicating with clients
But after taking consent only.
It will act as a proof in case of conflict.

1.4 IMPORTANT QUALITIES OF RESEARCH ANALYST :
• Curious and enquiring mind

Always ready to ask the question.
• Information about the different types of sources for the data/ information.
• Good qualitative and quantitative skills.
Understanding of business Good at numbers
• Clarity in decision making.
• Attentive with good communication skills
• Hands on excel and clarity in financial concept
To be able to read financial statements and report
• Always eager to learn and study about the sector, company, economics etc.
Always up to date with the relevant data.
read sample research reports ( in the NSIM PDF)
Take tests.

Chapter 2
Introduction to Securities Market
Learning objectives
• Meaning of securities and the function of securities market

• Various kinds of product in securities market
• Structure of securities market
• Activities of the securities market participants
• Various securities market transactions
• Dematerialisation and Rematerialisation of securities
2.1 INTRODUCTION TO SECURITIES & SECURITIES MARKET
What are securities? What is a security market?

- Transferable financial instruments showing - Facilitate buying and selling of
ownership or indebtedness in an entity's securities.
assets.
- Create liquidity by bringing
- Issued by Companies, Government, and together numerous buyers and
Financial Institutions. sellers.
- Types include equity shares, preference - Enable transactions at market

shares, debentures, bonds, etc. prices.
Companies raise money by issuing securities at some cost and Investors invest
their savings in exchange for returns on their investment.
Constituents of the Securities market
1. Households Direct Finance 1. Business firms

2. Business firms 2. Government
3. Government 3. Households
4. Foreigners 4. Foreigners
The term "securities" has been defined in Section 2(h) of the Securities
Contracts (Regulation) Act,1956(SCRA). Term Securities include various
instruments like shares, bonds, derivatives, government securities, and others
declared by the Central Government
2.2 VARIOUS FINANCIAL INSTRUMENTS / TERMINOLOGY
Foreign currency bonds Equity Share
Foreign currency bonds are issued by Issued by companies to raise

companies in a currency different from money, Equity shares represent
their home country's currency, like Delhi the form of fractional
International Airport Limited issuing USD ownership in the company.
bonds in February 2020.
Investors in these shares bear
Emerging market companies often issue the risk and enjoy the rewards
bonds in USD or stable currencies due to of ownership.
lower interest rates, but this exposes them
to foreign currency risk.
Debenture / bonds / Notes :
Governments and companies raise money by issuing bonds and debentures at a fixed interest rate. The rate depends
upon the credit risk of the company.
A debenture is a type of long-term debt not secured by any collateral. Types include:
1) Fully Convertible: Converts bonds into shares as per decided terms.

2) Partly Convertible: Converts partly into shares, with the remainder redeemed.
3) Non-Convertible: Pure debt instruments without conversion.
Short-term debt instruments are used to raise debt for periods not exceeding one year Examples: T-bills, Commercial
Papers.
External bonds / Masala Bonds Warrants
External bonds, also known as **Euro bonds**, are issued Warrants are
in a currency different from the country of issuance. options granting
investors the right
**Masala bonds**, denominated in Indian rupees (INR), are to purchase the
issued outside India. First issued by the International issuer company's
Finance Corporation in November 2014 and listed on the shares at a
London Stock Exchange. predetermined price
at the maturity.
Indices Mutual fund units

- In the stock market, indices are statistical - Investment pools that gather
measures that track the performance of a group of
money from investors to invest in a
selected stocks.
portfolio reflecting shared
investment goals.
- Market indices track market movements using select
shares, often weighted by market capitalization.
- Units and NAV: Each investor owns
Examples in India include Nifty 50, S&P BSE Sensex,
units in the fund, and their value is
and MSEI's SX40.
determined by the Net Asset Value
(NAV), which changes based on the
- Indices can be broad like Nifty 500 or specific like
fund's portfolio value.
sector-based indices (e.g., banking, IT).
- Open-ended vs. Close-ended: Open-
- They help compare stock returns with other assets,
ended schemes allow investors to
serve as benchmarks, reflect economic performance,
buy/sell units anytime without a
show real-time sentiments, and support index-based
fixed maturity, linked to NAV prices.
financial products like funds and derivatives
Preference Shares Exchange Traded Funds (ETF)
- Preference shares are shares of a - ETF: Pooled investment vehicle

company's stock with dividends that are tracking indexes, commodities, or
paid out to shareholders before common asset classes.
stock dividends are issued. No voting rights
- Listed and traded in demat form
- It has both debt and equity-like on stock exchanges, reflecting
characteristics. real-time price changes.
- Types: Varieties include cumulative - Offers diversification benefits,

(unpaid dividends carry forward), non- real-time trading, and lower
cumulative (unpaid dividends lapse), expenses due to passive
convertible (partly or fully), etc. management.
Indian Depository Receipts (IDR) ,(GDR), (ADR)
- Depository Receipts (DRs): Represent foreign company shares traded in local markets in local
currency.
- Issuance Process: The Bank receives equity shares, places them in a custodian account, and
issues DRs to overseas investors.
- Sponsored vs. Unsponsored DRs: Sponsored listed on the country's exchanges, and
unsponsored traded in OTC markets with fewer regulations.
- Two-Way Fungibility: DRs can be converted to local shares and vice versa, subject to the
country's regulations.
- IDRs: Indian companies issue IDRs, regulated by SEBI, with specific guidelines like fund
limit, and one-year lock-in, for resident Indian investors.
- Types of DRs: ADRs in the US, IDRs in India, HKDRs in Hong Kong, and GDRs traded in
multiple countries.
- Investor Benefits: Wider investor base for issuing company, global investment opportunities
for investors, no voting rights for DR holders currently under SEBI consideration.

Commodities
- Commodities are uniform goods, like gold bars, that are interchangeable. For instance, a bar of gold
is a commodity, but a piece of gold jewelry isn't, as preferences vary. They're categorized as hard
(mined resources like metals and crude oil) or soft (grown products like grains).
- Investing in commodities can hedge against inflation, protecting the investment's value. Yet, due to
storage costs, many aren't ideal investments.
1. *Precious metals:*
Precious metals like gold and silver are considered investments that preserve the value of money
over time. They have minimal storage costs.
2. *Commodity ETFs:*
A Commodity ETF is an exchange-traded fund that pools investments in physical commodities.

