CHAPTER 12: QUALITIES OF A GOOD RESEARCH REPORT

📘 Chapter 12: Qualities of a Good Research Report – Outline

Section	Title	Description
12.1	Importance of Research Reports	Explains why research reports matter in financial decision-making and how they impact investors and professionals.
12.2	Key Elements of a Research Report	Outlines the structure and standard components of a professional equity research report.
12.3	Clarity, Objectivity & Simplicity	Emphasizes that reports must be understandable, unbiased, and written in straightforward language for better investor usability.
12.4	Actionable Recommendations	Focuses on the importance of clear, practical, and justified investment calls within the research report.
12.5	Disclosures and Transparency	Highlights the necessity of providing all material disclosures and maintaining transparency regarding conflicts of interest.
12.6	Compliance with Regulations	Discusses the regulatory framework under SEBI guidelines that governs the preparation and distribution of research reports.

📘 12.1 Qualities of a Good Research Report

A high-quality research report is more than just financial data — it is a structured, well-reasoned document that presents an actionable investment idea supported by thorough analysis and objective insight.

📌 What Makes a Research Report Valuable?

Clearly presents an investment idea
Provides relevant market perspective and context
Includes detailed company analysis backed by facts and interpretation

✍️ Writing a Good Research Report: 3 Key Stages

1. Planning

Understand the objective, target audience, and scope of research before starting.

2. Drafting

Prepare the structure, outline sections, and populate with key data, charts, and insights.

3. Editing

Review language, logic, tone, and remove redundancies. Ensure clarity and neutrality.

📄 Fact-Based Sections in a Report

Company background and business model
Historical financials and ratios
Industry overview and competitive landscape
Key risks and regulatory updates

🧠 View-Based Section in a Report

Analyst’s opinion on valuation and expected performance
Investment rationale and assumptions
Price targets and return expectations

⚠️ Things to Watch Out For

Avoid jargon and maintain clarity
Maintain consistency between facts and views
Disclose conflicts of interest, if any
Stick to a logical flow — build narrative with data

📌 Rating Conventions

Buy: Expected return >15% over 12 months
Accumulate: Expected return 5% to 15%
Hold: Expected return between –5% and +5%
Reduce: Expected return –5% to –15%
Sell: Expected return < –15%

*Note: Conventions may vary slightly by institution

📘 12.2 Checklist-Based Approach to the Research Reports

📌 Why Use a Checklist?

A checklist helps maintain structure, completeness, and consistency in research reports. It ensures that no critical component is missed and that the report meets professional and compliance standards.

The following checklist can be used by research analysts while preparing or reviewing equity research reports:

✔ Company Overview

Brief history, business segments, management profile, and shareholding pattern.

✔ Industry Analysis

Sector performance, industry size, competition, growth potential, and regulatory factors.

✔ Financial Performance

Historical results, key ratios, revenue drivers, and profitability trends.

✔ Valuation

Use of valuation models like P/E, EV/EBITDA, DCF; peer comparison; fair value estimation.

✔ Investment Rationale

Clear explanation of why the stock is recommended — backed by data and assumptions.

✔ Risks to the View

Listing of company-specific, industry-specific, and macroeconomic risks.

✔ Rating & Target Price

Well-defined rating (Buy/Hold/Sell), target price, expected return, and rationale.

✔ Disclosures & Analyst Certification

Mandatory disclosures, conflict of interest, and analyst certification statements as per SEBI guidelines.

This structured approach ensures transparency, professionalism, and adherence to ethical standards while enhancing the quality and credibility of the research report.

📘 12.3 A Sample Checklist for Investment Research Reports

📌 About This Checklist

This checklist is intended to serve as a practical reference for evaluating companies during the research process. It can be customized based on individual preferences, sector-specific factors, and report requirements.

🧠 Qualitative Parameters

Business Understanding

Do I understand the business, how it makes money, and its segment-wise revenue contribution?

Market & Moat

What is the moat or competitive advantage? Is the product a necessity or a choice? Are there substitutes?

Scalability & Demand

Is the business scalable? What is the demand-supply gap and its sustainability?

Long-Term Vision

What will the business look like in 10 years? Is it likely to exist and be more valuable?

Pricing Power

Does the company have pricing power on output and inputs? Is it sustainable?

Competition

What is the competitive landscape and level of entry barriers?

Management & Governance

Quality of management, promoter stake, insider actions, pledges, buybacks, and governance practices.

Shareholding & Triggers

Shareholding pattern changes, top shareholders, and business catalysts (if any).

SWOT Analysis

Company strengths, weaknesses, opportunities, and threats with action taken on each.

📊 Quantitative Parameters

Growth & Profitability

Is revenue and EPS growth consistent? Is NPM >10% over 5 years?

Leverage & Ratios

Is D/E <1 and interest coverage >3 over 5 years? Are ROE and ROCE >15%?

Dividend & Cash Flow

Is there a stable dividend and positive cash flow track record over 5 years?

Audit & Accounting

Any audit qualifications or unusual items in notes to accounts?

Capex & Funding

What are upcoming capex plans and how will they be financed (equity/debt)?

Capital Efficiency

Is the company financially disciplined? Are we buying quality assets and earnings?

📐 Valuation Parameters

Intrinsic Value

What is the fair value of the business? How confident are we in the valuation?

Relative Valuation

Is the business cheap vs peers on Price, P/E, P/BV, EV/EBITDA, etc. over time?

Margin of Safety

What discount does the stock offer to intrinsic value? What justifies this discount?

Market Mispricing

Is there a disconnect between value and price? What are the possible correction triggers?