NISM SERIES XV - RESEARCH

ANALYST CERTIFICATION EXAM

 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

NISM XV – RESEARCH ANALYST CERTIFICATION EXAMINATION

SHORT NOTES BY PASS4SURE.IN

I. Introduction To Research Analyst Profession

Who is a Research Analyst?

Research Analysts help their clients take investment decisions.

Let us try to understand this with an example.

Imagine you've decided to buy a new phone. What would be your process of selection? For the price range
decided, you would short list a set of brands, compare various technical
Specifications and depending upon what factors are important to you - whether it’s the
Battery-life or the megapixels of camera, you take the decision.

This process is very similar to Research Analysts. There is Research (collection of information from various
sources) and then Analysis (processing of data to take decisions).

To conclude, role of a research analyst is that of a selector - to do a comprehensive study of

Companies evaluate their past performance; analyze how a company is expected to perform in
future and make recommendations based on this analysis.

Research Analysts are defined by the nature of analysis they do and whom they are serving to. Following
are the three main types of Research Analysts.

Types of Research Analysts

 Sell-Side Analysts: They typically publish research reports on the securities of companies or
Industries with specific recommendation to buy, hold, or sell the same.

 Buy-Side Analysts: They generate recommendation reports for their internal consumption for and
within money managers like mutual funds, hedge funds, pension funds, or portfolio managers

 Independent Analysts: They work for research firms separate from full service investment firms
and sell their research to others on a subscription basis. They also provide customized research
reports on specific requests.

Apart from these three main categories, entities such as newspapers, media and consolidators
Of information also provide research reports.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

Primary Responsibilities of a Research Analyst:

Research Analysts’ primary role is to understand and evaluate the growth of industries and companies. Let
us briefly look into the aspects which the Research Analysts have to deal with:

 Understanding economy: Changes in various macro-economic factors, Fiscal and Monetary Policies
and their impact on the economy, FDI and FPI, Savings and investment patterns, Global factors,
Import and Exports.

 Understanding Companies: This includes the analyzing companies based on their approach
towards business. Based on their styles, product configuration, business model, customers
segment, their financials the companies are studied by analysts in two dimensions - Qualitatively
and Quantitatively.

Important Qualities of a Research Analyst:

 Good with numbers

 Good Excel/spreadsheet and other data analytical tools
 Clarity in financial concepts
 Ability to read and comprehend financial statements and reports
 Ability to ask pertinent questions
 Attention to details
 Communication Skills – Written and Verbal
(Sample research reports)
Link:
https://www.bseindia.com/investors/Research.aspx
https://www.nseindia.com/education/content/reports/eq_research_reports.html
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

II. Introduction To Securities Market

Constituents of Securities Market

 Investors. Example: Retails investors, Mutual Funds.

 Borrowers/Seekers of funds. Example: Banks, Companies
 Intermediaries: Merchant Banks, Investment Banks
 Regulatory bodies: RBI, SEBI, AMFI

Various Financial Instruments/Products:

 Equity Shares

Equity shares are the shares that public companies issue to the public as the main source of long-term
financing. They are units of ownership in the company.

 Debentures/Bonds/ Notes

Debenture and bonds are issued by government and companies to raise capital. It is a loan which is issued
at the fixed interest depending upon the reputation of the companies. When companies need to borrow
some money to expand themselves they take the help of debentures.

 Warrants and convertibles

Convertibles and warrants are long-term securities which can be changed into another type of security,
such as common stock. These get converted into a whole new security at the end of their initial maturity.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

 Indices

A stock market index is a statistical measure which shows changes taking place in the stock market. The
value of the stock market index is computed using values of the underlying stocks. In this way, a stock
index reflects overall market sentiment and direction of price movements of the markets.

 Mutual Funds

A mutual fund is formed when capital collected from different investors is invested in company shares,
stocks or bonds. Shared by thousands of investors (including you), a mutual fund is managed collectively to
earn the highest possible returns. The person driving this investment vehicle is a professional fund
manager.

 Preference Shares

Preference shares, more commonly referred to as preferred stock, are shares of a company’s stock with
dividends that are paid out to shareholders before common stock dividends are issued. They usually do not
hold any voting rights.

 IDR’s, GDR’s ADR’s


A depository receipt is where a certificate is issued by a depository bank, which purchases shares of foreign
companies, creates a security on a local exchange backed by those shares. These instruments are used by
large companies to raise money in the foreign markets.

