Equity Research after MBA: The Best Career Guide in 2021
Are you planning to pursue an MBA program in Finance or have already completed it? Are you interested in building a lucrative career in Equity Research post your MBA? If your answer is ‘Yes’, then this article is perfect for you. A career in Equity Research is fast becoming a cornerstone in the Financial domain and like Investment Banking, it pays you well. But do you know the complete career path in Equity Research and where are the roles available for entry-level Equity Research Analysts?
As an MBA postgraduate with having Finance specialization, you can target Equity Research profile in below mentioned three areas -
- Broking firms with operations in Indian financial markets (registered with SEBI as the main broker) cater mainly to retail (individual) and institutional investors (DIIs + FIIs). Management graduates work as sell-side fundamental Equity Research Associates. They research companies among at least 1-2 industries listed on Indian Stock Exchanges. They are responsible for studying the companies, industries, macro factors affecting the businesses, preparing equity financial models, equity valuation, equity research reports, result updates, event updates, conference call updates, management meet notes, industry research reports, meeting management professionals for understanding company businesses, attending conference calls and analyst meets, IPO meets, FPO/QIP meets, meeting buy-side clients and recommending them investment ideas.
- Captive KPOs within the BFSI industry are usually captive divisions/subsidiaries of global Investment houses that outsource their research support departments to their own captive divisions in another country. It is mainly to reduce their operational costs and focus more on the core businesses. A research division in a Captive KPO acts as a support service for its own investors/clients of the company from its home country. Research Associates are expected to study companies across various industries and countries. It is a desk job where the employees might not be required to meet their clients. The role can also involve assisting the research analysts/fund managers, working in the holding company or at their corporate offices.
- Third-Party KPOs in the BFSI sector are the organizations where the core business is to provide operational support (back-office support) services to the client’s business. These companies obtain operational repetitive work/business, which is usually completely outsourced from the BFSI industry to third-party KPOs. Thus, the research division in a third party KPO acts as a support service for its client’s investors, usually from their customer’s home country. This profile is a desk job where the employee might not be required to meet the customers of their clients. Research Associates, study companies across various industries and various countries where the company’s clients operate in.
Broking firms usually prefer experienced professionals or they also hire postgraduates in Finance specialization who are well trained in fundamental Equity Research. Whereas Captive KPOs and Third-party KPOs, hire mostly inexperienced postgraduates in Finance specialization and mold them into their culture and required skill sets.
Getting an entry-level job in a fundamental Equity Research profile is a dream coming true for MBA - Finance graduates. MBA students should know what the companies expect from them and prepare themselves accordingly for the required skill sets. Fundamental Equity Research basically means estimating a company’s future/fundamental/intrinsic/fair value and advice to retail and institutional investors/clients.
This job is quite demanding, involves a lot of learning, and spending 12-14 hours at work is quite common. MBA freshers and even experienced Finance professionals often desire to get into equity research. If you like finance and assessing businesses then you too can opt for this profile. The rewards in this profile are relatively higher and it also offers good exit opportunities.
- Should be aware of accounts/finance/stock market terminologies
- Stay updated with current affairs impacting the company’s performance
- Have a fair idea about global, economic, and political scenarios
- Aware of publicly available documents and how to source them
- Understanding, analyzing, and interpreting financial statements
- Analyze the company referring publicly available documents
- Understand the business structure of companies from different sectors
- Analyze the industry structure in detail and identify the key industry parameters for evaluation
- Learning peer valuation/analysis and studying various comparables/ valuation multiples used for different businesses
- Evaluating all the macro factors that can have a positive or negative impact on the company’s performance
- Quantify the impact of any development/news on the company’s financial performance
- Excel skills for preparing financial models (revenue model, cost analysis, valuation model)
- Learning how to apply rational assumptions and estimate financial statements
- Learning different types of valuation models for various industries
- Basic formatting and report writing skills using MS Word
- Communicate effectively with company management and financial institutions
- Proficiency in using databases like Bloomberg, Ace Equity, etc.
Apart from the training hours, plenty of hours are spent by students in understanding the business structure of various companies from different industries. Ample of hours are needed in the preparation of estimated financial models (detailed revenue models and cost models) with rational assumptions and equity valuation. Students face a lot of difficulties in report writing which is also an important element viz. writing skills, charts and data tables, complete report format, sourcing and referring data, etc. Hence, students need to put in the effort to pick up their skills as per the industry expectations with the help of detailed individual feedback given at every stage of fundamental research.
What do Corporates expect from you?