Investors buy units of the fund, and its value closely tracks the underlying commodity prices. Since
storage is managed by the fund, investors have no storage responsibilities.
3. *Managed futures contract:*
Futures contracts involve buying/selling assets at a set price on a future date, allowing investors
to profit from price changes without owning the product.
Managed futures are portfolios of futures contracts managed by professionals, enabling

investors to access commodities without owning them directly.
4. *Warehouse receipts:*
A warehouse receipt is a document proving ownership of goods stored in a warehouse. Many of

these receipts are negotiable, allowing the transfer of ownership of the goods by transferring the
receipts themselves.
REITs / InvITs :
- Stands for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
- REITs: Investors pool money to invest in real estate properties and earn dividends from rents or sales.
- InvITs: Investors pool funds for infrastructure projects like roads or power plants, earning returns from
tolls or lease income.
Foreign Currency Convertible Bonds (FCCBs) Equity & Convertible Linked
Debentures ( ELD / CLD )
- A FCCB is a type of convertible bond issued in a
currency different than the issuer's domestic - Equity-linked debentures (ELDs) are
currency. floating rate debt instruments whose
interest relies on the returns of the
- Convertibility and Payments: Convertible to equity, underlying equity asset such as S&P
often optionally, with interest and principal Sensex, individual stocks, Nifty 50, or
repayments in foreign currency. Post-conversion any customized basket of individual
dividends paid in Indian Rupees, placing currency risk stocks.
on investors.
- Similarly, CLDs are floating-rate debt
instruments whose interest relies on the
- Governed by RBI guidelines under the Foreign
returns of the underlying commodity
Exchange Management Act (FEMA). asset.
Mortgage backed securities ( MBS ), Asset Backed Securities ( ABS )

- A mortgage-backed security (MBS) is a type of asset-backed security (an 'instrument') that is
secured by a mortgage or collection of mortgages.
- The mortgages are sold to a group of individuals (investment banks) that securitizes or packages,
the loans together into a security that investors can buy.

2.3 STRUCTURE OF SECURITIES MARKET
1. Primary Market
Also known as the new issue market, where issuers raise capital by offering fresh
securities to investors.
2. Secondary Market
This market enables the trading of already-issued securities, allowing investors to buy
or sell existing investments. Provides liquidity.
PRIMARY MARKETS
Methods of Issue of Securities:
1. Initial Public Offer (IPO):
First sale of shares to the public by a

company to raise equity capital.
2. Follow-on Public Offer (FPO):
Additional issuance of shares by a

listed company to the public.
3. Private Placement:
Issuing shares to a limited set of

investors, limited to 50 individuals
under the Companies Act.
4. Qualified Institutional Placements (QIPs)
Private placement of shares by a listed company to Qualified Institutional Buyers (QIBs).
5. Preferential Issue:
Offering shares to a selected group without a public issue or rights/bonus issue.

6. Rights and Bonus Issues:
Providing existing shareholders the right to buy more shares (rights) or issuing free shares
(bonus).
7. Onshore and Offshore Offerings:
Raising capital within or outside the domestic market.
8. Offer for Sale (OFS):
Sale of existing shares by shareholders, not leading to an increase in company capital.
9. Sweat Equity:
Issuing shares to employees, promoters, or technocrats as a reward for their contribution.
10. Employee Stock Option Scheme (ESOPs):
Granting employees the option to buy company shares at a predetermined price after a vesting
period.
SECONDARY MARKET
- Clearing and Settlement:

Post-trading activities involve ascertaining
OTC Exchange Regulated
Markets buyer and seller obligations (clearing) and
settling these obligations by delivering shares
or paying money (settlement).
Here, trades are Securities trading takes
negotiated directly place via stock exchanges, - Risk Management:
between multiple and settlements are In OTC, counterparties manage credit risk; in
exchange-traded markets, clearing
counterparties, settling guaranteed by a clearing corporations mitigate default risk by
securities directly among corporation, acting as a imposing margins like Initial, Peak, and mark-
them. counterparty for both to-market (MTM) margins based on potential
losses.
buyers and sellers.
2.4 VARIOUS MARKET PARTICIPANTS AND THEIR ACTIVITES
Market Institutional Retails Proxy Advisory

Intermediaries Participants Participants Services Firms
MARKET INTERMEDIARIES
Stock Exchange :
Platforms for securities trading,

like NSE, BSE, and MSEI, where
electronic terminals facilitate
anonymous order matching. Depositories :
Institutions holding securities in

electronic form, like CDSL and NSDL,
accessed via registered Depository
Depository Participants : Participants (DPs).
Agents of depositories providing

dematerialized securities services, and
maintaining investor-level accounts.
Trading Members/Stock Brokers:
Registered members facilitating buy/

sell transactions on stock exchanges,
Authorised Persons: essential for secondary market trades.
Appointed by stock brokers as

agents to reach investors across the
country, replacing sub-brokers as
Custodians :
per SEBI regulations.
Entities safeguarding funds and

securities for institutions, settling
transactions, and tracking corporate
actions.

Clearing Corporations :
Ensures trade settlement on stock

exchanges, acting as a counterparty
for all trades, reducing counterparty Clearing banks :
risk for investors.
Intermediaries between clearing

members and clearing corporations,
managing funds for trade
Merchant bankers : settlements.
Registered with SEBI, assist

issuers in accessing the market,
and manage issue processes
Underwriters :
during security offerings.
Primary market intermediaries

committing to buy unsold securities
in public offerings, mitigating risk
for issuers during IPOs or FPOs.
INSTITUTIONAL PARTICIPANTS
Institutional Investors :
Entities like banks, insurance, mutual

funds, etc., making significant
FPIs :
investments.
Overseas entities registered with

Participatory Notes (P-Notes) : SEBI to invest in Indian securities.
Instruments issued by registered FPIs

allowing overseas investors access to Mutual Funds :
Indian markets.
Pooled investment schemes managed

professionally to buy securities on behalf
of investors.

