Professional Documents
Culture Documents
MEANING:
An equity research report is a document prepared by an Analyst that provides
a recommendation on whether investors should buy, hold, or sell shares of
a public company. Additionally, it provides an overview of the business, the
industry it operates in, the management team, its financial performance, risks,
and the target price.
1.BUY SIDE
The term buy side means a firm
involved in the purchasing of
stocks, bonds, derivatives and
other securities from a sell-side
bank/dealer. As the name
implies, these institutions
manage the money that’s being
invested in markets.
A buy side analyst will typically
research and make
recommendations about
profitable investments.
It is in the best interest,
naturally, for a firm to retain any
information and advice
provided by a buy-side analyst,
so that the fund can remain
competitive.
2.SELL SIDE
A sell side analyst is an equity research analyst who works for
an investment bank or brokerage firm and produces investment
research which is circulated to the firm’s clients.
A sell side analyst usually issues a rating for a stock, such as
“Overweight”, “Hold”, “Buy”, “Strong Buy”, or “Sell”. The ratings are
also sometimes accompanied by a price target.
In this case of an FPO, investors have some track record of how the previous
public issues have performed and what the market interest was like, which
may or may not be the best indicators of how the issue will perform this time
around. Previous sales of equity stakes can be a good indicator of whether or
not the stock is liquid.
Difference between an IPO and FPO may also have to do with whether the
fresh capital raised is used for expansion or dilution of promoters’ stake.
Because investing in an IPO is relatively riskier, and there are more unknowns,
the investor is sufficiently compensated for the risk when they subscribe to an
IPO.
FPOs are relatively less risky than IPOs since there is more transparency and
information available about the company.
Q.5 Leading vs. Lagging vs. Coincident Indicators: What's the
Difference?
Leading Indicators
Leading indicators are a heads-up for economists and investors who
hope to anticipate trends. Bond yields are thought to be a good leading
indicator of the stock market because bond traders anticipate and
speculate about trends in the economy. However, they are still
indicators, and are not always correct.
Lagging Indicators
Lagging indicators can only be known after the event, but that doesn't make
them useless. They can clarify and confirm a pattern that is occurring over
time. The unemployment rate is one of the most reliable lagging indicators. If
the unemployment rate rose last month and the month before, it indicates
that the overall economy has been doing poorly and may well continue to do
poor
Coincident Indicators
Coincident indicators are analyzed and used as they occur. These are key
numbers that have a substantial impact on the overall economy.
Q.6
Cyclical Stocks
As the name suggests, these stock prices show a cyclical movement and
susceptible to sporadic price changes. These shares are influenced by
macroeconomic factors, systematic changes, rise and fall of disposable income,
and more. These are the shares from companies/sectors that are influenced by
the shifts in the economy.
When the economy is booming, and people have more disposable income in
their hand, they invest in luxury products to upgrade their lifestyle. Sectors like
the automobile, infrastructure, consumer durable, fashion lines, airlines,
entertainment, thrive during this phase. Their sales soar and also the prices of
their shares. These sectors follow all the cycles of the economy – expansion,
peak, and fall.
Because of this nature, cyclical stocks are very volatile, but since investors can’t
control economic cycles, they need to adjust their investment practices to ride
the tide better.
Defensive Stocks
On the other side of the spectrum are the non-cyclical or defensive stocks.
These are the shares from companies which produces daily utility products,
FMCG, – sectors which are virtually immune to market changes. Because of
this trait, non-cyclical stocks are also called defensive stocks. Defensive stocks
are steady earners and often outperform cyclical stocks when economic
growth is slow.
Another example is the utility sector like gas, energy, electricity, and more.
Irrespective of economic condition, defensive stocks grow at a conservative
pace and aren’t susceptible to sudden price changes. These stocks offer a risk
hedge against unexpected market movement but at the same time, aren’t
spectacular earners.
Profitability
∆ROA: Change in ROA from the prior year. If ∆ROA > 0, F score is 1. Otherwise,
F score is 0.
∆LIQUID: Change in current ratio. If the current ratio increases from the prior
year, F score is 1, 0 otherwise.
∆MARGIN: Change in gross margin ratio. If the current year’s ratio minus prior
year’s ratio > 0, F Score is 1, 0 otherwise.