What is Equity Research?

What is equity research

In simple words, equity research is understanding and studying any equity or stock. Let’s understand with the help of an example:

You have followed the stocks section of the newspapers religiously, but just can’t fathom which stock to pick or which of your existing stocks you should sell. Should you wait for your falling stocks to rise again so you can make a profit? Or should you sell now and cut your losses? The stock market can be a tough place. Wouldn’t it be nice to have someone tell you which stocks to buy, hold or sell?

That’s where Equity Researchers come into the picture. Most Investment Banks have an Equity Research (ER) division, which is a team of experts closely following and analyzing listed companies on an ongoing basis. They delve deep into the fundamentals of the companies they cover (including industry sector and general macroeconomics), and come out with reports and ratings on whether the stock is a good buy (will appreciate in future) or hold (wait for a better time) or sell it off (likely to fall further). This is similar to a movie review by a critic, only, the movie in question is ongoing and the reviews may keep changing over time.

These reports are then distributed to the firm’s clients who in turn use the detailed analysis and insights in them to make intelligent decisions about trading the stock. The clients could be private investors, institutional setups or even private equity companies. M&A bankers also use ER reports extensively to build models and value companies. Occasionally, ER teams also produce reports on the broader macroeconomic environment, or a particular industry sector, etc. They may also analyze commodities or bonds (debentures) issued by companies and publish reports on them.

In short, equity research helps determine the attractiveness of any investment which will help make smart decisions for a private as well as a corporate investor. Career in equity research has become quite lucrative, thanks to the growing number of investors and also an increase in number of foreign Investments. Equity research studies the financial statements, industry trends, competitors, economic conditions, etc., which enables the investors to make a wise and informed decision. Of course, studying these trends is extremely difficult for any investor and it also requires a knowledge of how work in the stock market. Therefore, equity research analysts come into the picture. The work is quite challenging and demanding as the analyst needs to be vigilant about the current happenings.