Insurance Companies:
Firms primarily insuring assets that

invest in equities, government Pension Funds:
securities, and bonds.
Pooling retirement funds of employees

for stable long-term growth and
Venture Capital Funds: providing a retirement income.
Pooled investment vehicle funding

early-stage enterprises. Private Equity Firms:
pool investor funds to invest in or

acquire companies that are not publicly
Hedge Funds:
traded on a stock exchange.
Pooled investment vehicles deploying

capital across diverse assets,
Alternative Investment Funds (AIFs):
products, and geographies.
Privately pooled investments in various

assets excluding traditional listed
Investment Advisers: equities, fixed income instruments, etc.
Professionals helping investors with

asset allocation and investment
Employee Provident Fund (EPF):
decisions.
Retirement benefit scheme for

National Pension Scheme (NPS): employees managed by EPFO.
Government-sponsored retirement
scheme with various fund options. Family Offices:
Organizations managing wealth and

financial aspects of affluent
Corporate Treasuries: families.
Business entities investing surplus
funds for future opportunities or
obligations.

RETAIL INVESTORS PROXY ADVISORY SERVICES FIRM
Proxy advisors advise investors on voting

matters in companies, assisting them in making
Retail Participants are individual informed decisions about their rights in
investors who trade securities for shareholder meetings or public offers.
personal accounts. HNIs and UHNIs are
high-capacity individual investors. The They help investors analyze proposals and
RBI permits NRIs, PIOs, and QFIs to suggest how to vote, benefiting those who may
directly invest in Indian companies under not track all company announcements or fully
the Automatic Route. evaluate every proposal themselves.
Institutional investors often rely on proxy
advisors for guidance on voting matters.
2.5 KINDS OF TRANSACTIONS
Cash, Tom, and Spot Trades/Transactions: Forward Transaction:
Cash trades settle on the same trading day (T+0) Forward contracts are agreements
in financial markets, although they are less common between two parties to buy or sell an
as most contracts settle between two to three asset in the future at a fixed price
days from the trade date. set at the contract's initiation.
Tom trades settle on the day after the trading day These OTC contracts, such as a farmer
(T+1) and are seen in certain transactions within selling wheat to a miller at a pre-
the Foreign Exchange Market (FX market). decided price six months ahead, are
customizable in terms of quantity,
Spot trades settle on the spot date, typically two quality, settlement mode (cash or
business days after the trade date. Equity markets delivery), and payment conditions.
in India often offer spot trades.
Futures :
Futures are exchange-traded forward contracts standardized in terms of quantities, quality, and delivery terms,
traded on stock exchanges with settlement guarantees by clearing corporations.
Subject to strict margin requirements, futures are available for various assets like equities, commodities, currencies,
and interest rates.
Options : Swaps :
Options are contracts offering the right, not A swap in the financial markets is a derivative
obligation, to buy (Call) or sell (Put) an underlying contract made between two parties to exchange cash
asset at a predetermined price by a specified date. flows in the future according to a pre-arranged
formula.
Buyers pay a premium for this right, while sellers
receive the premium but have an obligation if the Swaps help market participants manage risks
buyer exercises their right. These contracts can be associated with volatile interest rates, currency
traded in both Over The Counter (OTC) and Exchange- rates, and commodity prices.
Traded Markets.
Example: Two companies, Company A and Company B,
*Example:* You buy a Call option on the Nifty index at agree to an interest rate swap. Company A has a
a strike price of 16,000 expiring in a month, paying a fixed-rate loan while Company B has a floating-rate
premium of ₹200 when the Nifty is at 15,800. If at loan. They agree to exchange interest payments to
expiry, the Nifty is above 16,200, your option is manage their risks. Company A pays a fixed rate,
profitable, allowing you to buy Nifty at 16,000. while Company B pays a variable rate based on an
Otherwise, if the Nifty is below 16,000, the option agreed benchmark. This swap helps both companies
expires worthless, and you lose the premium paid. hedge against interest rate fluctuations.
Trading, Hedging, Arbitrage, Pledging of Shares:
- Trading involves buying or selling assets in anticipation of short-term gains, leveraging on market changes and
can lead to magnified profits or losses.
- Hedging refers to taking a position in financial instruments to counteract potential losses from another
position, limiting both gains and losses.
- Arbitrage is the simultaneous buying and selling of assets in different markets to profit from price
discrepancies, which in an efficient market, tend to be short-lived.
- Pledging of shares involves using securities as collateral to obtain a loan, with the securities held in a
dematerialized account but blocked from other transactions until the loan obligations are fulfilled.

DEMATERIALISATION AND REMATERIALISATION OF SECURITIES
Dematerialization:
It's the process of converting physical securities into electronic or book entry forms.
Securities lose their distinctive numbers and individual identification in demat form.
SEBI mandates companies to allow investors the choice of holding shares in
dematerialized form during public issues.
Rematerialization:
It's the reverse process of dematerialization. Here, securities held electronically in

book-entry form are converted back into physical certificates on an investor's
request. The securities are allotted distinctive numbers when materialized.

Chapter 3
TERMINOLGIES IN EQUITY AND DEBT MARKET
Learning objectives
• Terminology used in equity markets

• Terminology used in debt markets
• Different types of bonds and their features
When investors want to invest or companies want to raise capital they broadly have 2 options
-
↓ ↓
3.1 TERMINOLOGIES IN EQUITY MARKET
FACE VALUE
- Face value is the value of share when it started
- This value gets locked and one finds this value in

share certificates of the company irrespective of
what is its book value or market value
- Face value only changes when there is stock split or

stock consolidation
BOOK VALUE
MARKET VALUE
- It is the net worth of company
- The value which market assigns to company
based on various factors like - performance, - Book value of equity is the worth of Equity Capital in
sentiments, future expectations, liquidity, etc of Company's balance sheet
company's equity
- Book value of Equity = Total assets - Total liabilities
- Market Value can be sought as worth of
company assigned by Market Participants - Book value of each item is not affected by its Market
value or Fair value
REPLACEMENT VALUE MARKET CAPITALISATION

