Last week, I got a call from Amit Chawla (name changed) who was doing MBA in Finance from a reputed institute in Mumbai.
He wanted to pursue a career in stock market research and had a few queries about stock market research. He was completely unaware of stock market research as a career and wanted me to clear his doubts.
So, here’s a synopsis of what we discussed on stock or equity research career.
Let’s learn the basics of stock or equity research career.
An Overview of Stock Market
If you have the knack of financial modeling and really passionate about analyzing companies and have the right attitude of putting time and efforts, stock market research career is for you.
Stock market research is the act of studying companies and industries, influencing trends and fallouts to prepare an in-depth research report advising investors on the merits and demerits of investing within a certain company.
If you get a real high when you think of having your name on an equity research report, then start working towards it. Get the right skill set, start reading annual reports, interpreting financial statements and valuing businesses.
What Do Stock Market Research Analysts Do?
As the name ‘stock market research’ analyst names implies, the job profile involves in-depth research of companies, enabling potential investors to take investment decisions.
The stock market research analysts work on both the buy side and the sell side.
- What’s buy side?
Buy-side is typically indicated hedge funds, mutual funds or investment management companies.
- What’s sell side?
Sell-side typically indicates investment banks and independent research companies. Here, researchers develop earnings models and carry out detailed company analysis and valuation.
For example, equity research analysts working on the sell side typically would like to know whether TCS is better than Infosys for investment. They are assigned a particular industry or sector and the profile of the research analyst is to know more about that sector, influential players and create an investment report.
On the contrary, the buy side analysts do not publish stock market research reports as sell side analysts do. They focus on 20-40 companies for investments.
Stock Research Tools
As a stock market research analyst, you need to study economy, industry and company to reveal macro and micro trends. There are two main frameworks in equity analysis—one is E-I-C and the other is C-I-E, based on the methodology.
The E-I-C and C-I-E are two fundamental frameworks used in security analysis. The initials in either of them imply:
- E- Economy:
A holistic perspective of the economy is analyzed, comprising of all the influencing factors which can impact the economy. The macroeconomic growth impacts the whole industry.
For instance, in 2007, the global economic scenario impacted the Indian economic scenario and as such, during that time, stock market research analysts had to navigate and understand the influencing factors before recommending any investment options.
- I – Industry:
After holistic understanding of the economy, the industry is analyzed. A cluster of companies form an industry and the industries are identified within major sectors.
The stock market research analyst studies a particular industry and its internal and external factors. The growth value of the industry plays a role in determining whether the potential investors should go ahead and invest in the industry.
This is because each industry is different and they are governed by varied internal and external factors.
- C- Company:
Lastly, we come to the company for investment. At this level, the risk measures, market value and financial statements of the company are mined and analyzed in-depth. All documents are validated and the stock market research analyst creates a report stating whether an investment within the company will be beneficial or not.
Company analysis is done with various tools like the time series technique, risk analysis, ratio analysis, cross-sectional analysis, Du-Pont analysis, and the Gordon growth model to determine intrinsic value.
The series of order in which each of the elements is analyzed form the framework order.
Stock Market Analyst Salary
The pay package of stock market research analysts includes salary, plus bonus. Bonus depends on the performance of the analyst.
Since making inroads in the stock market industry is tremendously difficult as is building a career, stock market analysts are reimbursed handsomely. In the US, most research analysts come from Ivy League schools and they receive a starting package of 50,000 USD annually and performance bonus. In India, a similar profile yields about 600,000 INR per year.
Moreover, the educational qualification of the research analyst plays an important role. People with specializations like Certified Financial Analyst (CFA) or someone with MBA are paid more. A difference in salary packages is evident with the organization you’re hired with. For instance, a person employed with Morgan Stanley or Goldman Sachs will get paid more than some other investment bank.
Stock Market Analyst Work Culture
The work culture in a stock market investment company is vibrant and eventful. The research analysts work within an office environment and they are usually required to travel locally, nationally or internationally to meet clients or attend conferences. The analyst has to research and acquire data for various analytical purposes through national and local market research covering a wide section of people.
Amit also wanted to know the difference between investment banking and stock market research work hours. So, I told him the work hours one needs to put are less in stock market research, but 10 hours is the average in stock market research.
Equity Research Career Eligibility Criteria
Graduates and Postgraduates in Finance, Economics, Mathematics, MBAs, CFAs, and CAs are preferred for stock market research role. You need to be proficient in MS-Office Suite, mathematics, analyzing companies, financial analysis, web searching and writing reports are some of the skills required for this job.
That was the outline of my discussion with Amit. With these details, Amit was very clear to make a career in stock market research.
Do you have any queries about stock market research career?