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

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Parth Verma I 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.
 Parth Verma I The Valuation School

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.

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 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.

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 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.

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 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.

Parth Verma The Valuation School