- Numerical value can be derived by measuring Market value of shares * No of outstanding shares
Market Value of Total Assets = Market Capitalisation
- Today's Cost of setting up a Duplicate Company has

company, similar - structure, assets, moats,
etc - Market value = ₹ 200 ; outstanding shares =
1,00,000
- Market Cap = 200*1,00,000 = ₹2 Crore
Categorisation
INTRINSIC VALUE
- Large Cap
- Present Value of share's future benefits to investor - Largest companies by Market Cap - Blue Chip
companies
- Numerous ways to calculate and very subjective after - Generally top 50-100 companies
all it is an estimated number
- common method is Discounted cash flow method - Mid Cap
I
- next largest to Blue chip companies by market
-
cap
- generally next 200-500 companies
-> Small Cap
- Rest all the remaining companies
Equity investing is an art and science of identifying and exploiting

inefficiencies while considering both Qualitative & Quantitative factors" Larger the Market Cap of the company more
- Nism Book's text
mature it is and enjoy more liquidity because all
investors are keen on investing
ENTERPRISE VALUE EARNINGS - Historical, Trailing, Forward
- Overall value of the company Returns earned by the company through their operation;
- If one were to buy the whole company it would have to Revenue - Cost = Earning
buy its Equity and Debt
- EV = Value of common equity + value of non-controlling -
Historical - Previous year earnings

interest + Value of preferred capital + Debt – cash, cash
equivalents and financial investments -
Trailing - Earning of last 4 Quarter
- All the values would be market value - Forward- Future Projected earnings
EARNING PER SHARE P/E RATIO
P/E ratio - Market price per share/ Earnings per share
- It tells us how much are we paying for per rupee of

earning
- one of the common tools in valuation
- p/e ratio is based on trailing earning + anticipated

earning
- if trailing earnings per share =25 ; stock price = 100

p/e = 100/25 = 4
- if anticipated earning per share = 32; stock price= 100

p/e = 100/32= 3.125
- if only p/e is given, trailing p/e = 4, forecasted p/e=

3.125
Earning per share: profit earned
we can say we expect an increase in future income
on per share basis
- used in relative valuation too - if walnut co & almond co.
operating in same business
walnut p/e : 12, almond p/e: 15 - market is paying higher

P/S RATIO price for Almond co.
- P/S RATIO= Price per share/sales per share
- p/s ratio = market cap/annual sales

DIVIDEND PER SHARE
- measures price for per rupee of sale
Company usually declare dividend on per share basis
- A relative valuation metric often used when
companies are going through negative earnings Usually measured in terms of percentage of Face value
period
Face value = 15; Dividend = 3; Dividend is 20% (3/15)
- if orange co. has p/s : 2.5 & watermelon co. has
p/s ratio 3.8 Multiples help us compare companies with its peer
people are paying higher price for watermelon co. irrespective of their size or numbers in absolute terms
DIFFERENTIAL VOTING RIGHTS

- Share with no voting rights
- when companies want to raise capital but doesn't want to lose decision making this is issued
PRICE TO BOOK VALUE
P/BV = Price Per Share
book value of share
P/BV = market cap

book value of equity
Book value per share = (Equity capital + reserves and surplus)

no of outstanding shares
Equity capital = 15 lakh,

Reserve&surplus = 40 Lakhs,
outstanding shares 5 lakh,
Market price per share - ₹33
BVPS = (15 LAKH EQ CAP+ 40 LAKH R&S )

= 11
5 lakh no of out shares
P/ BV = 33(MP)/ 11(BVPS) = 3
- It is a popular relative valuation metric and often used where P/E is not reliable
- used to measure how much premium or discount company is trading to its book value
- generally a p/bv less than 1 is undervalued showing company is trading even less than its balance sheet net
worth; but not always, there could be various reasons behind poor market performance
- only reliable where company doesn't have high intangible assets

3.2 TERMINOLOGIES IN DEBT MARKET
- Debt securities issued by company when they don't want dilution of ownership
- Debt investors lends capital to company for a specified time period and specified fixed interest
income
- Debt securities investments done through exchange or OTC based on availability
HOLDING PERIOD RETURN

FACE VALUE
- Amount of debt being borrowed by the - Not necessary one should hold bond till maturity
company or invested by initial debt holders or buy at initiation
- also called nominal value or par value buy and sell can be done anytime if one finds
counter-party either on exchange or OTC
COUPON RATE - return earned for the time period bond was hold
is Holding period return
- Rate of interest on Debt - can be annual, semi-
- If an investor
annual, quarterly, etc
purchases a bond at Rs. 104,
earns Rs. 8 as coupon,
- presented as a % of face value
which he reinvests at 7% for a period
of 1 year,
- absolute interest received is face value * coupon
and finally sells the bond at Rs. 110
rate% , irrespective of market value
after 1 year then his HPR would be:
MATURITY & REDEMPTION
HPR = [(8) + (8 * 7%) + (110-104)]/ 104 = 14.00%
example from nism book
- Time period for which bond will exist, as agreed
on initiation
- HPR is single period return and not annualised
- maturity can be as short as 30 days (T-bills) or return
even 30 years or more
- each bond had expiry date or maturity date CURRENT YEILD

after that it cease to exist and on that day face
value should be returned back + coupons if any - return earned on bond based on current market
due! price
this final step is Redemption of bond
- if bond pays 7 rs coupon annually, Face value 100,
Market price 94
- current yield = 7/94 = 7.45%
YEILD TO MATURITY
Yield to Maturity (YTM) is the total return expected on a bond if it is held until it matures. It considers the
bond's interest income and potential capital gain or loss, assuming the bond is held until maturity.
**Example:**
Imagine you buy a bond with a face value of $1,000,
an annual coupon payment of $60,
and you purchase it for $950.
If the bond has 5 years until maturity,
the YTM will capture the total return, considering both coupon payments and the potential change in the
bond's market value.
DURATION
Duration is a measure of a bond's sensitivity to changes in interest rates. It provides an estimate of the bond's price
volatility based on the timing and size of its cash flows.
Example:
Consider the same bond with a face value of $1,000,
an annual coupon payment of $60,
and 5 years to maturity.
Duration helps you understand how much the bond's price will change for a 1% change in interest rates.
If the duration is 4 years, it implies that for every 1% increase or decrease in interest rates, the bond's price would
change by approximately 4%.
CONVEXITY
Convexity is like adding a special adjustment to better understand how a bond's price will change when interest
rates move.
While duration gives us a good basic idea, convexity fine-tunes our prediction by considering the curve-like
behavior of bond prices when interest rates go up or down a lot. It's like adding a little extra magic to make our
predictions more accurate.
example:
Continuing with the same bond, convexity takes into account the curvature in the price-yield curve.
Suppose the bond has a duration of 4 years and a convexity of 20.