 FCCB (Foreign Currency Convertible Bonds)


A FCCB is a type of convertible bond issued in a currency different than the issuer's domestic currency. The
money being raised by the issuing company is in the form of a foreign currency. It is a mix between a debt
and equity instrument. It acts like a bond by making regular coupon and principal payments, but these
bonds also give the bondholder the option to convert the bond into stock.

 Equity and Commodity Linked Debentures


Equity Linked Debentures (ELDs) are floating rate debt instruments whose interest relies on the returns of
the underlying equity asset such as S&P Sensex, individual stocks, Nifty 50 or any customized basket of
individual stocks. Similarly, CLDs are floating rate debt instruments whose interest relies on the returns of
the underlying commodity asset.

 Mortgage Backed Securities


A mortgage-backed security (MBS) is a type of asset-backed security (an 'instrument') which is secured by a
mortgage or collection of mortgages. The mortgages are sold to a group of individuals (a government
agency or investment bank) that securitizes, or packages, the loans together into a security that investors
can buy.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

Structure of Market & Issue of New Securities

Primary Market Secondary Market

Methods of Issue of securities:- Further Divided to

1) IPO
2) FPO Over the counter
3) Private Placement Markets (OTC)
4) Qualified Institutional Placement (QIP)
5) Preferential Issue
6) Rights Issue
7) Bonus Issue Exchange Regulated
8) Onshore & Offshore Offerings Market
9) Offer For Sale (OFS)
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

Three types of Participants in Financial Markets

1. MARKET INTERMEDIARIES 2. INSTITUTIONAL PARTICIPANTS

 Foreign Portfolio Investors

 Stock Exchanges
 P Note Participants
 Depositories
 Mutual Funds
 Depository Participant
 Insurance Companies
 Trading Members/ Stock Brokers/ Sub-
 Pension Funds
Brokers
 Authorised Person  Venture Capital Funds
 Private Equity Firms
 Custodians
 Clearing Corporations  Hedge Funds
 Alternative Investment Funds
 Merchnat Banks
 Investment Advisors
 Underwriters

3. RETAIL PARTICIPANTS

Kinds Of Transactions

 Cash, Tom and Spot Trades/Transactions

A cash/spot transaction is an agreement between two parties to carry out a trade at the prevailing market price
for settlement on the spot date. The exchange rate at which the transaction is done is called the spot exchange
rate.

 Forward Contract

A forward contract is a un- regulated OTC traded customized contract between two parties to buy or sell an
asset at a specified price on a future date. A forward contract can be used for hedging or speculation, although
its non-standardized nature makes it particularly apt for hedging.

 Futures

Future contracts are regulated derivative financial contracts that obligate the parties to transact an asset at a
predetermined future date and price. Here, the buyer must purchase or the seller must sell the underlying
asset at the set price, regardless of the current market price at the expiration date.

 Options

Options are financial instruments that are derivatives or based on underlying securities such as stocks. An
options contract offers the buyer the opportunity to buy or sell—depending on the type of contract they hold—
the underlying asset. Unlike futures, the holder is not required to buy or sell the asset if they choose not to.
They are further divided to Call and Put Options.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

 Swaps

A swap is a derivative in which two counter parties exchange cash flows of one party's financial instrument for those
of the other party's financial instrument. The benefits in question depend on the type of financial instruments
involved.

 Trading,

The buying and selling of financial instruments with an objective to earn profit on them is called trading.

 Hedging

Hedging means strategically using instruments in the market to offset the risk of any adverse price movements. In
other words, investors hedge one investment by making another. Technically, to hedge you would invest in two
securities with negative correlations.

 Arbitrage

Arbitrage is the simultaneous purchase and sale of an asset to profit from an imbalance in the price. It is a trade that
profits by exploiting the price differences of identical or similar financial instruments on different markets or in
different forms.

 Pledging of Shares

Pledging of shares means taking loans against the shares that one holds.This is a way for the promoters of a
company to get loans to meet their business or personal requirements by keeping their shares as collateral to
lenders.

Modes Of Holding
 Dematerialization ( Electronic Form)

With the age of computers and the Depositories, securities no longer need to be in certificate form. They can be
registered and transferred electronically. The electronic storage of securities is called Demat form.

