Primary Role of a Research Analyst
Research Analysts (RAs) do, this to help their clients make investment decisions. There is Research – a collection of information from various sources and then Analysis – the processing of data to make decisions.
Analysis and decision-making process is a combination of understanding qualitative factors that affect operational performance, such as the efficiency of operations, competitiveness, business plans, and work ethics of the management among others, and quantitative factors such as revenues, costs, profitability, and risks to these financials. Therefore, RAs spend a lot of time interacting with companies and others, accumulating data, analyzing it, and arriving at a buy, hold or sell call.
Research Analysts are defined by the nature of the analysis they do, the coverage, and the use of the recommendations they provide. Let us understand some of them:
Sell-side Analysts – They typically publish research reports on the securities of companies or industries with specific recommendations to buy, hold, or sell the subject security. These recommendations include the analyst’s expectations of the earnings of the company and the future price performance of the security (“price target”). These analysts work for firms that provide investment banking, broking, and advisory services for clients
Buy-side Analysts – They generally work for money managers like mutual funds, hedge funds, pension funds, or portfolio managers that purchase and sell securities for their own investment accounts or on behalf of their clients. These analysts generate investment recommendations for their internal consumption viz. use by the fund managers within an organization. Research reports of these analysts are generally circulated among the top management/investment managers of the employer firms as these reports contain recommendations about which securities to buy, hold or sell.
Independent Analysts – They work for research originators or boutique firms separate from full-service investment firms and sell their research to others on a subscription basis. Their clients could be investors, institutions, investment bankers, regulators, stock exchanges, fund managers, etc. They also provide customized research reports on the businesses on specific requests.
Primary Responsibilities of a Research Analyst
Understanding economy – Changes in macroeconomic factors, Fiscal & Monetary Policies, FDI, FPI, Saving and Investing patterns & Global factors that impact the GDP.
Understanding industry – Research Analysts need to understand the industry, business models, competition, operating factors, the sensitivity of demand to price changes, consumers’ behavior, etc.
Understanding Companies– companies are also studied by analysts in two dimensions – Qualitatively and Quantitatively.
Basic Principles of Interaction with Companies/Clients
Pre-meeting Research – While the management is generally open to interviews with Research
Analysts, they must bear in mind that these opportunities do not come very frequently and
therefore must be made full use of whenever they come.
Independence and Neutrality of view- analysts must have an unbiased opinion and should always hold their independence. Also, they must make it clear to the management to not reveal any information which is not available in the public domain.
Network– analysts may use their network to acquire more contacts relevant to the research, who would be able to provide meaningful insights into the company’s performance and plans.
Clarity of questions– As analysts start analyzing a company, there would be certain aspects on which they might need more clarity. Time with management would be effectively used if analysts have a clear and specific set of questions in mind. They must be realistic in suggesting companies to their clients. Research reports should be simple, clear, and concise. They need to mention everything (conflicts, swot, and all details) clearly.
Important Qualities of a Research Analyst
- Good with numbers
- Good Excel (spreadsheet) and other data analytical tools
- The clarity in financial concepts
- Ability to read and comprehend financial statements and reports
- Ability to ask pertinent questions
- Attention to details
- Communication Skills – Written and Verbal