This means that while duration helps estimate price changes, convexity recognises that the relationship isn't
perfectly linear.
For a 1% change in interest rates, the bond's price may change by the predicted amount from duration, but
convexity adjusts this prediction to reflect the curvature in the actual price-yield relationship.
3.3 TYPES OF BONDS
ZERO COUPON BONDS CONVERTIBLE BONDS

- bonds which do not have any coupon issues at - Bonds which have a compulsion or option to
discount to par, and redeemed at par covert into equity fully or partially later on
- interest earned is the value difference between issue - includes

and redemption price - Date & price of conversion
- no of shares per debenture
- Zero coupon bonds are more sensitive to change in
interest rates( high duration) than a coupon paying - once conversion done, particular amt debt is
bond removed from balance sheet and added to
equity
- as these bond return solely depend on price taking a
flight to par value and any change in rates affect the - advantage to issuer- lower coupon payment
price of bond more severely and no principal payment if conversion
successful
- when ZCB have long maturity and issued at heavy
discount - termed as Deep Discount! - disadvantage to issuer - dilution of EPS as
equity increases
FLOATING RATE BONDS - adv to investor - debt + equity benefit,
enjoy coupon at start and if share
- Issued at par, redeemed at par but don't have a
appreciates later on convert and enjoy equity
fixed coupon rate
gains
- each period coupon payment is adjusted based on
benchmark rate
INFLATION PROTECTED SECURITIES
- due to this variability of coupon bond price less
- Returns being matched to inflation
sensitive to change in interest rate
- fixed % return on adjusted principal
- These bonds can also have a max or min limit of
based on inflation
coupon rates - restrictions called cap & floor
- if coupon payment 4% face value 100,
- inverse floater: if benchmark rate goes up - coupon
inflation 6%
rate goes down
coupon = 4% *(100*(1+6%) = ₹4.24
new principal= 100*(1+6%) = ₹106
PRINCIPAL PROTECTED NOTES
- if investors hold till maturity their Principal will - another type where principal is fixed
be protected and have very low chance of default but interest rates linked to inflation
- part of investment parked side to return - face value 100, inflation 8%, coupon =
principal at end of maturity, rest invested in 100* 8% = 8 rs
commodities derivatives to earn high returns face value remains same - 100
FOREIGN CURRENCY BONDS EXTERNAL BOND
- Bonds issued by a company in a currency different than issuing bond in foreign country in a currency
that of local currency which is different from issued country's
currency
- Indian company issues bond in USD and pays coupon in
USD company raising USD from UK market, here
currency risk borne by investor
- currency risk borne by the issuer
masala bonds also external bonds
PERPECTUAL BOND
bond which do not have any maturity
company have no obligation to retire the bond, can be called or bought back as per company discretion

Chapter 4
FUNDAMENTALS OF RESEARCH
Learning objectives
You will know about the terms like

• Investing
• Role of Research in Investing Academy
• Technical analysis
• Fundamental Analysis
• Quantitative Analysis ( Econometric approach)
• Behavioural Finance Approach
4.1 WHAT IS INVESTING?
• Investing in market means a long term holding of an asset to make a good

return.
The valuable things which you own and generates cash/
money/ wealth.
• Investing is like , " Paise se Paisa Banta hai. "

but not always because it contains RISK also.
Kisi bhi cheez mai jab aapko
pocket se Paisa Lagta hai
whether it is for starting
your own business , buying/
1. You will loose your entire principal amount
investing and many more
2. You will loose SOME money from principal and get
things which fall under ,
the remainings.
" Paise se Paisa Banta hai"
3. You will get your Principal amount back (breakeven)
category, it has the
4. You will get some profit or even huge profits following outcomes
• Therefore ,studying and analysing your stocks in investing to ensure safety is a must.
• Investing is different from trading Investing : For long time (5-15+ years )
& speculative activities. Trading : For short time (Intraday kind of )
Speculative activities : Buying selling because of your
emotions or prediction or you have heard over news.
• Trader earns profit by the
difference in prices for a
specific stock.
# There is no news in the market for ABC stock.

# Still ABC stock prices are continuously moving
# This is because some traders wants to buy that stock at different levels and,
# Some traders wants to sell that stock at different levels.
Hence a trader earns profit by this spread of prices between buyers and sellers. Also it
doesn't affect the value of that stock.
fundamentally
fundamentally
• Investing focuses on Assets value to increase over a period.

2 ways to increase the value of the asset
By generating high CASH FLOW without increase Risk decrease without any
in risk. decrease in Cash Flow
# Comapny k pass kitna Paisa aa raha hai and Like bad mgmt, heavy
kitna Paisa ka raha( cash ka flow ) debt, etc.
# other way, company kitna Paisa generate kar

