Test Objectives-Research Analyst
Unit 1: Introduction to Research Analyst Profession
1.1 Understand the primary role of a Research Analyst
1.2 Discuss the primary responsibilities of a Research Analyst
1.3 Know the basic principles of interaction with companies and/or clients
1.4 List the important qualities that are desired in a Research Analyst
Unit 2: Introduction to Securities Market
2.1 Define the term “Securities” and understand the basics of securities markets
2.2 Know the securities market terminology such as:
2.2.1 Equity Shares
2.2.2 Debentures/Bonds/Notes/Masala Bonds
2.2.3 Warrants and Convertible Warrants
2.2.4 Indices
2.2.5 Mutual Fund Units
2.2.6 Exchange Traded Funds
2.2.7 Hybrids/Structured Products
2.2.8 Commodities
2.3 Understand the structure of securities markets with a discussion on primary and secondary markets
2.3.1 Primary market: Explain various ways to issue Securities – Initial Public Offer (IPO), Follow on Public Offer (FPO), Private Placement, Qualified Institutional Placements (QIPs), Preferential issue, Rights and Bonus issue, Onshore and offshore offerings, Offer for Sale (OFS), ESOPs
2.3.2 Secondary market: Over-the-counter Market and Exchange Traded Markets, Trading, Clearing and Settlement and Risk Management
2.4 Know the various market participants and their activities
2.4.1 Market Intermediaries: Stock Exchanges, Depositories, Depository Participant, Trading Member/Stock Brokers, Authorised Person, Custodians, Clearing Corporation, Clearing Banks, Merchant Bankers and Underwriters
2.4.2 Institutional participants: Foreign Portfolio Investors (FPIs), P-Note Participants, Mutual Funds, Insurance Companies, Pension Funds, Venture Capital Funds, Private Equity Firms, Hedge Funds, Alternative Investment Funds, Investment Advisers
2.4.3 Retail participants
2.4.4 Proxy Advisory Services Firms
2.5 Discuss various securities market transactions, products and processes such as:
2.5.1 Cash, Tom and Spot trades/transactions
2.5.2 Forward transactions
2.5.3 Futures
2.5.4 Options
2.5.5 Swaps
2.5.6 Trading, Hedging, Arbitrage, Pledging of Shares
2.6 Know the dematerialization and re-materialization of securities
Unit 3: Terminology in Equity and Debt Markets
3.1 Understand the terminology related to Equity Markets such as:
3.1.1 Face Value
3.1.2 Book Value
3.1.3 Market Value
3.1.4 Replacement Value
3.1.5 Intrinsic Value
3.1.6 Market Capitalization
3.1.7 Enterprising Value
3.1.8 Earnings – Historical, Trailing and Forward
3.1.9 Earnings Per Share
3.1.10 Dividend Per Share
3.1.11 Price to Earnings Ratio
3.1.12 Price to Sales Ratio
3.1.13 Price to Book Value Ratio
3.1.14 Differential Voting Rights (DVRs)
3.2 Understand the terminology used in the Debt Markets
3.2.1 Face Value
3.2.2 Coupon Rate
3.2.3 Maturity
3.2.4 Principal
3.2.5 Redemption of a Bond
3.2.6 Holding Period Returns
3.2.7 Current Yield
3.2.8 Yield to Maturity (YTM)
3.2.9 Duration
3.3 List various types of Bonds and describe their features:
3.3.1 Zero Coupon Bonds
3.3.2 Floating Rate Bonds
3.3.3 Convertible Bonds
3.3.4 Principal Protected Note
3.3.5 Inflation Protection Securities
3.3.6 Foreign Currency Bonds
3.3.7 External Bonds
3.3.8 Perpetual Bonds
Unit 4: Fundamentals of Research
4.1 Define investing activity
4.1.1 Active investing
4.1.2 Passive investing
4.2 Know the role of research in the investment activity
4.2.1 Insider Information vs Mosaic Analysis
4.3 Outline the nature of Technical Analysis approach to securities research
4.4 Outline the nature of Fundamental Analysis approach to securities research and know E-I-C analysis, top-down and bottom-up approaches of fundamental analysis
4.5 Outline the nature of Quantitative Analysis (Econometrics approach) to securities research
4.6 Outline the nature of Behavioral Finance approach to Equity Investing
Unit 5: Economic Analysis
5.1 Discuss the basic principles of microeconomics
5.2 Discuss the basic principles of macroeconomics
5.3 Introduce various macroeconomic variables such as:
5.3.1 National income
5.3.2 Savings and Investments
5.3.3 Inflation (Consumer/Wholesale Price Indices) and interest rate
5.3.4 Unemployment rate
5.3.5 Flows from Foreign Direct Investment (FDI) and Foreign Portfolio Investors (FPIs)
5.3.6 Fiscal policies and their impact on Economy