 Rematerialized Form (Physical Form)

Shares are units of ownership interest in a corporation or financial asset that provide for an equal distribution in any
profits. Rematerialized shares are physical paper stock certificates. They have been replaced with electronic
recording of stock shares,

THESE ARE SHORT NOTES BASED ON THE NISM BOOK

TO GET THE UPDATED QUESTION BANK WHICH CONTAIN RECENT IMP Q&As

WITH EXPLANATIONS, PLEASE VISIT WWW.PASS4SURE.IN

OVER 96% PASS OUT RATIO !!

 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

III. Terminologies in Equity And Debt Market

Important Terminologies (Equity Market)

 Face Value

Face value is the nominal value of a security stated by the issuer. For stocks, it is the original cost of the stock shown
on the certificate.

 Book Value

Book value is the value of the share according to its balance sheet account balance.

 Market Value

Market value is determined based on principles of supply and demand, often governed by what investors are willing
to buy and sell a particular stock for at a specific point in time.

 Replacement Value

The cost of replacing an asset in the case that it is damaged or destroyed. That is, the replacement value changes
according to the market value of the asset

 Intrinsic Value

Intrinsic value refers to the value of a company stock is determined through fundamental analysis without reference
to its market value. It is also frequently called fundamental value.

 Earnings- Historical, trailing and Forward

Historical earning refers to a company’s earnings in the past.

Trailing earnings may describe the most recent 12 month period. These earnings will change each month as the
nearest month is added to the calculation and the most distant month is dropped.

Forward earnings are an estimate of a next period's earnings of a company, usually to completion of the current
fiscal year and sometimes of the following fiscal year

 Market Cap

Market Capitalization (Market Cap), is the amount of money required to buy out an entire company at its current
market price.

Market Cap= Market Price per share x No. Of Outstanding Shares

 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

 Enterprise Value

Enterprise value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to
equity market capitalization. EV includes in its calculation the market capitalization of a company but also short-term
and long-term debt as well as any cash on the company's balance sheet.

 Blue-chip /Midcap/ Small Cap Stock

Blue-chip stocks represent the largest companies by market cap. Given the large size of their market cap, they attract
large set of investors both retail and institutional and enjoy a high level of liquidity. These are also called large cap
stocks.

Mid cap stocks refer to those companies which enjoy a good level of liquidity but are medium in terms of market cap
size.

Small cap stocks are those stocks that are smaller in size and therefore do not enjoy much liquidity.

Note: There is no specific size for the cut-off of large, mid or small cap stocks. It is therefore common to
consider the top 50 to 100 stocks by market capitalization as large cap, the next 200 to 500 stocks as mid
cap, and the remaining all as small cap stocks.

 Earnings Per Share (EPS) = Net Profit/ No. of outstanding shares

 Dividend Per Share (DPS) = Dividend Declared/ Face Value of share

 Price to Earnings Ratio (PE Ratio) = Market Price per share/Earnings per Share

 Price to Sales Ratio = Market Capitalization/ Annual Net Sales

 Price to Book Value Ratio = Net Worth/ No. Of outstanding shares

 Differential Voting Rights

A DVR is just like a normal share of a company, except that it carries less than 1 voting right per
share unlike a common share. Such an instrument is useful for issuers who wish to raise capital
without diluting voting rights.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

Important Terminologies (Debt Market)

 Face Value

Face value is the nominal value or market value of a security stated by the issuer. For stocks, it is the original cost of
the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity

 Coupon Rate

A fixed-income security's coupon rate is simply just the annual coupon payments paid by the issuer relative to the
bond's face or par value. The coupon rate is the yield the bond paid on its issue date

 Maturity Value

In the case of a bond, the maturity value is the principal amount of the bond to be paid by the issuer to the owner at
maturity.

 Principal

Principal is a term that refers to the original sum of money put into an investment in a bond at the time of issue.

 Redemption Of a Bond

At the time of redemption of a Bond, the contract between the issuer and the investor is over. The issuer of the
bond repays the principal and also makes the final coupon payment and then the bond ceases to exist, or the bond
‘matures’.

 Holding Period Returns (HPR)

HPR is the change in value of an investment, asset or portfolio over a particular period. It is the entire gain or loss,
which is the sum income and capital gains, divided by the value at the beginning of the period. HPR = (End Value -
Initial Value) / Initial Value.

 Current Yield

This is a simple method of calculating return on a debt security in which the coupon is divided with the current
market price of the bond and the result is expressed as percentage.