Rahi hai and kitna Paisa kharcha kar raha hai
Investment is a complicated task. You have to analyse the company properly in which you wish
to invest. Analysis can be done of broad asset class
individual stock
ACTIVE INVESTING PASSIVE INVESTING
• It involves buying or selling of stocks with constant • It involves investing

evaluation and tracking of portfolio. in the stocks /
securities which are
• Investors sell stocks where stocks are overvalued. part of Index, it is
( Market Price > Fair Price ) called as Indexing
strategy.
• Investors buy stocks where stocks are undervalued.
( Market Price < Fair Price ) • Objective is to earn
the return of the
• Fair price = Real worth asset class
( actual mai stock ki kimat kitni hai )
• Their analysis is
• Market price = Price decided by the market forces such limited to broader
as demand and supply. It is not the actual value. It's asset class
the price at which people are willing to buy / sell the
stock. • Passive investing
requires less effort
• Active investing requires a lot of efforts.
• Transaction size is
• Here the transaction size / number is greater compared less here.
to passive investing..
• Objective here is to earn more return than broader

asset class.
4.2 ROLE OF RESEARCH IN INVESTING ACADEMY
• The fundamental research consists of 2 parts
RESEARCH ANALYSIS
Involves collection of all the Analysing the information for

necessary information results / conclusion

✅
• Annual Report of a company
Treasure of information here
But annual reports information must be carefully checked ( info in AR is not always
adequate )
Because AR is published once a year , the info becomes outdated
Also information about economy is not covered in depth in AR
Therefore, fundamental research analyst spend good amount of time in researching

about economy, industry, competitors and gaining reports from other firms.
They also visit company's office, communicate with customers, dealers, suppliers to
give more accurate data.
Note : Research analyst should not be involved in Insider Trading.
Price sensitive information about company which can potentially

fluctuate the share price of the company if made public.
Research analyst should avoid leaking this type of info to general public
Then what is MOSAIC ANALYSIS ?
• When analyst collect different information from different source and the impact
of any individual data from the collected information is negligible but if you
combine them all, it can create a significant impact.
• Mosaic analysis is accepted.
Eg : CEO talking about some unpublished news/ information about the company
Insider Trading/ leaking of unpublished data
Employee talking about heavy workload in office

Not an insider trading data
Analyst must be careful to distinguish between Mosaic Information and Insider Trading Info.
4.3. TECHNICAL ANALYSIS
• It is based on the assumption that price discounts everything.
• All the information that affect the share like company fundamentals and etc are
reflected in stock price itself.
• Technicians / Chartists use price trends to forecast the direction and magnitude of
stock price movements.
• They study historical market data and observe pattern based on price and volume.
• 3 main elements of technical analysis to understand price behaviour
History of Past prices ( history repeats itself )

The Volume of trading ( higher the vol, higher the chances of price movement )
Time duration is also a factor that influences prices ( time is money)
• These 3 elements are used in price charts to observe
Support Resistance Price trends
The zone from which prices The zone from which prices
bounces back to upside falls to downside
I.e , a lot of buying I.e , a lot of selling
• Technical analysis includes study of trends, support and resistance and past price
movements
• Technical analysis converts Price And Volume into charts like
Line chart
Bar chart
Candlestick Chart
• Charts are used to identify price trends, reversal, buying or selling point.
• Short terms investors heavily rely on technical signals because fundamentals rarely
changes price movement in short term.
📍
4.4 FUNDAMENTAL ANALYSIS
• It's focused on long term investing
• In this, the fair price plays an important role ( as discussed earlier about
undervalued and overvalued stock)
• Profits in investment not only comes from good investment but also making
the investment at right price.
• This things also contradicts the EFFICIENT MARKET HYPOTHESIS (EMH )
It states that share price reflect / certain all information and excess
returns to beats the market are near to impossible
• Fundamental analysis includes the following questions :
How macro economic trend impacts the industry ?

How is the competition within the industry?
Comparison of your company with peers. Is it doing good or bad ?
What is the cost structure of the company & how it impacts profit under
different business environment ?
It's an aggregation of all types of cost that
makes the company's overall expenses
How strong is the financial position of the

company ? Is it strong enough All the above Qs can be put
to withstand any crisis? within 3 subtopic :
What are the capabilities of Economic Analysis
management ? Are they executing right
Industry Analysis
strategy for growth while avoiding any risk ?
Company Analysis
Whether the right governance is present
or not that act in the best
(more on this in upcoming chapters )
interest of the shareholders.
💸
4.5. QUANTITATIVE RESEARCH
Fundamental Analysis = Quantitative + Qualitative

But,
Some analysts use quantitative approach only for equity analysis using econometric
analysis.
Quantitative analyst looks for financial and operational metric of the company.
↓
like sales , revenue, gross profit margins, net profit margins,etc
These metric can either be used independently or together with other metrics.
Time series and regression of historical data helps to determine future earnings.
L >
Analysing data over a period Technique that relates dependent variable to one
of time or more independent variable
Quantitative analyst use complex econometric approaches to refine their results.

↓
It uses economic theory combines with maths

and stats to quantify economic event.
But pure econometric approaches is not ideal in fundamental analysis as frequent

changes in accounting standards and business models makes data less useful in
current market.
Therefore quantitative research is not often used for fundamentals.
4.6. BEHAVIOURAL APPROACHES TO EQUITY INVESTING
• Behavioural biases such as heard mentality, fear, greed, overconfidence ,etc prevent
investors from making profit.
• Decision influenced by behavioural biases often leads to bad/ wrong choices

[more on chapter 11]
📊
📊
CHAPTER 5
ECONOMIC ANALYSIS
Learning objectives
• Principles of. Macro & Micro economics.

• Sources of data / information of economic variable for carrying
out economic analysis
• Role of economic analysis.
Economics :
The core fundamental of economics is human action, behaviour, choices of human & how
we interact with each other to benefit ourselves as well as the society.
Tradeoffs is the cost of making one decision over another.
Let's understand the micro and macro economics now :-
5.1. BASIC PRINCIPLES OF MICRO ECONOMICS
• It deals with the behaviour of individuals making decision about goods & services.
• And how economy is impacted by the behaviour of the individual consumers & producers.
• It's philosophy is that the prices & production of goods & services depends on consumer
demand.
• It deals with Theory of Firm

7
For maximising profits, firms / individuals uses different strategies
• Importance of Microeconomics :
It deals in understanding " Free Market Economy " It helps to determine

the changes in the
Market where prices of goods and services are
economy by observing
determined by the open market and consumers.
the individuals and
firms behaviour with
Producers produces what they want and
respect to prices.
consumer consumes what they wish to.
5.2. BASIC PRINCIPLES OF MACRO ECONOMICS
• It deals with the overall economy including consumers, producers, businesses & govt
behaviour.
• The factors include unemployment rate, GDP, Inflation, saving , investment rates, etc.
• These are affected by changes in public policies.
• 2 major influence
Government Central bank ( RBI )
• Decision of government = Fiscal policy

