Complete Guide To Equity Research Services

Institutional investors often invest their funds with a specific investment mandate and such amount is to be invested for a certain period. Equity research services can provide impactful recommendations augmented by the power of information to institutional investors and enable them to invest their funds in the equity markets. Since investment is inherently risky, proper investment backed with proper research and ably supported by a research team would make investment easier for the investors and allow them to earn returns on their investments.

What are Equity research services?

Equity research services involve studying business and business environments in order to issue buy or sell decisions regarding equity shares. Purchase or sale of equity shares happens on the basis of information about the working of the company as well as the potential of future performance. An equity research analyst conducts a thorough analysis of the current status and future growth prospects of a company along with the industry in which it operates. This would include research about the headwinds, tailwinds, financial statements, cash flows, management quality, market share and any other piece of information which can be used to predict future performance of a company and therefore the future price of its stock. Apart from relying on quantitative information, an equity research analyst may also conduct scuttlebutt to derive qualitative information about a company by interacting with its clients, vendors and employees.

The equity research analyst may provide a buy or sell call based on the insights derived from exhaustive research mentioned earlier.

Why is equity research important?

Equity markets are full of risk and are prone to volatility as well. Equity markets often behave in a random and volatile manner which may cause concern to the investors. While institutional investors have a longer time frame for investment, they also have a fiduciary duty towards the beneficiaries of the funds. Equity research services would provide proper guidance as well as risk management for the investors. While risk can not be eliminated, risk mitigation will allow for a more peaceful investment for the investors.

Investment and trading are risky enterprises and there is an inherent risk in such a business. Through proper risk management, however, the risk-reward ratio may be enhanced and the investors can earn higher returns at a lower risk. Equity research services would allow for risk management and increase the chances of the creation of wealth in a longer time frame.

What does an equity analyst do?

A person working in the equity research division of a company would either be an associate or an analyst. The equity analyst would conduct research about the company, the industry it operates as well as various associated reports to gain an understanding and issue a report regarding the valuation of the company. An equity analyst is often part of an investment bank and may either work in the buy-side or sell-side of a company. The research analyst based on the side they work for would conduct analysis accordingly.

What does an equity research report consist of?

An equity research report’s format would depend on whether it is a first initiation on the company or whether it is a follow-up. It generally begins with Industry research and insights about the industry the company operates. A general overview of the company is followed by the management overview and the financial reports of the company in the past few quarters. Based on such past performance, the analyst may attempt to provide an insight on the future performance of the company based on industry insight, management commentary, and the past performance of the company. A forecast on the future performance of the company is provided as a part of the equity research report.

The final part of the equity research report generally consists of the valuation of the company and the price of the equity share of the company based on such valuation. A time frame may also be provided along with the target price of the company to enable investors to make a decision based on such services.

Conclusion:

Risk Management is one of the most important aspects of any business activity regardless of the industry. Since equity analysis and movement of the share price is based upon the demand and supply for a share along with the information for a company, equity research services allow the investors and those who seek such services to ensure and place a proper risk management technique in their business and allow them to take advantage of the information gap that exists in the market.