Contents

PAGE
Foreword I-3
Acknowledgement I-5
About NISM Certifications I-7
About the Certification Examination for Research Analyst I-9

CHAPTER 1
INTRODUCTION TO RESEARCH
ANALYST PROFESSION
1.1 Primary Role of a Research Analyst 1
1.2 Primary Responsibilities of a Research Analyst 3
1.3 Basic Principles of Interaction with Companies/Clients 4
1.4 Important Qualities of a Research Analyst 6

CHAPTER 2
INTRODUCTION TO SECURITIES MARKET
2.1 Introduction to Securities and Securities Market 9
2.2 Product Definitions/Terminology 11
2.3 Structure of Securities Market 19

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2.4 Various Market Participants and Their Activities 23
2.5 Kinds of Transactions 29
2.6 Dematerialization and Rematerialization of securities 34

CHAPTER 3
TERMINOLOGY IN EQUITY AND
DEBT MARKETS
3.1 Terminology in Equity Market 38
3.2 Terminology in Debt Market 46
3.3 Types of Bonds 52

CHAPTER 4
FUNDAMENTALS OF RESEARCH
4.1 What is Investing? 61
4.2 Research on Businesses or Stocks 63
4.3 Fundamental Analysis 63
4.4 Technical Analysis 64
4.5 Behavioural Finance 66

CHAPTER 5
ECONOMIC ANALYSIS
5.1 Basic Principles of Microeconomics 70
5.2 Basic Principles of Macroeconomics 70
5.3 Introduction to Various Macroeconomic Variables 71
5.4 Sources of Information for Economic Analysis 80

CHAPTER 6
INDUSTRY ANALYSIS
6.1 Michael Porter’s Five Force Model for Industry Analysis 83
6.2 Political, Economic, Socio-cultural, Technological, Legal and 89
Environmental (PESTLE) Analysis
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6.3 Boston Consulting Group (BCG) Analysis 91
6.4 Structure Conduct Performance (SCP) Analysis: 92
6.5 Key Industry Drivers 94
6.6 Regulatory environment/framework 95
6.7 Sources of information for industry analysis 95

CHAPTER 7
COMPANY ANALYSIS – QUALITATIVE
DIMENSIONS
7.1 Understand Business and Business Models 99
7.2 Competitive Advantages/Points of differentiation over the 100
Competitors
7.3 Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis 101
7.4 Quality of Management (Including Independent Directors) and 101
Governance
7.5 Pricing Power and Sustainability of this Power 102
7.6 Organization Structure 102
7.7 Critical Business Drivers/Success Factors 103
7.8 Risks in the Business 104
7.9 Compliance Orientation of the Company 104
7.10 Documentation on Guidance v/s Actuals 105
7.11 Sources of Information for Analysis 105

CHAPTER 8
COMPANY ANALYSIS – QUANTITATIVE
DIMENSIONS
8.1 History of Business vs. Future of Business 107
8.2 Basics of Profit and Loss Account (P/L) 108
8.3 Basics of Balance Sheet (B/S) 112
8.4 Basics of Cash Flows 115
8.5 Contingent Liabilities 117
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8.6 Basics of Taxation Affecting to Companies 119
8.7 Important points to keep in mind while looking at financials 119
8.8 Quality of Business in the Past through Quantitative Lenses 120
8.9 Peeping in to future with caution 125
8.10 Peer Comparison 126
8.11 History of Equity Expansion 126
8.12 Dividend and Earnings History 127
8.13 History of Corporate Actions 127
8.14 Ownership and insiders’ sales and purchase of stocks in the Past 127

CHAPTER 9
CORPORATE ACTIONS
9.1 Philosophy of Corporate Actions 129

CHAPTER 10
VALUATION PRINCIPLES
10.1 Difference Between Price and Value 141
10.2 Why Valuations are required 142
10.3 Sources of Value in a Business - Earnings and Assets 142
10.4 Discounted Cash Flows Model for Business Valuation 143
10.5 Absolute Valuations vs. Price-Value Sense 146
10.6 Earnings Based Valuation Matrices 147
10.7 Assets based Valuation Matrices 151
10.8 Relative Valuations - Trading and Transaction Multiples 154
10.9 Sum-Of-The-Parts (SOTP) Valuation 155
10.10 Other Valuation Parameters in New Age Economy and Businesses 155
10.11 Capital Asset Pricing Model 155
10.12 Objectivity of Valuations 155
10.13 Some Important Considerations in the Context of Business 156
Valuation
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CHAPTER 11
FUNDAMENTALS OF RISK AND RETURN
11.1 Concept of Return of Investment and Return on Investment 159
11.2 Calculation of Simple, Annualized and Compounded Returns 160
11.3 Risks in Investments 163
11.4 Concepts of Market Risk (Beta) 168
11.5 Sensitivity Analysis to Assumptions 169
11.6 Concept of Margin of Safety 169
11.7 Comparison of Equity Returns with Bond Returns 170
11.8 Basic Behavioural Biases Influencing Investments 171
11.9 Some Pearls of Wisdom from Investment Gurus across the World 173

CHAPTER 12
QUALITIES OF A GOOD RESEARCH REPORT

12.1 Qualities of a Good Research Report 177

12.2 Checklist Based Approach to the Research Reports 180
12.3 A Sample Checklist for Investment Research Reports 180

CHAPTER 13
LEGAL AND REGULATORY ENVIRONMENT
13.1 Regulatory infrastructure in Financial Markets 185
13.2 Important regulations in Indian Securities Market 190
13.3 Code of Conduct/Ethics for Research Analysts 202
13.4 Disclosure Requirements for Research Analysts 203
ANNEXURE 1 : Case Studies (Some cases from history on market events) 207
ANNEXURE 2 : Suggested Readings 214
ANNEXURE 3 : Reference Reports, Databases and Websites 216