INTRODUCTION TO RESEARCH ANALYST PROFESSION

 

LEARNING OBJECTIVES:

After studying this chapter, you should know about:

 1. Role of a research analyst

2. Primary responsibilities of a research analyst

3. Basic principles of interaction with companies and/or clients

4. Important qualities that are desired in a Research Analyst

 

Primary Role of a Research Analyst

Imagine you've decided to buy a new phone. What would be your process of selection? For the price range decided, you would short list a set of brands, compare various technical specifications and depend upon what factors are important to you - whether it’s the battery-life or the megapixels of camera, you make the decision.

 

This process is very similar to the kind of work Research Analysts (RAs) do, to help their clients make investment decisions. There is research - collection of information from various sources and then analysis - processing of data to make decisions.

 

Types of Research Analysts

 

Sell-Side Analysts: 

They typically publish research reports on the securities of companies or industries with specific recommendations to buy, hold, or sell the same.

 

Buy-Side Analysts: 

They generally work for asset managers, like mutual funds, hedge funds, pension funds, Alternative investment funds, Foreign Portfolio investors or portfolio managers that purchase and sell securities for their own investment accounts or on behalf of their investors/clients.

 

Independent Analysts: They work for research firms separate from full-service investment firms and sell their research to others on a subscription basis. They also provide customized research reports on specific requests.

 

In a nutshell, role of a research analyst is that of a selector - to do a comprehensive study of companies, evaluate their past performance, Analyse how a company is expected to perform in the future and make recommendations 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. Let us briefly look into the aspects which the Research Analysts explore while evaluating industries, companies and/or economies.

 

Understanding economy:

Changes in various macro-economic factors, Fiscal and Monetary policies and their impact on the economy, FDI and FPI, Savings and investment patterns, global factors, imports and Exports. 

For this, the following are their focus areas:

 · Changes in various macro-economic factors like - National income, Inflation, Interest rate and Unemployment rate

· Fiscal and Monetary Policies and their impact on the economy

· Flows from Foreign Direct Investment (FDI) and Foreign Portfolio Investors (FPIs)

· Savings and investment patterns

· 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.

 

Understanding Companies:

This includes the analyzing companies based on their approach towards business. Based on their styles, product configuration, business model, customers segment, their financial the companies are studied by analysts in two dimensions - Qualitatively and Quantitatively

Qualitative understanding is more about understanding why a particular business is better when compared to its peers.

Quantitative understanding would be more mathematical in nature. In this, analysts try to understand the balance sheets and profit and loss statements of last few years, cash flows, assets and liabilities and so on.

Important Qualities of a Research Analyst:

 

1. Good with numbers

2. Good Excel/spreadsheet 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

 

Sample research reports:

· https://www.bseindia.com/investors/Research.aspx

· https://www.nseindia.com/education/content/reports/eq_research_reports.htm

 

 Important Questions

1. What is the role of Research Analyst?

a. RAs are only involved in the analysis of data

b. RAs are only involved in collection of the data

c. RAs help their clients take informed decisions

d. RAs help in financial planning of their client

 

2. Analysis and Decision making, the two imperative parameters involved in are affected by which of the following factors?

a. Management Ethics

b. Revenues and Costs

c. Efficiency of operations

d. All of the above

 

3. Sell side Analyst generally work for money managers like mutual funds, hedge funds, portfolio managers who purchase and sell securities for their own investment accounts or on behalf of their clients. State whether True or False.

a. True

b. False

 

4.Which of these qualities are desired in a good research analyst?

 a. Knack for numbers and interpretation

b. Clarity in financial concepts

c. Ability to read and understand financial statements. 

d. All of the above