What is equity research?
Equity research may be defined as an in-depth study of a company including its financials and performing ratio and analysing it to make recommendations about how they are as investment opportunities.
It allows investors the knowledge of whether to hold, buy, or sell particular stocks through timely and high-quality intelligence.
Equity research usually involves these steps:
- Analysing the industry and the business environment in which the company operates. This may include factors such as market trends, competitors analysis, regulatory framework, etc.
- Applying financial models to these factors to assess and project the company’s financial performance including its profitability and growth trends.
- Valuing the company’s stock using methods like price-to-earning ratios or cash flow analysis. This is mainly done to assess whether the stock is under or overvalued.
- Offering recommendations to investor’s basis this analysis about buying, holding, or selling their stocks.
- Sharing the final research report, which usually contains a review of the company’s performance along with the risk factors.
There are mainly two kinds of equity research:
- Buy-side, which has more to do with buying and investing in the securities of companies. These may include bonds, derivatives, and shares of a company.
- Sell-side, which is about creating, issuing, and selling these securities to potential investors.
What are the responsibilities of an equity research analyst?
An equity research analyst is a finance professional who helps investors use data, trends, and intelligence to help them invest in equities to maximise their revenues. Equity research analysts may work with investment banks, asset management firms, brokerage firms, or independent equity research companies.
While working as an equity research analyst, some of the main job responsibilities include:
Conducting primary research
The primary role of an equity research analyst is to conduct exhaustive research on stock market trends. This research forms the backbone of the investor’s decisions to invest in particular stocks and get good returns on them.
Financial data analysis
One of the primary responsibilities of an equity research analyst is to analyse the financial data of companies. This data is usually collected through sources such as company websites, research papers, and journals. The next step is to analyse this data to assess the potential outcomes of their client’s financial decisions.
Guiding the client’s investment decisions
One of the key roles that equity research analyst plays is that they help make their clients make sound investing decisions. Not just this, their core responsibility is also to help discover good investing opportunities before the investor makes their trading decision.
Writing research papers
Equity research papers form essential communication channels and are developed with a very specific purpose. The main objective of these research papers or reports is to identify financial trends that can justify investment decisions, also known as sell-side reports.
Buy-side reports are mainly reports that are created for internal consumption and are not distributed externally.
Read more about the job profile of an equity research analyst here.
What are the essential skills for success in your equity research career?
An equity research analyst drives major investing decisions for companies. To enable them to do this successfully, there are certain key skill sets, which you must inculcate.
Let’s take a look at some of these essential skills in detail:
An equity research analyst must know financial modelling
A top skill essential for your success as an equity research analyst, financial modelling helps you predict the future of the company or any asset through Excel models.
It is a concise and precise scenario of the future done by analysing financial statements. These may include the balance sheet and income statements.
The obvious Excel skills
Though it may sound obvious, great Excel skills are not just critical but also take time to hone. As an equity research analyst, you are likely to spend close to 12-16 hours a day working on Excel sheets as you do valuations and financial modelling. Here are a few things that will keep your Excel skills at the top:
- Error-free and crisp formatting
- Knowledge of analysis tools such as Pivot and Sort to help you make sense of complex data.
- Understanding Excel shortcuts is a must to enhance your speed, save time, and ensure accuracy.
- Know how to use charts and graphs.
Valuation skills are key to your success
Equity valuation is nothing but estimating the potential value of an asset or a company. These valuations form the basis of capital budgeting, merger and acquisition transactions, and investment analysis.
Some valuation techniques that you must know include intrinsic and extrinsic valuation methods
Written communication skill is a must
Since you will spend quite some time in preparing equity research reports for your clients, writing skills are a must. You must learn how to communicate clearly and make your reports more comprehensible through charts and diagrams.
Read more about an equity research analyst’s skills here.
Start learning essential skills and start your Career In Equity Research
Why should you make a career in equity research?
