Understanding how to research stocks is crucial if you are interested in investing money. Equity research helps you make smart decisions about buying and selling these stocks.
Whether you’re new to investing or have some experience, knowing the basics of equity research can help you find good opportunities and avoid risks.
In this blog, we will explain everything you need to know about equity research.
From what equity research is to the tools experts use today, you’ll learn how to understand the stock market better.
Let’s explore how to make smart decisions in the changing world of finance in 2024.
What is Equity Research & its Importance?
Equity research is all about digging deep into the companies to figure out if their stocks are worth buying or selling.
Experts who do this research look at:
- How much money does a company make?
- How is its management?
- What’s going on in the industry it’s in?
Here’s why you need to know how to do equity research:
- It helps you make smart choices about where to put your money.
- You can spot good deals and avoid risky ones by studying companies closely.
- This research also gives you a clearer view of what’s happening in the stock market, which helps you stay ahead and make better decisions.
3 Types of Equity Research
Equity research comes in different types, each serving a specific purpose in understanding stocks and investments.
When you know these types, it helps you better navigate the stock market better.
Let’s explore the main categories of equity research and how they impact investment decisions:
a. Sell-Side Research
It is conducted by analysts working for brokerage firms or investment banks. They provide suggestions on stocks to clients and earn commissions on trades.
b. Buy-Side Research
It is conducted by analysts working for institutional investors such as mutual funds, hedge funds, and pension funds. They analyze stocks to make investment decisions on behalf of their clients.
c. Independent Research Firms
They provide equity research independent of brokerage houses or investment banks. They offer unbiased analysis and recommendations to investors who may not have access to traditional sell-side research.
Each type of equity research serves different purposes and caters to various segments of the investment community, helping you make informed decisions based on thorough analysis and expert insights.
What does an Equity Research Analyst do?
An Equity Research Analyst analyses a piece of a company or its stock and studies it to conclusions.
1. They conduct in-depth research on specific companies within certain sectors. They create reports advising whether to:
- Buy stocks
- Hold stocks
- Sell stocks
2. Analysts also focus on publicly traded companies. They specialize in specific sectors, becoming experts on the stocks in those sectors.
Let’s say, for instance, you have a lot of money and see the health sector booming.
You want to invest but aren’t sure. That’s when you reach out to an equity research analyst.
An equity research analyst helps you, by conducting detailed research on companies you’re interested in.
They closely examine:
- Trends in the company
- Financial statements
- Executive leadership
- Competitive position
- Management team
3. After thorough research, they create reports that tell you whether the company is a good investment or not.
In short, equity research analysts help you make informed decisions.
Experts rely on a variety of tools and technologies to analyze data, predict trends, and make informed decisions.
6 Tools you can use as an Equity Research Analyst in 2024
As an equity research analyst in 2024, having the right tools is essential for conducting thorough and effective research.
Here are some key tools used today:
1. Financial Analysis Software
This tool helps analysts look at a company’s financial health by:
- Reviewing financial statements
- Calculating important ratios
- Visualizing data through charts and graphs
This makes it easier to understand a company’s performance and make educated investment decisions. An example is Koyfin, a powerful tool that provides real-time financial data, news, and analytics.
You can use it for:
- Market analysis
- Tracking economic indicators
- Researching companies
Another platform similar to Koyfin is FactSet. They offer financial data and news.
This helps investors monitor markets and make trading decisions.
2. Charting Tools
They help analysts and traders visualize stock prices and market trends over time.
These tools use charts and graphs to show patterns and movements in the market, making it easier to predict future price changes and make informed trading decisions. An example is the TradingView a popular platform for charting and technical analysis.
It allows you to create:
- Custom charts
- Analyze patterns
- Apply technical indicators to predict price movements
3. Data Analytics and AI
These tools quickly analyze large amounts of data to find patterns and trends. They can predict market movements and provide deeper insights that might be missed manually.
This makes the research process faster and more accurate, aiding in better investment decisions.
For instance:
- Machine Learning Algorithms are used to analyze large data sets and identify patterns that human analysts might miss. Hoops AI is one such example.
- Quantitative Analysis Models are models that use mathematical and statistical techniques to evaluate and manage risk, they help investors make data-driven decisions and optimize their portfolios.
