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NISM Certifications · NISM-Series-XV: Research Analyst · Introduction to Research Analyst Profession

An analyst values a company at an intrinsic value of ₹480 per share using a discounted cash flow model, while the market price is ₹400. Later, the analyst learns his employer's investment banking arm is advising the company on a fundraise. Which action is most consistent with the professional expectations for research analysts?

The analyst should disclose the conflict of interest in the report and manage it under the firm's policies. Staying silent, inflating the target price or suppressing the report would compromise objectivity and breach professional expectations.

  1. APublish the report without any mention of the relationship
  2. BDisclose the conflict of interest in the report and follow the firm's policies to manage itCorrect
  3. CRaise the target price to please the company
  4. DDestroy the report and tell no one

Explanation

Analysts are expected to identify, disclose and manage conflicts of interest so that readers can judge the objectivity of the report. Ignoring the relationship, inflating the target or hiding the matter all undermine integrity. The valuation gap of ₹80 (480 minus 400) is irrelevant to the disclosure duty.

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