Equity Research is a study of equities or stocks for the purpose of investments. These stocks trade on various stock markets such as the New York Stock Exchange, NASDAQ, AMEX, BSE, NSE, LSE and other foreign stock markets.
Equities or common stock comprises of a big chunk in any company’s capital. The shareholders need to know whether to stay invested in the company or sell the shares and come out. The research is valuable because it fills information gaps. So, that each individual investor does not need to analyze every stock.
Equity research falls into two broad categories; that provided by investment banks (I-Banks) and independent equity research firms (usually boutiques). I-Banks offer research relating to multiple financial services including broking and corporate finance. Independent firms came into existence as a result of the Spitzer era of decoupling research and investment banking with a global settlement.
Purpose of Equity Research:
To study Companies Performance
To analyze the financials
To look at quantitative and qualitative aspects mainly for decision: What to Buy or What to Sell
Application of Equity Research:
Mutual Fund Industry
M & A Deals
In order to determine what stock to but and at what price, there are two basic Methodologies
It is a method of evaluating a security that entails attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. The main purpose of conducting fundamental analysis is to produce a value that an investor can compare with the security’s current price, with the aim of finding out what sort of position to take with that security
To Buy & Hold the under valued assets
To Sell or avoid the over valued assets
A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. It does not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.
Difference between fundamental and technical analysis
In general terms the difference between fundamental and technical analysis:
In a shopping mall, a fundamental analyst would go to each store, study the product that was being sold, and then decide whether to buy it or not. By Contrast, a technical analyst would sit on a bench in the mall and watch people go into the stores. Disregarding the intrinsic value of the products in the store, the technical analyst’s decision would be based on the patterns or activity of people going into each store.
Charts Vs Financial Statements: A technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements. By looking at the balance sheet, cashflow statement and income statement, a fundamental analyst tries to determince a company’s value.
Time approach for both the techiniques: Fundamental analysis takes a relatively long-term approach to analyze the market as compared to technical analysis. While technical analysis can be used on a timeframe of weeks, days or even minutes, fundamental analysis often looks at data over various years.
Trading Versus Investing: Technical analysis is used for a trade, whereas fundamental analysis is used to make an investment . Investors buy assets they believe can increase in value, while traders buy assets they believe they can sell to somebody else at a greater price.