 Yield To Maturity (YTM)

Yield to Maturity or YTM is a more comprehensive and widely used measure of return calculation of a debt security
than current yield. This method takes into consideration all future cash flows coming from the bond (coupons plus
the principal repayment) and equates the present values of these cash flows to the prevailing market price of the
bond.

 Duration

Duration measures the sensitivity of the price of a bond to changes in interest rates. Bonds with high duration
experience greater increases in value when interest rates decline and greater losses in value when rates increase,
compared to bonds with lower duration.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

 Modified Duration (M Duration)

Modified Duration measures the impact of changes in interest rates on the price of the bond. While Duration gives
us sensitivity of bond prices to change in interest rates, Modified Duration gives us the magnitude of this change.

 Convexity

The impact of change in interest rates on bond prices is inverse but not linear. This means when rates go up, bond
prices go down; but they don’t fall as much as they would rise when rates go down by the same magnitude. Thus,
rise in bond prices is more than its fall, for the same movement in interest rates in downward and upward directions
respectively. This unique property of bond prices is known as Convexity.

Types Of Bonds

 Zero Coupon Bonds

Bonds which do not pay coupon in their entire term are known as Zero Coupon Bonds or simply ‘Zeroes’. Such bonds
are issued at a discount to their face values and are redeemed at par. Thus, the return on these bonds is not in the
form of periodic payment of interest but in the form of difference between the issue price and redemption value.

 Floating Rate Bonds

These are bonds whose coupon is not fixed, as in the case of vanilla bonds, but is reset periodically with reference to
a defined benchmark. Resetting the coupon periodically ensures that these bonds pay interest that reflect
current market rates.

 Convertible Bonds

A convertible bond or debenture is generally issued as a debt instrument with the option to investors to convert the
amount invested into equity of the issuer company later.

 Amortization Bonds

Amortization bonds are which in which each payment carries interest and some portion of the principal as well.
Housing loans, auto loans and consumer loans are an example of this type of bond

 Callable Bonds

Callable bonds allow the issuer to redeem the bonds prior to their original maturity date. In other words, bonds
which have embedded call option in them are known as Callable Bonds. This feature poses a risk for investors but is
beneficial for the issuers.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

 Puttable Bonds

A Puttable bond gives the investor the right to seek redemption from the issuer before the original maturity date.
These bonds have embedded Put options in them. In this case, the risk is on the issuer, as the investor can, at any
point of time give the bond back to the issuer and ask for his principal, earlier than maturity.

 Payment in Kind (PIK) Bonds

These are bonds in which the coupon is not paid in cash but by way of more bonds. Companies which have cash flow
problems issue such kind of securities and hence by nature these instruments are risky.

 Principal Protected Note

PPN is a relatively complex debt product which aims at providing protection of the principle amount invested by
investors, if the investment is held to maturity. Typically, a portion of the amount is invested in debt in such a way
that it matures to the principal amount on expiry of the term of the note. The remaining portion of the original
investment is invested in equity, derivatives, commodities and other products which have the potential of
generating high returns.

 Inflation Protected Securities

These bonds have a fixed real coupon rate which is applied to the inflation adjusted principal on each interest
payment date. On maturity, the higher of the face value or inflation adjusted principal is paid out to the investors.
Thus, the coupon income as well as the principal is adjusted for inflation.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

IV. Fundamentals of Research

According to Benjamin Graham in his book “The Intelligent Investor”,

An investment operation is one which, upon thorough analysis promises safety of principal and an
adequate return. Operations not meeting these requirements are speculative.

Words of Wisdom By Benjamin Graham

 Investment Operations
 Through Analysis
 Safety of Investments
 Adequate Return
 Difference between speculating and Investing
 Align Investment to needs
 Investing demands hard-work
 Become a skilled investor or hire someone to manage money

Fundamental Analysis
Fundamental analysts maintain that market may misprice securities in the short run but in the long run, prices would
merge with the securities’ fair value or intrinsic value. Therefore, profits in investments come from not only
identifying a good investment option but also making the investment at the right price. Fundamental analysis
considers both qualitative and quantitative dimensions of a business. While financials will reveal history of the
business and the financial readiness to grow in the future, evaluating factors such as the economic conditions
favourable to the business, the ability of the management to identify and exploit opportunities, the operating
efficiencies that the business possesses and the risks that may affect the plans and its ability to meet these
contingencies.