Action of Central Bank = Monetary Policy
• Importance of macroeconomic :
Helps in understanding Consumption, various Macroeconomy

sources of income, aspect of import/export, models helps govt &
savings, investment in domestic production, central bank to form
an economy exchange rates, etc. economic policies

5.3. INTRODUCTION TO VARIOUS MACROECONOMIC VARIABLES
• Government in Central Bank always want economic stability & high growth but
economics has its cycle of BOOMS & BUSTS.
• Economics is a broad subject , so read about it from additional sources as we are

sticking to the Exam course only.
5.3.1. NATIONAL INCOME
• It has a total market value of goods & services produced by a country / nation.
• It includes
Gross Domestic Product ( GDP ). Gross National Product (GNP )
• It is measured by 3 methods
Product Method Income Method Expenditure Method
• It is calculated by • It is calculated by • It is calculated

combined values of asking incomes earned by adding the
fiscal goods and by 4 types of total spending's /
services from individuals namely, consumptions of
different sectors like Employees goods & services.
agriculture , industry Professionals • It includes
& other during a Entrepreneurs imports &
specific period. exports also.
Investors
• Consumers are
• Final products = divided into 3
during a specific period
Consumed / Used by categories:
consumers. Individual
Corporate
• Products sectors Government
deals in sector wise.
📊
📈
Use of NATIONAL ECONOMIC STATISTICS
• Levels of economic welfare & growth
Reveals the overall performance of the country
It includes per capital incomes which is more accurate measure of standard of living
in a country
High per capital income High Standard of living & vice - versa.
• Distribution of incomes among constituents of the economy
Different Methods of calculating national income provides various insights of

distribution of national incomes.
example : Product method shoes the service sector as the primary contributor to
GDP with 60% contribution
• Support to Fiscal & Monetary Policies
It helps policy makers to make correct decisions.
It acts as a valuable guide to them.
5.3.2. SAVINGS AND INVESTMENT
• Savings Investment
• Savings needs to be channelised into productive avenues called investments.
• Government focus on converting savings into investments for economic growth.
• 3 types of savings
Personal Savings (ind) Corporate savings Public savings (govt)

5.3.3. INFLATION
• Increase in price of goods & services which leads to decrease in purchasing power
over a course of times is called as inflation.
• It is measured in 2 ways : -
. Wholesale price Index (WPI)
. Consumer Price Index (CPI)
• It is caused by
DEMAND PULL FACTOR COST PULL INFLATION
Demand increases but supply remains When prices of goods & services increases
constant / decrease. because of increase in production cost, I.e., raw
materials and so on or increase in money to spend
by consumers.
• Interest and Inflation:
When inflation is high, then RBI hikes interest rates to control high inflation
and,
when inflation is low, then RBI Cuts down the interest rates.
5.3.4. UNEMPLOYMEN T RATE
If unemployment rate = high,
it shows slowdown in the economy & vice - Versa.

💹
5.3.5. FDI & FPI
• Foreign capital flows in 2 ways
FOREIGN DIRECT INVESTMENT FOREIGN PORTFOLIO INVESTMENT

(which is active form) ( which is passive form )
• active and long terms including • passive & short term without
participation in management. participation in management.
• Advantages : • It is called hot money that posses

risk because they can their money
Bring capital to the country anytime.
Job creation
New technology,skills & product
services.
5.3.6. FISCAL POLICIES & ITS IMPACT ON ECONOMY
. It determines the government revenues and expenses plans and also the spending and
taxation plan.
. It is an important aspect because the change in fiscal policy impacts the overall economy.
. Fiscal deficit : expenditure > Revenue.
. High fiscal rate + High borrowing results in high interest rates which is dangerous.
. Current account balance = Receipts - Payments
. Account Surplus : Receipts > Payments
Account deficit : Receipts < Payments

💹
. High current account deficit (CAD) causes Nations currency to weaken
. Capital inflows in the form of FDI and portfolio inflows balance the CAD and
protect currency.
. Expenditure is funded by government through multiple ways
P/L measures BS measures
Income from operations Borrowing

Taxation Sales of asset
Interest
Dividend income
. Government tries to balance between its inflow and outflow based on its actions,
fiscal policy is categorised as
Neutral fiscal policy
- government income and expenditure are in balance

- no major changes in fiscal policy.
Expansionary Fiscal Policy
- government spending > income

- it is used during recessions slow moving economy
Contractionary Fiscal Policy
- government spending < income

- It is used for debt repayment or asset buying.

5.3.7 MONETARY POLICIES AND THEIR IMPACT ON ECONOMY
It is controlled by the Central Bank.
It deals with money supply, inflation, interest rates for economic growth and price
stability.
Expansionary Monetary Policy:
- Increase money supply and,

- Decrease Interest rates which result in pushing the economy up.
Contractionary Monetary Policy
- Reduction/ slow increase in Money supply and,

- Increase in Interest rates result in cooling down the heated economy
Central bank controls
- Repo Rate :
Rate at which Central Bank (RBI) gives money/ loan to other commercial bank
-Reverse Repo Rate:

Rate at which other commercial banks give money/loan to the central bank (RBI)
Cash Reserve Ratio (CRR)

The amount of money commercial banks needs to deposit in the central bank without
gaining any interest is called Cash Reserve.
In percentage, it is called Cash Reserve Ratio.
It take minimum (%) of total deposit.
( This is done because banks apna sara cash loan k form mein customer ko na Dede
because of interest gains)
Statutory Liquidity Ratio (SLR)