5.3.7 Monetary policies and their impact on Economy
5.3.8 International trade, Exchange rate and Trade Deficit
5.3.9 Globalization: Positives and Negatives
5.4 Understand the Role of economic analysis in fundamental analysis
5.5 Understand the nature of secular, cyclical and seasonal economic trends
5.6 Know various sources of information for economic analysis
Unit 6: Industry Analysis
6.1 Understand the role of industry analysis in fundamental analysis
6.2 Know the Industry Definition
6.3 Understand industry cyclicality
6.4 Discuss market sizing and trend analysis
6.5 Discuss secular trends, value migration and business life cycle
6.6 Understand the industry landscape
6.6.1 Michael Porter’s five force model for industry analysis
6.6.2 Political, Economic, Socio-cultural, Technological, Legal and Environmental (PESTLE) Analysis
6.6.3 Boston Consulting Group (BCG) Analysis
6.6.4 Structure-Conduct-Performance (SCP) Analysis
6.7 Know the key industry specific drivers for various industries and Industry KPIs
6.7.1 Unit of Pricing
6.7.2 Key constraining factors
6.7.3 KPIs for select industries
6.8 Know why analysts should pay attention to the regulatory aspects of businesses
6.9 Understand the elements of taxation pertaining to (taxation related knowledge required for research analyst):
6.9.1 Direct Taxes
6.9.2 Indirect Taxes
6.9.3 Taxes on Securities (Corporate Tax, DDT and LTCG/STCG)
6.10 Know various sources of Information for carrying out industry analysis
Unit 7: Company Analysis – Business and Governance
7.1 Learn the role of company analysis in fundamental research
7.2 Understand the businesses and business models
7.3 Analyze the significance of pricing power of a business and its ability to sustain this power
7.4 Analyze a company’s competitive advantages or points of differentiation over the competitors
7.5 Know the SWOT analysis: Strengths, Weaknesses, Opportunities and Threats
7.6 Discuss the importance of quality of management, independent directors and good governance standards
7.6.1 Evaluating management competency
7.6.2 Evaluating corporate governance
7.6.3 Promoters’ holding
7.7 Learn why it is important to understand the risks to a business
7.8 Understand the importance of knowing the history of credit rating of a company and how the rating has changed over time
7.9 Learn about the Environment, Social and Governance (ESG) analysis of a Company / Business
7.10 Know various sources of Information for carrying out company analysis
Unit 8: Company Analysis – Financial Analysis
8.1 Understand the importance of studying the historical performance of a company and discuss whether it will be a good indicator for future performance of the company
8.2 Understand the consolidated and stand-alone results of a company and know how to use them in the analysis
8.3 Understand the basics of “Balance Sheet” of a company
8.3.1 Common Balance Sheet Line Items
8.3.2 Balance Sheet Metrics
8.4 Understand the basic concepts related to “Profit and Loss statement” of a company
8.4.1 Common profit and loss account line items
8.4.2 Key metrics from profit and loss account
8.5 Understand the need to study the historical equity expansion (equity dilution) trends of a company and how it impacts the existing shareholders
8.6 Understand the Cashflows of a company
8.7 Discuss the Notes to Accounts
8.8 List the important points to be kept in mind while looking at a company’s financials
8.9 Discuss the importance of Reading audit report to understand the quality of accounting
8.10 Understand the financial statement analysis using ratios
8.11 Know the commonly used ratios used in financial analysis
8.11.1 Profitability Ratios
8.11.2 Return Ratios
8.11.3 Leverage Ratios
8.11.4 Liquidity Ratios
8.11.5 Efficiency Ratios
8.12 Know the computation of Dupont Analysis
8.13 Know why the analysts need to study a company’s history and ways in which they can use such knowledge to cautiously look into the future prospects of the company
8.14 Know the importance of peer comparison in understanding the relative standing of a company among its peers
8.15 Know the need to track the history of equity expansion, dividend and earnings history and past corporate actions of a company as part of the analysis and ownership and insiders’ sales and purchase of stocks in the past
