[Note: This article has been written after consultation with Equity analysts working in the following companies: Ambit Capital (Buy Side - PMS); Crisil Irevna (Offshore), Multi-Act (Offshore), Visible Alpha (Back-end), B&K Securities - Sell Side]
This is one core finance role where CAs have an edge over others, due to their broad knowledge. But this role demands prior working experience, which gives rise to the chicken-egg problem. A typical day of an equity research analyst involves industry analysis, identifying sectoral trends, fundamental analysis of stocks, attending investor con calls, meeting management/promoters, primary research, drafting equity research reports, and handing investors queries. Broadly there are two parts in equity research, buy-side, and sell-side. Buy-side constitutes of Mutual Funds, PMS Funds, and Family Offices where they take active buy-sell decisions for their own portfolio. Sell-side constitutes of larger teams whose primary job is to service buy-side Institutional and Retail clients by publishing sector-specific research reports. The various job profiles in the equity research domain are as follows:
a) Buy-Side Equity Research Analyst
As the name suggests it involves work done by Asset Management companies which include Mutual Funds, Portfolio Management services, and Family Offices. These roles are generally sector agnostic with a small team size (4-10 research members) and involve many long-term investing principles compared to sell-side research. The day-to-day working of a buy-side analyst revolves around, evaluating new stock ideas, industry research, tracking his allocated sector/companies, handling investor’s queries, meeting promoters/management, undertaking channel checks, and preparing memos for the investment committee. Equity Analyst Buy-Side Funds Sell-Side: Institutional Research Sell-Side: Retail Research Offshore Equity Research Back-end Operations This can be quite enriching and exciting for a person who loves stock market investing. Also, once gets to learn a lot of transferable research skills to switch into any other core-finance roles
a. Sell-Side Research Analyst – Institutional Research
This involves work done by brokerage houses to service Buy-side clients. These roles are generally sector-specific with a large team side of 10-50 analysts. For example, if the analyst is working in the BFSI team, the team consist of 3-5 members with one lead analyst and another supporting analyst. The day-to-day responsibility of the analyst involves, tracking sector-specific events/ news, attending quarterly management con calls, writing detailed Initiating coverage reports, drafting regular notes/reports to be circulated to Buy-side clients, marketing the reports & buy calls, doing roadshows for HNI Clients. As the analyst will be writing notes/reports for 30-50% of this time, he needs to develop good writing & communication skills. Also, as the firm’s revenue depends on how many clients it services, Analysts generally spend less time on financial modeling and more time writing reports and developing recommendations.
c. Sell-Side Research Analyst – Retail Research
Roles here are similar to Institutional Research roles but with lesser work exposure and quality of research as the analyst will be servicing retail clients. While the learning is very limited, this can prove to be a good entry point into Equity Research domain.
d. Off-Shore Equity Research
This profile also deals in buy-side/ sell-side research, thus work is the same as discussed earlier. But the main difference lays in the fact that these are off-shore units (KPOs) set up to assist foreign clients/entity and thus they deal in foreign markets instead of the Indian market. These roles are more of an advisory role for Intuitional clients where an analyst is allocated work of updating models, doing secondary research, and drafting basic research reports. As it is a middle-office role, interaction with client and company’s management is limited and research is less detailed when compared to intuitional research involving lower focus on valuations and primary research. At the same time work is not so interesting but you will get the flexibility to understand the entire value chain of equity research; But, if you're tracking the stock market yourself then you would love it.
For example, Multi-Act and CRISL’s Irevna hires a lot of CA Fresher, for their offshore equity research division. Here you will be doing equity research for a foreign client (ex. JP Morgan) which involves, filling their proprietary model, making the valuation, checking accounts of various companies, etc. Thus, the work might be more model-intensive and not directly related to fundamental research, but this serves as an excellent entry point for a CA Fresher or someone without prior equity research experience.
e. Back-end Operations work at KPOs
Many KPOs provide work related to equity research but, they are quite unstructured and random in nature thus it needs to be avoided if possible. For example, Zacks Research’s work is only limited to drafting financial blogs. Some of the companies hiring under these roles are : Crescora, WNS, Netscribe, SG Analytics, EXL services). Also, there are various profiles where an analyst will be providing operational support to the equity research team like Dealer Roles in the trading team, NAV Calculation for Mutual Funds, etc.
Typical Interview Questions: Expect most of the technical questions to be around Fundamental Analysis, Valuation & sector-specific knowledge
Having, appeared for equity research interviews at dozens of companies, I must admit that these interviews are not easy but if you have a passion for stock market investing, you won’t face many problems. Thus, working on your valuation skills and tracking the border equity market on a regular basis will be key. Or, if it seems difficult, you can start with mid-size/offshore research firms like Angel Broking, CRISIL’s Irevna, Multi-Act, Moody’s, etc., and then work your way to the top.
a. Knowledge of Valuation & Financial Modeling,
b. Sector-specific knowledge (track at least 2 sectors). Speak about the business model of an Industry/company that you have audited on or have made a project on? Recent developments in that sector?
c. Pitch me a stock?...with many follow-up questions on it.
d. Knowledge about fundamentals of investing and tracking stock market news on a daily basis;
e. Ratio Analysis (D/E Ratio, Debt Service Ratio, Liquidity Ratios, etc.)
f. Working Capital, Cash conversion cycle and Capital Budgeting (IRR, NPV, etc.);
g. What parameters of Financial statement is used to evaluate before investing in a company;
h. Basic questions related to the Indian economy like CRR, SLR, GDP growth, Inflation Targeting, etc.
i. Few Basic questions on Ind-AS and few questions on accounting terminology (like Difference b/w operating & financial lease, difference b/w DEPS and BEPS, etc.)