The role of an equity research analyst is all about helping investors such as companies and high-net-worth individuals grow their wealth. This choice of career is extremely challenging, competitive, and rewarding.
Here are some more reasons why becoming an equity research analyst is among the best career choices in 2023:
Rewarding career growth
As economic growth continues to improve, more and more investors are finding ways to maximise their wealth. Since an equity research analyst offers research-based intelligence about where to invest, the demand for their expertise will only continue to grow.
Depending on your skill set, exposure, and experience, the career opportunities are exponential.
One of the best reasons why a career in equity research is preferred by young finance professionals is because of the excellent compensation that one can expect. According to Glassdoor, you can earn an average base pay of INR 7,35,500 and create a great lifestyle for yourself.
Depending on the company or the bank that you work for, you may also receive year-end bonuses.
Exciting learning curve
An equity research analyst never has what is often termed as a ‘boring day at the office’. Your career is going to be fast-paced and all about keeping yourself updated with the latest happenings and trends in the financial markets.
How to become an equity research analyst?
The exponential growth in the Indian financial markets has led to huge employment opportunities for equity research analysts. Now that you know the benefits of having a career in this field, let us help you know how to kickstart your career in equity research:
- Get a Bachelor’s degree in economics or finance with subjects such as accounting, data science, maths, statistics, and business administration.
- Getting an MBA in finance or economics is a great plus.
- In case you are applying for a senior position, having relevant work experience will help.
Additionally, certain certifications act as a testimony of your knowledge of financial markets. These certifications typically need a Bachelor’s degree and around 4 years of field experience. Here are some of the most important certifications that you will need:
- Chartered Financial Analyst (CFA)
CFA is the topmost certification that validates your knowledge in fields such as derivatives and economics. It is conducted by the CFA Institute in the USA. Earning a CFA Charter would help you in getting industrial recognition, comprehensive knowledge, analytical skills, and networking opportunities for your career in Equity Research
Financial modeling is the core skill required today for any job in the finance domain. Even the CFA institute’s latest updates have introduced Financial Modeling in one of its practical skill modules. IMS Proschool’s Financial Modeling course enables you to easily upskill to A PG in Equity Research with a total course duration of only 7 months. You can do this course even with your graduation.
Fees or opportunity cost of becoming an equity research analyst
A course in equity research typically costs anywhere between INR 3-4 lacs. When you compare this with the average salary bracket of INR 7.5 lac per annum, the opportunity cost becomes negligible. This also includes perks such as job credibility and safety, global exposure, and an excellent trajectory of growth.
How to ensure a successful career as an equity research analyst?
Given the importance of an equity research analyst’s role and their great demand, a huge number of courses are being offered today. Needless to say, choosing the best one out of them can get overwhelming.
The easiest and best way to accelerate your career in equity research is by joining the certification course offered by IMS ProSchool. IMS Proschool is a top-notch education provider in the domain of accounts, finance & analytics; offering courses that help students learn the skills needed for today’s job market. With experienced faculty, classroom training and a focus on hands-on learning. We prepare students to excel in their careers and face the challenges of the working world with confidence. Proschool is committed to helping youth acquire industry skills and help them get placed at the best financial organisations.
Till now, IMS, with its more than 100 world-class tutors has:
- Upskilled 25,000 + students
- Trained 10,000 + employees
- Established 15 centres across India
What are the careers in equity research?
The career graph of an equity research analyst is exciting and offers quick growth options. Here are some roles that you can expect yourself to be in:
This is an entry-level position and involves responsibilities such as data entry and creating the company’s financial models. This is more of an assistive position, which requires you to support your team.
When you reach the position of associate manager, you typically manage a team of 2-3 junior analysts. Your primary responsibilities will include helping the senior analyst team complete result updates and prepare equity research reports.
This role involves meeting clients and maintaining a relationship with them. You will meet fund managers primarily and convince them about the potential of the investments suggested by you.