Top Down Approach: Fundamental analysis may be triggered by changing macro-economic factors, both
international and national, such as GDP growth rates, inflation, interest rates, exchange rates, productivity, prices of
commodities, regulatory aspects and others. This can lead to an analysis of their impact on different industries and
then to search to the best businesses in the industry.

Bottom Up Approach : Sometimes analysis is triggered by some news or piece of information on some company,
which may move to industry analysis and then economic analysis to see whether road industry and economic
parameters favor the company. Bottom-up analysts focus purely on dynamics of business and industry with little or
no attention to the Economic factors as their focus remains on buying and holding fundamentally strong businesses.

Technical Analysis
Technical analysis is based on the assumption that all information that can affect the performance of a stock,
company fundamentals, economic factors and market sentiments, is
reflected already in its stock prices. Technicians believe that market activity will generate indicators in price trends
that can be used to forecast the direction and magnitude of stock price movements in future.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

Three Essentials Of Technical Analysis:

1. The history of past prices.

2. The volume of trading,
3. The time span.

Unlike fundamental analysis, technical analysis is not concerned if the stock is trading at a fair
price relative to its intrinsic value. It limits itself to the future movements in prices as indicated
by the historic data. It is used for short-term term trading activities and not necessarily long term investing.

V. Economic Analysis

Branches Of Economics

Micro-Economics Macro-Economics

Economics is the study of how people make choices under conditions of scarcity and the impact of those choices for
people at an individual level and society at macro level. Microeconomics is the study of the behavior of individuals
and their decisions on what to buy and consume based on prevalent prices. The philosophy of Microeconomics is
that prices and production levels of goods and services in an economy are driven by consumer demand. Accordingly,
Microeconomics focuses on the drivers of decision making, as well as the ways in which individuals’ decisions affect
the overall supply and demand and supply of Particular goods and services, in an economy, and in turn their prices.

Basic Principles of Macroeconomics

The focus of macroeconomics is on factors that influence aggregate supply and demand in an economy such as
unemployment rates, gross domestic product (GDP), overall price levels, inflation, savings rate, investment rate etc.
Most of these factors are highly affected by changes in the public policies. Two major influencers of the public
policies in an economy are the government and the central bank. Decisions of the government, known collectively as
fiscal policy and actions of the central bank, known collectively as monetary policy, affect the overall economy
activity to a large extent.

Importance and uses of macroeconomics:

1. Macroeconomics helps us understand the general state of the economy – Domestic

Production, Domestic Consumption, General Price levels, Growth, Quality of life etc.
2. Macroeconomics helps us understand drivers of income, savings, investments and
employment in an economy.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

3. Macroeconomic models help governments and central bankers formulate economic policies
for achieving long run economic growth with stability.
4. Macroeconomics helps us understand various aspects of international trade of goods and
services - exports, imports, balance of payment, exchange rate dynamics etc.
5. Macroeconomics also facilitates understanding on how inter-linkages across the economies
work.

Various Macroeconomic Variables:

1. National Income
National income of an economy is defined through a variety of measures such as gross
domestic product (GDP) and gross national product (GNP).

(i) Product Method

In this method, national income is measured as an aggregated flow of goods and services in the economy from
the different sectors: agriculture, industry and services. Economists calculate money value of all final goods and
services produced in the economy during a specified period.

(ii) Income Method

In this method, national income is measured as the aggregate income of individuals in the
economy. Employees earn wages and salaries, Professionals earn their income based on their services,
Entrepreneurs earn profits (including undistributed corporate profits) and Investors earn return on their capital and
rent on their land. Sum of all these incomes for a specified period is called National Income for the economy.

(iii) Expenditure Method.

As all the goods and services produced in an economy are bought (consumed) by someone,
National Income may also be calculated from the consumption end. The aggregate demand for goods and services is
computed as the sum of private consumption, government spending, gross capital formation and net exports.

2. Savings and Investments

Savings and Investments are two different components. Savings, defined as income over expenses, are computed for
individuals, corporate and government separately. Economists arrive at National Saving by summing savings of these
three constituents. Savings are to be channelized towards productive venues called investments Higher levels of
savings and higher conversion of those savings in to investments are considered good for an economy.

