What is Equity Research? A Definitive Exposition And Guide
If you planned to work in finance, there is a high chance that you’ve wondered what is equity research finance professionals keep talking about. Equity research carried out by finance experts is the process of creating analyses, suggestions, and reports on investment possibilities that may be of interest to investment banks, institutions, or their customers. The Equity Research Division is a group of analysts and colleagues in a sell-side investment bank, a buy-side institution, or an independent company. The primary goal of equities research is to give extensive financial analysis and recommendations to investors on whether to purchase, hold, or sell a particular investment to “help” their investment banking and sales & trading customers by providing timely, high-quality information and analysis. Along with those Equity Research Analysts have successful careers.
Suppose you want to work in equities research. In that case, you should know that it has a very flat organizational structure (unlike investment banking), and the two primary jobs are Associate and Analyst. The Associate job is more junior in corporate finance than the Analyst position, which is more senior. Typically, an associate (or numerous associates) works for a single Analyst who covers a group of firms.
Analysts are typically classified into industry sectors to cover firms that are comparable within an industry. Because most industries demand a high level of specialized knowledge, it makes sense for an analyst to focus on one field in which they may become specialists.
Consumer staples, consumer discretionary, internet, healthcare, energy, mining, technology, and telecommunications are among the most important industries in equity research. A team of associates and an analyst will typically cover at least five firms and as many as fifteen, depending on their seniority, the size of the company, and the industry.
The primary function of equity research is to create reports. An equities research associate or analyst’s role is to continually publish, from fast updates or “flash reports” to in-depth, “initiating coverage” reports. Financial modeling is another important aspect of the job (covered further below).
Several “assignments” or “papers” must be completed by a certain date, such as when a corporation reveals quarterly results or makes an announcement.
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Break-Down of an Equity Research Report
1. Industry Research
This component of an equity research report will contain a wealth of information about industry developments and competition. This is where frameworks such as Porter’s Five Forces or a PEST analysis may help to guarantee that you’ve addressed all of the industry’s dynamics, such as politics, economics, social trends, and technical innovation, to mention a few.
2. Management Overview
It is critical for anybody thinking about investing in a company to understand the quality of its management team. Because equities research analysts have direct access to management on quarterly conference calls, “analyst day,” site visits, and other occasions, they may provide substantial value here. In contrast to individual investors, they may ask management direct questions about the firm, rate their competency, and convey that information to investors.
3. Financial Results
One of the primary functions of equities research is to assess prior financial results and compare them to the advice provided or to the analyst’s predictions. Because stock performance is mostly determined by reality against expectations, an analyst must study and comprehend whether actual historical performances were below, at, or above market expectations.
Financial forecasting is an art than a science. We’ve written extensively about this in their tutorials on how to be a successful financial analyst, including a description of financial modeling abilities. To recap the ideas made in those publications, forecasting may be done in two ways: top-down and bottom-up.
Top-down forecasting begins with the industry (its size, growth, price, etc.), assesses how much market share a firm is expected to have, and then works its way down to revenue.
A bottom-up method begins with the fundamental revenue drivers, such as the number of customers or units sold, and works its way up to a revenue estimate. Equity research analysts must forecast quarterly data or whatever frequency the firm releases.
The only thing more difficult than forecasting is valuation. Valuation techniques use all of the forecast assumptions and add extra, such as a valuation multiple and/or a discount rate, all of which are very subjective. Analysts in equities research must be proficient in financial modeling and may construct a three-statement model as well as DCF models or others as needed.
The equities research analyst will have a target price (or price objective) in the recommendations section, which shows investors where they estimate the stock to be in a year (usually). In addition, they will frequently suggest to investors what they should do. The terminology varies per bank, but popular examples are Buy / Overweight / Long, Sell / Underweight / Short, and Hold / Market weight / Neutral.
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Career Path for Equity Research Analysts
As an analyst, you will work in the research department of one of the following institutions: investment banks, insurance companies, asset management companies, investment advisory firms, and boutique investment firms. These companies can be either buy-side or sell-side. You’ll be dealing with investment managers on the purchase side. You will manage portfolios and make investments to boost the wealth of your clients. On the sell side, your research will aid buy-side analysts in selecting the finest equities for their client’s portfolios.
Let us now discuss the research division’s hierarchy in these companies. As a newcomer, you will begin as a Junior Analyst. After gaining relevant experience, you’ll advance in the ranks to become an associate, and then a senior analyst. The final rung on this ladder is becoming the head of the research department. As the leader, you will be in charge of all research conducted by the company to aid its clients.
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Start Your Career as an Equity Analyst
You may break into this business in two ways: by earning an MBA or by freelancing. Why pursue an MBA? Investment banks visit top-tier MBA institutions in India to offer students internships and job opportunities. Internships are vital since research divisions prefer that you have some finance experience before becoming a full-time analyst. After completing the program, you can either acquire a job through the placements or find one on your own.