Minimum % of total deposits which commercial banks have to hold in the form of cash
equivalents such as gold & government securities.
5.3.8. INTERNATIONAL TRADE, EXCHANGE RATE AND TRADE DEFICIT
• It refers to the total trade of country with all other countries.
• Balance of Payment shows the transaction of a country with rest of the world. It is
divided into 2 accounts :-
Current account (transaction like import / export )
Capital account ( transaction of capital flow like FDI, FII, etc )
• If imports > exports, then current account deficit.
• If imports < exports, then current account surplus.
• Both current and capital (surplus / deficit ) together makes the balance of payment
number of a country.
• If current account is deficit then we need capital account is surplus or reduce

foreign currency reserves.
• Exchange rates refer to the value of one unit of a currency wrt other currencies.
5.3.9. GLOBALISATION
It is the ability of the individual or firm to produce & sell goods anywhere in the world.
Positives Negatives
1. Better resource allocation 1. Inequality in wealth increase.
2. Integration of developing economies 2. High competition

results in creating nephew opportunity to
learn & grow. 3. Dependency problem increases as one
part of the world affect other parts as
3. Beneficial for end consumers. well
5.4 ROLE OF ECONOMIC ANALYSIS IN FUNDAMENTAL ANALYSIS
• Fundamental focus area is on how much the business is likely to grow or shrink in
future.
• Economic analysis focus on the factors affecting external environment to understand

the direction of economy f its impact on businesses.
• GDP growth, monetary & fiscal policies , interest rates , inflation and other factors
helps in economic analysis.
5.5 SECULAR, CYCLICAL & SEASONAL TRENDS
Economic trends are classifies into 3 trends
Secular (long term). Cyclical ( Temporary). Seasonal (Predictable)
5.5.1. SECULAR TREND
• It is the long term change occurring in the economy.
• Caused by change in technology, culture, demography or consumer preference.
• Ex : Digitalisation of office results in increase in spending on digital products &

paper per consumption decreases.

5.5.2. CYCLICAL TRENDS
• Temporary trends that reverses over a period of time.
• 3 types of cyclical trends are
Economic cycle. Commodity cycle. Inventory cycle
ECONOMIC CYCLE
• It refers to the process where an economy expands and contracts repeatedly.
• It has 4 phases :- Recovery:

Now again after recession when things are in
control like easy availability of money and
decrease in prices, consumers start spending.
Expansion:
Increase consumption of
good & services, high
income, low interest
rate, high demand for
products.
This all cumulatively

results in booming of
economy.
Booming - reaches
peaks.
Slow down:
Recession:
Now high prices & interest starts to decrease
the consumption and the economy starts to Low capacity utilisation leads to layoffs,
cool down. Lower capacity utilisation is seen. decrease in expansion plans, income,
consumption
The length of the phase are unpredictable. Economic cycle helps in getting the info about sales,
volume and prices.
COMMODITY CYCLE
• Commodity usually follows economic cycles.
• During expansions, prices increase of commodity.

During recessions, prices decrease of commodity.
• Some times commodity cycle also behave independently from the economic cycle.
4
• When commodity prices ↑ then production capacity .
And at some point when too many suppliers increase the capacity, gradually the
prices of commodity come down and thus cycle goes on.
INVENTORY CYCLE
• Short time cycles within commodity cycles.
• It occurs from changes / adjustments made in the inventories level made by suppliers
and customers.
• This causes price fluctuations.
• Inventory cycle helps in understanding the demand and prices for a public input /
output.
5.5.3. SEASONAL TRENDS
• Highly predictable fluctuations in production as well as in consumption.
• Eg : Agriculture contribution in GDP is high during harvest period.
• Analyst use seasonally adjusted growth rate or YOY consumption growth comparison to
understand the trend.
.5.6. SOURCES OF INFORMATION FOR ECONOMIC ANALYSIS
• Government Websites.
• Websites of regulators like RBI, SBI, Ministry of Finance (MOF), etc.
• Published economic research report.
• Economic Survey.

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Parth Verma I The Valuation School

• Qualities of Research Analyst

1.1 PRIMARY ROLE OF RESEARCH ANALYST

• Research is a time consuming process.

2. Industry Analysis related to your selected company on which research is to be done.

• For global data, - International Monetary Fund (IMF)

• For company specific data, - Annual Report (AR)

Analysis & Decision making Process = Qualitative + Quantitative factors.

• Types of Research Analyst :

Sell side Analyst. Buy side Analyst Independent RA

Parth Verma The Valuation School

A. Sell Side Analyst. B. Buy Side Analyst

Not for own investment Generation of brokerage

Asset Mang Company

Client buy/ sell stocks by Research on particular

Now the company can act upon the result

C. Independent Research Analyst

+ Full time RA / Boutique firms +. No brokerage ( like sell side )

+. Anyone can be a client

Apart from above 3 categories : -

1.2 PRIMARY RESPONSIBILITIES OF A RA :

• British economist John Maynard Keynes believed

There are 2 main factors to understand here

Profits, Revenue Management ethics, etc

(Balance sheet, Strength and weakness of the

Comparison with peers

Parth Verma The Valuation School

Internet has a lot of information already but it's always better to

But management can mislead the RAs too

By showing all the positives about company, therefore

Cross checking is important.

Things to keep in mind during meeting :

• Independence & Neutral view :

( khud ka dimaag & research bhi use karo bas

+ " network is your Net - Worth"

give it to the clients + Ask / Prepare with crystal clear question

Parth Verma The Valuation School

• Report must be simple, clear & concise. • Isliye independently Bina

• Conflict of interest should be

• It's advisable to use recording devices while

Interviewing with management

But after taking consent only.

It will act as a proof in case of conflict.

Parth Verma The Valuation School

• Curious and enquiring mind

• Good qualitative and quantitative skills.

Understanding of business Good at numbers

• Clarity in decision making.

• Attentive with good communication skills

• Hands on excel and clarity in financial concept

To be able to read financial statements and report

Always up to date with the relevant data.

read sample research reports ( in the NSIM PDF)

Parth Verma The Valuation School

• Meaning of securities and the function of securities market

2.1 INTRODUCTION TO SECURITIES & SECURITIES MARKET

What are securities? What is a security market?

- Types include equity shares, preference - Enable transactions at market

1. Households Direct Finance 1. Business firms

2.2 VARIOUS FINANCIAL INSTRUMENTS / TERMINOLOGY

Foreign currency bonds Equity Share

Foreign currency bonds are issued by Issued by companies to raise

1) Fully Convertible: Converts bonds into shares as per decided terms.

3. Managed futures contract: