Site icon FinShiksha

Guide to Finance roles: Part 2 – Career in Equity Research

Career in Equity Research

Targeting a Career in Equity Research is about understanding the role, the key responsibilities and skills required. We will discuss those in this post, and towards the end of the blog are some of the commonly asked interview questions.

Also, Read Part 1 of the series: Investment Banking

What is the role of Equity Research?

You must have experienced this – You receive a message from stock broker saying, Buy Company XXX with a target price of Rs. XXX.

This is what Equity Research is all about. An Equity Research Analyst has to perform detailed valuation exercise on a listed company so that the stake holders (Retail Investors and Institutional Investors) get the benefit of that research.

Equity Research is of three types:

So the question over here is – Why two different types of Research Teams exist? (Buy Side and Sell Side)

Buy Side Analysts do research for Fund Managers and on specific set of stocks, mainly from the perspective of taking actionable decisions such as Buying or Selling the stock in the fund portfolio. Sell Side research is done from the perspective of providing the research to Buy Side entities, such that Fund Managers get an understanding on stocks which may or may not be tracked by their team.

Usually the thought process of the Sell Side team is – if Fund Manager likes a research and wishes to purchase the stock as a part of portfolio then the manager can trade through the broker whose report he/she has referred. So, Sell Side analyst gets the business and Institutional Sales/Trading team helps with the execution.

How the day looks like in Equity Research?

Equity Research will require you to spend your entire day on analysing Industry and understanding finer nuances of Industry. In addition to this you will perform extensive Company Valuation exercise with proper arguments on Growth. In addition to this, you are supposed to meet company management or attend analyst con calls to get more information about companies future plans and fine tune the valuation model accordingly.

If you are on Fund Management side, then you are also responsible for communication with investors. Like PMS, Mutual Fund Manager interacts with Institutions and Retail Investors.


*****    FinShiksha Learning Championship 2021 – Details here   ******


Key skills required for a successful career in Equity Research

Is CFA/FRM useful for this role?

CFA is useful to the extent that you will have understanding of all technical tools which will help you with Valuation. The limitation of CFA is that it will not teach you Sector Research – the onus is on an individual to learn or understand sector and sector specific numbers. CFA also doesn’t teach you how to build end to end valuation model – so a participant needs exposure to that as well through external courses/live projects/internships.

FRM is useful if you are a part of Fixed Income Securities division (either you are managing a Mutual Fund Scheme or an Analyst in Debt Fund division).

Key Responsibilities

  1. Catch up and keep up with the news
  2. Prepare Financial Models and come up with recommendation on stock like – Buy, Hold, Neutral, Sell
  3. Issue Reports and keep track of companies covered
  4. Keeping in touch with the company management of the companies covered
  5. Update their sales colleague with providing research to institutional clients
  6. Recommending stock to fund managers based on research and analysis
  7. Monitoring economic trends and prepping for portfolio management meetings
  8. Almost everything revolves around generating investment ideas

Commonly asked interview questions: (the list is not exhaustive)

  1. When to use DCF and when to use Relative Valuation
  2. Effect of Stock Split and Dividend on EPS
  3. When to use P/E and when to use EV/EBIDTA
  4. Why do we take market value weights in WACC
  5. What is Price/Sales metric and is it a good metric to do a valuation
  6. Difference between FCFE and FCFF
  7. What effect Debt will have on Enterprise Value
  8. How to project Capex and explain with example
  9. What is Enterprise Value and what does it signify
  10. What value of Risk free rate and Terminal growth rate to take

Courses from FinShiksha that should be helpful for career in Equity Research:

Certification in Equity Valuation |  Certification in Applied Economics | Certification on Financial Modelling | Certification in Applied Financial Statement Analysis

Also, Read Part 1 of the series: Investment Banking

 

To stay updated about all of our posts on Businesses and Finance Careers – register and create a free account on our website. You will also get access to a free Finance Bootcamp course once you register. 

FacebookWhatsAppLinkedInTwitterTelegramEmailCopy LinkShare
Exit mobile version