It is not difficult to become an analyst without an MBA. Obtaining a value-intensive internship with an MBA will simplify your professional path. You may also become a full-time analyzer by working as a freelancer. Freelancing is an excellent approach to enhancing your CV. The more tasks you take on and finish, the more job experience you will get. You will be able to network with prominent analysts and gain their endorsements by freelancing. These recommendations can also help you acquire a full-time job.
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An Equity Research Analyst Vs Risk Management
When researching prominent stock market employment opportunities, you may come across the position of risk management analyst. As a risk management analyst, you will develop risk models and reports to assess the risk to the firm’s assets. Both of these positions are critical in a financial organization and are equally important in India. They even have comparable starting salaries. Equity research analysts are most recognized for the reports they produce, but the majority of their time is spent establishing a new business and pitching their research, as well as presenting their findings to management teams and institutional investors. Equity Research Analysts are more junior team members and are more likely to dedicate a larger amount of their day to research, modeling, and report writing.
While a risk management analyst is a viable career path, it has little been born in the stock research department. As a result, the decision between risk management and stock research should be based on your long-term goals. If you want to work in equities research and portfolio management, equity research analysts in India are the ideal way to get started. Another thing to keep in mind is that you can begin your career as a risk management analyst and then transition to equities research after accumulating solid job experience. To educate yourself on the extensive research process of assessing stocks or firms, you might check into the Certification in Online Equity Research Analysis program or the Classroom Certification in Equity Research Analysts in India program.
Job Interview of an Equity Research Analyst
In an interview, you will be asked two sorts of questions: general and technical. Some instances of generic inquiries are as follows:
- Please tell me about yourself.
- What are your strong points and weak points?
- Why Conduct Equity Research?
The easiest method to answer these questions is to relate your characteristics to those of an equities research analyst.
For example, they all know that working in this sector requires analytical abilities and patience. As a result, if the interviewer asks about your strengths, you may tie these points into your response.
Let’s go into the technical stuff now. You should try reading as much as possible about fundamental analysis and ratio analysis in the days leading up to the interview. Equity research is analyzing the performance of corporations and industries. As a result, you must demonstrate to the interviewers that your knowledge foundation is solid in these areas.
The section of an investment bank responsible for creating analysis, reports, and recommendations to purchase, hold, or sell investment possibilities that the bank or their customers may be contemplating is known as equity research.
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Equity Research Reports
If you want to comprehend Equity Research Reports, you must first understand why banks issue them: to increase trading commissions. A bank wishes to persuade institutional investors to increase their holdings in the firms it covers. This results in increased trading volume and greater commissions for the bank.
This is why Equity Research Reports frequently include “Buy” recommendations and seldom, if ever, include “Sell” ratings.
Equity Research Recruitment Process
Recruiting in equities research is more haphazard and unstructured than in investment banking. Although the major banks perform some undergraduate and MBA-level recruitment, many of their positions are filled on an “as required” basis. Equity research internships do exist, but they differ from IB and S&T internships in that they do not always lead to full-time offers.
It’s difficult to pinpoint the timing of the ER recruitment process, but it’s reasonable to assume it’s not as quick as the IB recruiting procedure. You’ll still go through first-round interviews, which are commonly conducted over the phone or by video, before moving on to Superday interviews in the bank.
Equity Research Scope
Equity research is critical for large and small investors alike to make better-informed stock market investing selections. It not only assists traders in earning profits from stocks, but it also evaluates previous performance and forecasts what the firm is capable of in the future. As a result, in today’s corporate environment, there are various chances for equities research analysts. Equity research has become a highly competitive and sought-after job path. In fact, in the financial sector, stock analysts are one of the most in-demand job profiles, as corporations want them to examine their previous financial performance and project their future financial performance, as well as provide supporting justifications for the estimations.
As a result, pursuing a profession in equities research analysis in 2023 is an excellent choice. We’ll look at the breadth and employment prospects for equities research analysts in 2023 in this blog to help you develop a successful career in this profession. So, let’s start with understanding the core abilities needed to enter the profession of financial research and analysis.
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Equity Research Job Salary
Equity Research Associate salaries in India range from 2.4 Lakhs to 22.0 Lakhs per year, with an average yearly income of 8.0 Lakhs. Salary estimates are based on 400 Equity Research Associates salary reports. In India, the national average income for an Equity Research Associate is 8,47,889 INR. To discover Equity Research Associate salaries in your region, filter by location. Salary estimates are based on 125 anonymous salary submissions to Glassdoor by Equity Research Associate workers.
Equity Research Job Opportunities
There is a lot of rivalry for opportunities in this industry since associates and analysts spend 60+ hours a week. As a result, a career in equities research is quite demanding, the remuneration is good, and the work is very intellectual. As a result, there is a growing need for equities research analysts in firms, making it one of the most sought jobs in 2023. So, let’s have a look at some of the highest-paying jobs in the subject of financial analysis.
