NISM Certifications · NISM-Series-XV: Research Analyst

Fundamentals of Research: formula sheet

Full chapter guide

Key formulas

Buy-side analyst: Works for an investing institution → research is mainly internal → supports the fund manager; Examples: mutual fund, insurer, pension fund, portfolio manager. Output is judged through portfolio results.
Sell-side analyst: Works for a broker or investment bank → research is distributed to clients → supports the firm's business; Main exam theme: higher risk of conflict of interest because the firm earns from other services.
Independent analyst: Not tied to a fund house or broker's business → paid by clients or subscribers; Objectivity is the key feature. SEBI registration and conduct rules still apply.
Value of research: Better decisions = information + analysis + risk assessment + clear communication; Use this to answer questions on why investors need research.
Fundamental analysis idea: Intrinsic value vs market price; If intrinsic value > market price, the security looks undervalued. If lower, it looks overvalued.
Top-down sequence: Economy → Industry → Company; Starts broad and narrows down.
Bottom-up sequence: Company → (then industry and economy as context); Starts with company-specific factors.
Technical analysis inputs: Price + Volume (historical); Uses market data, not financial statements.
Classification: By instrument: equity, debt, derivatives | By method: fundamental, technical, quantitative; Keep the two axes separate.
Expected upside to target price: Upside (%) = (Target price − Current market price) ÷ Current market price × 100; Ratings usually reflect this gap over a stated horizon. The cut-offs for buy, hold or sell are set by each firm, not by a fixed rule.
Order of the research process: Select → Define scope → Gather data → Analyse → Model forecasts → Value → Write report and recommend → Monitor and update; Questions often ask which step comes before or after another. Valuation comes after the model, and the recommendation comes after valuation.
Core elements of a report: Summary and rating + Thesis + Business and industry + Financials and forecasts + Valuation + Assumptions + Risks + Disclosures; A report without valuation basis, risks or disclosures is incomplete.
Primary data: Primary data = first-hand data collected by the analyst; Examples: management meetings, plant visits, channel checks, surveys.
Secondary data: Secondary data = data already compiled by others; Examples: annual reports, exchange filings, industry association data, government statistics, databases.
Reliability checklist: Reliability = authority + timeliness + independence + verifiability; Prefer audited, statutory, original and recent sources. Cross-check key facts.
Source hierarchy (rule of thumb): Audited/statutory filings > management statements > media and unverified sources; A guide to judging reliability, not a fixed legal rule.
Top-down order: Economy → Industry → Company; The standard sequence. Bottom-up starts from the company and works upward.
Business cycle phases: Expansion → Peak → Contraction → Trough; Then the cycle repeats. Trough is the lowest point, peak the highest.
Industry life cycle: Start-up → Growth → Maturity → Decline; Growth is usually the stage of fastest sales growth. Maturity has stable, slower growth.
Porter's five forces: New entrants + Suppliers + Buyers + Substitutes + Rivalry; Higher force intensity means lower industry profitability.
Indicator timing: Leading = before; Coincident = with; Lagging = after the cycle; Use this to classify indicators in MCQs.
Real GDP growth (approx.): Real growth ≈ Nominal growth − Inflation; A close approximation, not exact. Real GDP removes the effect of price changes.
Weak form EMH: Price reflects all past prices and volumes; Technical analysis cannot give consistent excess returns. Fundamental analysis may still work.
Semi-strong form EMH: Price reflects all public information; Technical and fundamental analysis of public data cannot give consistent excess returns. Only private information may help.
Strong form EMH: Price reflects all public and private information; Even insider information gives no advantage. Trading on it is also illegal in India.
Nesting of forms: Weak ⊂ Semi-strong ⊂ Strong; If a stronger form holds, the weaker forms hold too.
Valuation signal: Intrinsic value > market price → undervalued; intrinsic value < market price → overvalued; Intrinsic value is an estimate and depends on assumptions.
Total return: Total return = (Ending price − Beginning price + Income) ÷ Beginning price; Income means dividends or interest received during the period.
Risk-return tradeoff: Higher risk → higher expected return required; It concerns expected return, not assured return.

Quick revision

Know the difference between fundamental analysis (intrinsic value from business and economy) and technical analysis (price and volume patterns).
Top-down starts with economy, then industry, then company. Bottom-up starts with the company.
Primary data is collected first-hand. Secondary data is already published by others.
The research process moves in a logical order from defining the objective to collecting data, analysing, forming a view and reporting.
A research report should be clear, supported by data and state its assumptions and risks.
Check the date and source of any data before relying on it.
Weak-form efficiency: prices reflect past price information.
Semi-strong form: prices reflect all public information.
Strong form: prices reflect all information, including private.
If markets are efficient, consistently beating the market through analysis is hard.
Read each option fully. Two options often differ by a single word.

Common mistakes

Thinking buy-side means the analyst works for the buyers of a company's shares in the market in general. Fix: Link buy-side to investing institutions that buy securities for portfolios, and sell-side to firms that sell services and research to clients.
Saying sell-side research is always biased and useless. Fix: Say conflicts are a higher risk and must be managed through disclosure and conduct rules. Do not say research is always wrong.
Treating technical analysis as based on company financials. Fix: Remember technical uses price and volume history. Financial statements belong to fundamental analysis.
Mixing up top-down and bottom-up. Fix: Top-down starts at the top of the chain, the economy. Bottom-up starts at the company.
Placing valuation before building the financial model. Fix: Valuation uses forecasts from the model. Model first, then value.
Treating the recommendation as the start of the research. Fix: The rating is the output. It comes after analysis and valuation.
Calling the annual report primary data because it comes from the company itself. Fix: Primary means collected first-hand by the analyst. An annual report already compiled and published is secondary for the analyst.
Treating management statements as fully reliable. Fix: Management is an interested party. Use its views as input and verify them against filed and audited data.
Treating stock prices or new orders as lagging indicators. Fix: Remember that stock prices and new orders are usually treated as leading indicators. Unemployment and corporate profits lag.
Calling FMCG or pharma cyclical. Fix: Steady, necessity-based demand makes these defensive. Autos, metals, capital goods and real estate are cyclical.

Exam tips

Look for the employer and the audience in the question. They usually decide the answer.
Expect direct matching questions: internal use means buy-side, client distribution means sell-side.
Conflict of interest is a favourite theme for sell-side. Independent analysts are linked with objectivity.
Be careful with absolute words such as 'always' and 'only'. Pick the option that is generally true.
On value-of-research questions, choose answers about better decisions, risk assessment and informed investing.
Expect definition-style MCQs. Learn one-line definitions of each type and match clue words.
Negative marking applies at 25% of the marks of the question, so eliminate wrong options first and guess only when two remain.
Beware options with 'only', 'never' or 'always'. They are often traps.