4. News and Sentiment Analysis
Platforms like StockTwits, X, Google Finance, and Yahoo Finance help equity research analysts track and analyze news articles and social media to understand public and investor opinions about companies.
This information helps analysts:
- Gauge market sentiment
- Identify potential risks or opportunities
This ultimately helps investors make more informed investment decisions.
5. Portfolio Management Software
Portfolio Management Software helps equity research analysts track and manage investments.
It combines data from various assets into one platform, allowing analysts to monitor:
- Portfolio performance
- Assess risks
- Rebalance investments efficiently
This tool is crucial for staying organized and making strategic decisions based on the overall performance of investments.
Platforms such as Moneycontrol help investors assess and manage the risk levels in their portfolios, ensuring a balanced approach to investing, and Apps like Smallcase and Groww provide comprehensive portfolio tracking, performance analysis, and asset allocation tools.
6. Economic Indicators and Research Reports
Economic indicators published by the Government of India, such as GDP growth rate
- Inflation (CPI and WPI)
- Industrial production index
- Unemployment rate
Reports from investment banks, brokerage firms, and independent research providers offer in-depth analysis of companies and industries, helping investors make informed decisions.
In India, reports from financial institutions and research firms like:
- ICICI Securities
- HDFC Securities
- Motilal Oswal
- Kotak Securities
- Edelweiss Securities
By leveraging these tools and reports, Analysts can:
- Gather
- Analyze
- Interpret vast amounts of data to gain insights into the stock market.
This enables YOU to make:
- Educated investment decisions
- Manage risks effectively
- Take benefit of opportunities in today’s dynamic financial landscape.
Career, Job, and Salary Expectations as an Equity Research Analyst
As an Equity Research Analyst in India, you can expect a promising career with opportunities in:
- Financial institutions
- Brokerage firms
- Investment banks.
Your task will involve:
- Analyzing stocks
- Assessing market trends
- Creating reports
- Providing investment recommendations to clients or employers.
In 2024, the demand for skilled equity research analysts is expected to remain strong, driven by the growing need for financial markets and the requirement for informed investment decisions.
Salary expectations for equity research analysts in India vary based on experience and the employer’s scale.
Entry-level positions may start around ₹2-4 lakhs per annum, while mid-level analysts can earn between ₹5-10 lakhs annually.
Senior analysts with extensive experience can command salaries of ₹20 lakhs per annum or more, especially in top-tier firms.
If you have a:
- Knack for writing detailed analyses
- Enjoy fostering relationships
- Possess strong communication skills
- Efficient at meeting deadlines
- Loves working independently
- Thrive on staying informed about current events and trends
Then, a career as an equity research analyst could be an excellent fit for you.
However, every job has its downsides, and this one is no exception:
- Your work is never truly finished; external factors like geopolitics, pandemics, or last-minute decisions can necessitate a complete reassessment of your analysis.
- Performance isn’t always directly tied to effort; unforeseen events can significantly impact stock prices.
- You’re primarily judged on your results rather than the effort you put in.
Therefore, assessing all these factors is crucial in deciding whether to pursue a career as an equity analyst.
Conclusion
Equity research is crucial for investors because it helps them understand which stocks to buy and which to avoid.
By studying financial information and market trends, researchers give valuable advice that guides investment decisions.
Whether you’re new to investing or experienced, learning about equity research possibly through an equity research course, is important for making smart choices.
For example, you can opt-in for:
- Hedge Fund & Buy-Side Investing Certificate Program from Wharton & Wall Street Prep
- Equities Markets Certification from WSP
- Equity Researcher Learning Path from CFI
In today’s market, which is fast-changing due to new technology and global economic shifts, you need to stay flexible and informed.
There may be more ups and downs in stock prices, so being able to adapt quickly will be key.
Despite these challenges, the basic principles of equity research are always important.
- By staying up-to-date
- Using technology wisely
- Improving your skills
You can feel confident navigating the stock market and finding opportunities.
If you enjoyed learning about equity research, here’s another guide that will you understand stock market.
Here’s to a future where knowledge and smart decisions lead to success in investing.
Good luck with your investments!