Unit 9: Corporate Actions
9.1 Understand the philosophy of various corporate actions
9.2 Dividend
9.3 Rights Issue
9.4 Bonus Issue
9.5 Stock Split
9.6 Share Consolidation
9.7 Merger and Acquisition
9.8 Demerger / Spin off
9.9 Scheme of arrangement
9.10 Loan restructuring
9.11 Buy back of shares
9.12 Delisting of shares and relisting
9.13 Share swap
Unit 10: Valuation Principles
10.1 Understand the difference between Price and Value
10.2 List some of the reasons for carrying out valuation of businesses
10.3 Discuss the sources of value in a business (earnings and assets)
10.4 Know the various approaches to valuation
10.5 Explain the Discounted Cash Flows (DCF) model for business valuation
10.6 Introduce the relative valuations
10.7 Understand various earnings based valuation matrices
10.7.1 Dividend Yield: Price to Dividend Ratio
10.7.2 Earning Yield: Price to Earnings Ratio
10.7.3 Growth Adjusted Price to Earnings Ratio (PEG Ratio)
10.7.4 Enterprise Value to EBIT (DA) Ratio
10.7.5 Enterprise Value (EV) to Sales Ratio
10.8 Understand various assets based valuation matrices
10.8.1 Price to Book Value Ratio
10.8.2 Enterprise Value (EV) to Capital Employed Ratio
10.8.3 Net Asset Value Approach
10.8.4 Other metrics
10.9 Know the relative valuations (trading and transaction multiples), sum-of-the-parts valuation and other valuation parameters in new age businesses
10.10 Know the Sum-Of-The-Parts (SOTP) Valuation
10.11 Understand the other valuation parameters in new age economy and businesses
10.12 Discuss Capital Asset Pricing Model
10.13 Explain the objectivity of valuations
10.14 List some of the important considerations in the context of business valuation
Unit 11: Fundamentals of Risk and Return
11.1 Understand the concept of return on investment
11.2 Calculate simple, annualized and compounded returns
11.3 Describe various risks that are seen in investments such as inflation risk, interest rate risk, business risk, market risk, credit risk, liquidity risk, call risk, reinvestment risk, political risk and country risk
11.4 Calculation of measuring risk
11.5 Understand the concept of Market Risk (Beta)
11.6 Understand the importance of sensitivity analysis
11.7 Understand the concept of Margin of Safety
11.8 Compare equity returns with bond returns
11.9 Calculation of Risk adjusted returns: Jensen’s Alpha, Sharpe ratio and Treynor’s ratio
11.10 Discuss various behavioural biases that influence investments and investment returns (loss-aversion bias, confirmation bias, ownership bias, gambler’s fallacy, winner’s curse, herd mentality, anchoring and projection bias)
11.11 Briefly discuss some quotes (market wisdom) from Investment Gurus
11.12 Discuss Measuring liquidity of equity shares
Unit 12: Qualities of a good Research Report
12.1 Discuss the qualities of a good Research Report and know the rating conventions
12.2 Know the advantages of checklist based approach to the Research Reports
12.3 Understand the constituents of the checklist with the help of a sample checklist
Unit 13: Legal and Regulatory Environment
13.1 Describe the regulatory framework of Indian financial markets:
13.1.1 Ministry of Finance (MoF)
13.1.2 Ministry of Corporate Affairs (MCA)
13.1.3 Reserve Bank of India (RBI)
13.1.4 Securities and Exchange Board of India (SEBI)
13.1.5 Insurance Regulatory and Development Authority (IRDA)
13.1.6 Pension Fund Regulatory and Development Authority (PFRDA)
13.1.7 Insolvency and Bankruptcy Board of India (IBBI)
13.2 Understand the important regulations in Indian securities markets:
13.2.1 Securities Contract (Regulation) Act, 1956
13.2.2 Securities and Exchange Board of India (SEBI) Act, 1992
13.2.3 Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015
13.2.4 SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulation, 2003 (and its amendments)
13.2.5 Securities and Exchange Board of India (Research Analyst) Regulations, 2014 (and its amendments)
13.2.6 IBC related provisions relevant to Research Analyst
13.3 Know the Code of Conduct prescribed for Research Analysts
13.4 Discuss the management of conflicts of interest and the disclosure requirements for Research Analysts
13.5 Know the surveillance mechanism of Exchanges: ASM and GSM