Financial Statement Analysis: Students should understand the company’s financial statements (revenue statements, balance sheet, cash flows, quarterly results, segment-wise results) in detail, insights about the company’s processes. They should be able to analyze and interpret financial statements using common-size statements, comparative statements, and trend analysis.
Company Analysis: Students should be able to understand the company’s business in detail from publicly available information, identify and analyze its business structure in detail. Following are some of the important parameters to be analyzed for company analysis:
- Detailed revenue model
- In-depth cost structure
- Explore company updates/news/corporate announcements
- Assess conference call transcripts/analyst meet updates
- Understand/analyze substitutes
- Investments/JVs analysis
- Subsidiary details and weightage
- Promoter details and history
- Clientele and its regional presence
- Product profile and pricing trends
- Raw material profile and pricing trends
- Debt profile
- Working capital cycle analysis
- Capex plans and leveraging details
- Efficiency programs/cost savings
- Entering new geographies
- Launching of new products
- Tackling any major problem
- Changes in segment mix/product mix
- Mergers and acquisition/JVs
- Guidance for revenue and margins
- Evaluate Corporate Governance
Industry Analysis: It mainly involves understanding the industry structure in detail and identifying the key industry parameters (those impact the companies) in that industry.
- Peers comparison/analysis (Relative Valuation)
- Understanding management viewpoint of the Industry
- Industry demand-supply position
- Major raw material sources
- Major markets/geographies for finished goods
- Product profile and pricing trends in the industry
- Raw material profile and pricing trends in the industry
- Changes in leveraging and interest rates
- Study competitive environment/industry
- Barriers to entry into company's business segment
Macro Analysis: It is important to understand the macro factors that can have positive or negative impacts on the company’s performance.
- Study regulatory environment impacting the company’s performance
- Study economic environment
- Study global scenario related to company’s business
- Global demand-supply position impacting FG prices
- Global demand-supply position of RM prices
Financial Modelling Skills: Students should improve proficiency in MS Excel and also should be well versed with financial statements & ratios. All financial statements (PL, BS, CF) should be linked within themselves and between each other and should also be linked with the ratios and the valuation model
- Analyzing past quarterly financials
- Understanding segment-wise financials
- Detailed revenue model
- In-depth cost structure
- Volume growth assumption
- Price per unit assumption
- Linking financial statements in details
- Learning the skills of estimating financial statements
- Linking financial statements with ratios and valuation model
- Sensitivity analysis
- Should be able to prepare related charts and data tables
Equity Valuation Skills: Valuation is done to arrive at a fair value/target price of a company. There are few different types of valuation methods, which the students should know very well. Arriving at a valuation multiple is very crucial as it is very closely linked with detailed analysis of company, industry, economic and global scenario.
- PE/EPS Valuation
- DCF Based Valuation
- EV/EBITDA Valuation
- Price/Book Value (Banking, NBFCs)
- NAV Based (Real Estate, Construction Companies)
- EV Per Ton (Cement Companies)
- Seat Per Mile (Airline Sector)
- Occupancy Rate (Hospitality Sector)
Report Writing Skills: Students should be able to read and understand publicly available information related to the company and industry. They should be able to carry out financial statement analysis, data mining, financial modeling, valuation, analyze and interpret the information, data, charts with fine written English. Students should be well versed with MS Word, know the basic formatting and report writing skills. An equity research report should be written in brief and to the point (complete with all the information and interpretation required to recommend a stock to an investor).
Communication Skills: Fundamental Research Analysts should have good communication skills to communicate effectively with the company management, for more insights about the company. The profile also involves communicating with people linked with the sector to understand industry trends/movements regarding raw material and finished goods, economic and political scenarios, identify other issues/positive factors at an early stage.
Clear and effective communication is also required between Research Analysts and the clients i.e. Mutual Funds, Insurance Companies, Banks, Pension Funds, Foreign Institutional Investors, HNI Clients, and so on. Analysts are expected to present their fundamental stock ideas to the institutional clients by meeting them. They are also expected to continuously be in touch with the institutional clients serving them with other important company and industry updates.
Financial Databases Used: Students should be proficient, well trained on Bloomberg terminal and Ace Equity database. Expertise can only be built or improved if the students use the databases available regularly for their company analysis, industry analysis, assignments, etc.
There are lucrative career opportunities after MBA in Finance, especially in the Equity Research profile. Professionals can work in Broking firms, Captive KPOs, third-party KPOs as Research Analysts, or Research Associates. This is not an easy profession and requires a lot of hard work. Corporates expect students to be trained in competencies like Financial Statement Analysis, Company Analysis, Industry Analysis, Macro Analysis, Financial Modelling Skills, Equity Valuation Skills, Report Writing Skills, Communication Skills, Financial Databases, and so on.