Introduction to Research Profession

Primary Responsibilities of Research Analysts (RA)

• Evaluate different economies, industries, and companies.
• Understand various factors influencing these economies, industries, and companies.

Understanding the Economy

• John Maynard Keynes: Government can improve economic performance by adjusting tax rates and government spending.
• Current Scenario: Significant changes in corporate tax rates and government spending are observed.
• Focus on Macro-Economic Factors:
  • Inflation
  • Interest Rates
  • Unemployment Rates
  • GDP
  • National Income
• Importance of Fiscal and Monetary Policies:
  • Fiscal Policy: Government budgeting and spending.
  • Monetary Policy: Adjusting interest rates to control economic liquidity.
• Track FIIs (Financial Institutional Investors), FDIs (Foreign Direct Investment), FPIs (Foreign Portfolio Investors).
• Understand retail investors' investment and spending patterns (e.g., SIP, FDs).
• Monitor Import-Export transactions and Forex reserves.
• Assess the impact of global economies.

Understanding the Industry

• Recognize that Growth Drivers are different for each sector:
  • FMCG sector: Rural spending.
  • IT sector: Depreciation of the rupee, US economy's growth.
• Key Focus Areas:
  • Regulatory environment in which the company operates.
  • Company's business model.
  • Peer comparison to understand competitive performance.
  • Operating factors influencing business.
  • Consumer behavior and preferences.
    • Eg: The strong preference for Amul butter due to taste.

Understanding Companies

• Qualitative Understanding:
  • SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats)
  • Management quality and ethics.
• Quantitative Understanding:
  • Financial statement analysis
  • Ratio analysis
  • Forensic analysis
  • Moat assessment

Basic Principles of Interaction with Companies and Clients

Interaction with Companies

• Importance of reliable information and cross-checking.
• Sources of Information:
  • Primary information from companies, government, associations.
  • High-quality and reliable but should always be cross-verified.
• Meeting Opportunities:
  • Quarterly analyst meets, investor meets, and conference calls.
  • One-on-one interactions through brokerage houses.
  • Interaction during AGMs (Annual General Meetings).
• Pre-Meeting Research:
  • Do homework by understanding past performance and challenges.
• Independence and Neutrality:
  • Maintain independence and neutrality in questioning.
  • Use of a strong network to gain varied insights.

Interaction with Clients

• Provide realistic suggestions based on facts and figures.
• Avoid over-optimistic and over-pessimistic views.
• Ensure clear and concise communication.
• Disclose any conflict of interests to maintain transparency.
• Avoid using jargon to ensure effective understanding.

Important Qualities of a Research Analyst

• Good with numbers and Excel spreadsheets.
• Ability to read and interpret financial statements and reports.
• Ability to ask the right questions.
• Attention to detail.
• Excellent communication skills (verbal and written).
• Qualitative and quantitative analysis skills.
• Storytelling ability to convey the rationale behind recommendations.
• Inquiry mindset but not skeptical.

Key Takeaways

• Understand the broad outlines of the economy, industry, and companies.
• Detailed focus on the macroeconomic factors and fiscal and monetary policies.
• Different industries have unique growth drivers.
• Research analysts must gather and verify reliable information and provide balanced and unbiased recommendations.
• Develop essential skills such as number proficiency, financial interpretation, communication, and qualitative and quantitative analysis.

Actionable Steps

• Read NISM Workbooks along with provided handouts.
• Cover any missed information from the workbook.
• Practice with question banks available in the description.