NISM Series 15 : Research Analyst Certification Examination

I. Introduction to Research Analyst Profession

• Primary role of a Research Analyst
• Primary responsibilities of a Research Analyst
• Basic principles of interaction with companies and/or clients
• Important qualities that are desired in a Research Analyst

II. Introduction to Securities Market

• The basics of securities markets
• The securities market terminologies
• The structure of securities markets with a discussion on primary and secondary markets
• The various market participants and their activities
• Various securities market transactions, products and processes
• The dematerialization and rematerialization of securities

III. Terminology in Equity and Debt Markets

• The terminologies related to Equity Markets
• The terminologies used in the Debt Markets
• Various types of Bonds and describe their features
• The terminologies used in the Commodities Markets

IV. Fundamentals of Research

• Investing activity
• The role of research in the investment activity
• The nature of Technical Analysis approach to securities research
• The nature of Fundamental Analysis approach to securities research and E-I-C analysis, top-down and bottom-up approaches of fundamental analysis
• The nature of Quantitative Analysis (Econometrics approach) to securities research
• The nature of Behavioral Finance approach to Equity Investing
• The nature of Fundamental Analysis approach to commodity research covering aspects of supply, demand, seasonality, geopolitical developments, macroeconomic conditions, government intervention, Inventory levels etc.
• Case Studies
• Box Items – Historical Events
• Impact on Commodity Market on Equity Market

V. Economic Analysis

• The basic principles of microeconomics
• The basic principles of macroeconomics
• Various macroeconomic variables
• The Role of economic analysis in fundamental analysis
• The nature of secular, cyclical and seasonal economic trends
• Various sources of information for economic analysis

VI. Industry Analysis

• The role of industry analysis in fundamental analysis
• The Industry Definition
• Industry cyclicality
• Market sizing and trend analysis
• Secular trends, value migration and business life cycle
• The industry landscape
• The key industry specific drivers for various industries and Industry KPIs
• Why analysts should pay attention to the regulatory aspects of businesses
• The elements of taxation pertaining to the knowledge required for research analyst
• Various sources of Information for carrying out industry analysis

VII. Company Analysis – Business and Governance

• The role of company analysis in fundamental research
• The businesses and business models
• The significance of pricing power of a business and its ability to sustain power
• A company’s competitive advantages or points of differentiation over the competitors
• The SWOT analysis: Strengths, Weaknesses, Opportunities and Threats
• The importance of quality of management, independent directors and good governance standards
• The risks to a business
• The importance of knowing the history of credit rating of a company and how the rating has changed over time
• The Environment, Social and Governance (ESG) analysis of a Company / Business
• Various sources of Information for carrying out company analysis

VIII. Company Analysis – Financial Analysis

• The importance of studying the historical performance of a company and as a good indicator for future performance of the company
• The consolidated and stand-alone results of a company and know how to use them in the analysis
• The basics of “Balance Sheet” of a company
• The basic concepts related to “Profit and Loss statement” of a company
• The need to study the historical equity expansion (equity dilution) trends of a company and how it impacts the existing shareholders
• The Cashflows of a company
• The Notes to Accounts
• The important points to be kept in mind while looking at a company’s financials
• The importance of Reading audit report to understand the quality of accounting
• The financial statement analysis using ratios
• The commonly used ratios used in financial analysis
• The computation of Dupont Analysis
• 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
• The importance of peer comparison in understanding the relative standing of a company among its peers
• 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

IX. Corporate Actions

• The philosophy of various corporate actions
• Dividend
• Rights Issue
• Bonus Issue
• Stock Split
• Share Consolidation
• Merger and Acquisition
• Demerger / Spin off
• Scheme of arrangement
• Loan restructuring
• Buy back of shares
• Delisting of shares and relisting
• Share swap

X. Valuation Principles

• The difference between Price and Value
• The reasons for carrying out valuation of businesses
• The sources of value in a business (earnings and assets)
• Various approaches to valuation
• The Discounted Cash Flows (DCF) model for business valuation
• Introduce the relative valuations
• Various earnings based valuation matrices
• Various assets based valuation matrices
• The relative valuations (trading and transaction multiples), sum-of-the-parts valuation and other valuation parameters in new age businesses
• The Sum-Of-The-Parts (SOTP) Valuation
• The other valuation parameters in new age economy and businesses
• Capital Asset Pricing Model
• Explain the objectivity of valuations
• List some of the important considerations in the context of business valuation

XI. Fundamental analysis of commodities

• The supply demand dynamics of commodities
• The major producer and consumers of commodities
• Currency and dollar index impact on commodities
• The correlation between international markets and domestic markets
• Crop reports, weather reports (for Agri Commodities)
• Inventory data, production & consumption trends
• The macroeconomic indicators affecting commodity prices
• The impact of government policies and geopolitical factors on the commodity markets
• Hedging in Commodities

XII. Fundamentals of Risk and Return

• The concept of return on investment
• Simple, annualized and compounded returns
• 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
• Calculation of measuring risk
• The concept of Market Risk (Beta)
• The importance of sensitivity analysis
• The concept of Margin of Safety
• Equity returns v/s bond returns
• Calculation of Risk adjusted returns: Jensen’s Alpha, Sharpe ratio and Treynor’s ratio
• 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)
• Some quotes (market wisdom) from Investment Gurus
• Measuring liquidity of equity shares

XIII. Qualities of a good Research Report

• Discuss the qualities of a good Research Report and know the rating conventions
• Know the advantages of checklist based approach to the Research Reports
• Understand the constituents of the checklist with the help of a sample checklist

XIV. Legal and Regulatory Environment

• Regulatory framework of Indian financial markets
• Important regulations in Indian securities markets
• Code of Conduct prescribed for Research Analysts
• Management of conflicts of interest and the disclosure requirements for Research Analysts
• The surveillance mechanism of Exchanges: ASM and GSM

XV. Technical Analysis

• The concept of Technical Analysis
• Charts in Technical Analysis
• The Dow Theory
• The Market Trends
• Chart Reversal Patterns
• Consolidation Patterns
• Support & Resistance
• Trendlines & Channels
• Technical Indicators