Roles and Responsibilities of Equity Research Analyst
An Equity Research Analyst is a professional in the financial security sector, often known as the securities industry. An equities analyst provides services to both investment businesses (buy-side) and individuals or brokerage firms (sell-side) that sell products to the buy-side. An equity research analyst’s job in a buy-side firm, such as a wealth management firm, a pension fund, or a hedge fund, is to supply information and recommendations to the firm’s investment managers, whose job it is to oversee the client investment portfolios so that he or she can make the final decisions about which securities to hold.
An equities research analyst’s duty at a sell-side company, such as a brokerage or a bank, is to produce reports and recommendations for the firm’s sales agents. The knowledge is vital for the sales agent since it allows him or her to offer investments to their clients and the general public.
- Analyze Financial Information: The function of equity research analysts is to examine financial data so that they may perform analytic and strategic research. An equities research analyst’s role in research is critical. He or she supports the research teams of the organization for which he or she works to address a variety of customer demands.
- Prepare Reports: Equity research analysts’ job functions include utilizing the information gleaned from their research to create reports based on their analysis of the financial statements they studied. Reporting enables businesses, institutions, and governments to make real-time judgments, make choices, and plan ahead of time. It appears to be a way of internal communication within the business and among the personnel. To record possible concerns affecting the company’s operations.
- Attend Meetings: Meetings make individuals feel included, confident, and important members of the team, while also allowing them to contribute to the progress of our organization. Meetings and private meetings are the driving forces in the operation of enterprises. Equity research analysts can communicate suggestions and conclusions, as well as attend meetings with other equity research analysts and provide presentations concerning financial data. They even show their financial projections.
- Generate Investment Ideas: It is also the role of equity research analysts to synthesize data to generate fresh investment ideas and provide suggestions concerning financial actions and decisions. An equities research analyst may assist a customer in protecting their wealth while minimizing expenditures and charges. They will ensure that a customer’s revenue is accessible for distribution to the customer’s wishes. It is focused on the client’s priorities, and a review of financial situations will result in modifications in financial goals.
Types of Equity Research Analysts
There are various chances for those interested in equity research professions. The following are some of the equities research analyst jobs:
Equity Research Associate:
After finishing bachelor’s degree programs, the majority of equity research analysts begin as entry-level research associates. Research associates report to a senior equity research analyst, who designs and implements research and financial models. Equity Research Associates analyze securities, conduct financial performance and changes, evaluate equity investments, conduct industry-specific research, develop proprietary documentation, and generate financial models.
Equity Research Analysts:
Equity research analysts examine data to create new investing approaches and provide precise recommendations on financial decisions and choices. In their research and judgments, equity research analysts examine opportunities and dangers. They communicate this to their consumers and offer solutions as needed. After gaining some experience, one can begin working as an equities research analyst.
Skills Required for an Equity Research Analyst
The required equity research analyst abilities are determined by an individual’s level of expertise in the area. If the candidate is new, the employer expects a working understanding of how to use Excel for equity calculations as well as awareness of other equity-related topics.
If the employee has one or two years of experience, the employer needs sensitized analytical abilities and the application of logic in creating ratio analysis, income statement, and balance sheet, in addition to the foregoing. Candidates must have a basic understanding of financial modeling, report writing abilities, and proficiency in both written and spoken English.
The capacity to apply logic and reasoning to determine the flaws and strengths of any situation is referred to as critical thinking. Therefore, it is important as it ensures that you obtain the finest answer to these challenges.
To succeed as an equities research analyst, the applicant must be capable of making decisions and addressing complicated problems. Even though the equity researcher works as part of a team, he or she must frequently think independently, be accountable, and take self-motivated actions. The researcher must study and solve difficult difficulties.
An equities research analyst must be analytically strong. They must uncover the story hidden beneath a company’s data, whether qualitative or quantitative.
Big banks run their training program and teach their incoming classes everything from the ground up. Associates should consider enrolling in a CFA program.
Attention To Detail:
Any minor inaccuracy made by the Associate / Analyst in their study might result in massive losses for the investors who rely on their advice. As a result, being meticulous and paying great attention to detail is critical in a job as an equities research analyst.
Associates must strive to become specialists in their fields to be effective as equities research analysts. This would imply being a top-tier Analyst and a force to be reckoned with among industry leaders.
A stock analyst must be able to communicate well, at least in writing. Apart from producing well-written reports with acceptable projections, networking skills become vital when he/she becomes an Analyst since he/she may be required to perform marketing activities such as arranging non-deal roadshows for their customers.
Frequently Asked Questions
1. Is it necessary for an Equity Research Analyst to travel?
Yes, an Equity Research Analyst’s employment needs some travel because he or she is required to meet with customers regularly.
2. What’s the preferred presence job location?
Individuals who work as Equity Research Analysts are typically employed in urban areas since these areas serve as the region’s financial center.
3. What is the weekly work hour?
They are expected to work from 9 a.m. to 5 p.m., Monday through Friday. Analysts may work the same number of hours as Associates: 50-70 hours per week, with typical 12-hour days and greater hours during the earning season.
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