3. Inflation

Inflation is defined as the general increase in price levels of goods and services in the economy leading to an erosion
of purchasing power of money. It explains the rise in the price of general goods and services. Generally, inflation is
measured in two ways - at wholesale level in terms of Wholesale Price Index (WPI) and retail level in terms of
Consumer Price Index (CPI).

4. Unemployment Rate

Unemployment rate refers to the eligible and willing to work unemployed population of the
country in percentage terms. Higher employment means income, which improves the ability of people to spend,
which implies potential growth in the economy. The reverse would be true for economy going through tough times
and high unemployment rates.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

5. Foreign Direct Investment (FDI) and Foreign Portfolio Investments (FPI)

Foreign capital flows to a country can be either in active form known as Foreign Direct Investment (FDI) or passive
form known as Foreign Portfolio Investment (FPI). FDI is welcomed by all the developing economies and has multiple
benefits in addition to bring in capital to the country. FDI is long term in nature and stable money. FPIs money is
considered as hot money as they can pull out the money at any time which could create systemic risk for the
economy.

6. Fiscal Policies and their Impact on Economy

Fiscal policy contains the measures of the Government which deal with its revenues and expenses. It influences
aggregate demand, supply, savings, investment and the overall economic activity in the country.
 Fiscal Deficit  Government’s Expenditure > Government’s Revenue

 Current Account Balance = Receipts – Payments

Types Of Fiscal Policies

 Neutral Fiscal Policy  Government’s Income= Government’s Expenditure

 Expansionary Fiscal Policy  Government’s Income < Government’s Expenditure

 Contractionary Fiscal Policy  Government’s Income > Government’s Expenditure

7. General Anti-Avoidance Rules

Entities in an economy adopt various methods to reduce their tax liabilities and the same may be categorized as:
"Tax Evasion", "Tax avoidance", "Tax Mitigation" and "Tax Planning". General Anti-Avoidance Rules (GAAR) are
framed to minimize tax avoidance. Simple example of tax avoidance is routing of investments by investors through
tax havens such as Mauritius. General Anti-Avoidance Rules empower the revenue authorities in a country to deny
the tax benefits to the entities on a transaction, which is primarily carried out in a specific manner to avoid taxes.
GAAR provides discretionary powers to revenue authorities to impose taxes on such transactions.

8. Monetary Policies and their Impact on the economy

Monetary policies, administered by central bank in an economy, deal with money supply, inflation, interest rates for
the purpose of promoting economic growth and managing price stability (inflation).

Expansionary monetary policy: It is used to push the economy up by increasing the money supply steeply and
reduction in the interest rates.

Contractionary policy: It is intended to cool down the heated up economy through reduction in the money supply or
slow increase in money supply and increase in the interest rates.

Pass4sure – the best way to clear Nism exams

 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

9. International Trade, Exchange Rate and Defecit

 International trade refers to the total trade that a country does with all other countries in the world.
 Exchange rate refers to the value of one unit of a currency with respect to other currency/currencies.
 If imports are more than exports, then country will have a current account deficit and if exports are more
than imports then it will have current account surplus.

10. Globalisation
Globalization, simply stating, is the ability of the individuals and firms to produce anything anywhere and sell
anything anywhere across the world. It also means that resources (people and capital) will flow to the places where
they produce best and earn best.

POSITIVES NEGATIVES

 Best Allocation of Global Resources

 Increase in Income distribution
 Integration of Economies
 High competition for business entities
 Beneficial for end customers
 Interlinked economies easily pass on risks
 Greater access to foreign culture from one to another
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

VI. INDUSTRY ANALYSIS

Michael Porter’s Five Force Model for Industry Analysis

Analyzing any industry requires looking at it from various angles and finally reaching to a conclusion about its
attractiveness as an investment proposition. Market participants use different methods to make this analysis. Among
the many methods used for doing such an analysis is the popular Porter’s 5 Forces model developed by Dr. Michael
Porter in 1979.

PESTLE Analysis (Political, Economic, Socio-cultural, Technological, Legal and

Environmental Analysis)

Political Factors: Factors like stability of government, political structure, approach to social schemes, freedom of
press etc

Economic Factors: Factors like GDP, Inflation, Income distribution, interest rates, consumption level etc

Socio-cultural Factors: Factors like demographics, lifestyle, Preferences, culture etc

Technological Factors: Factors like availability and cost of technology, R&D activities etc

Legal Factors: Factors like legal architecture, efficiency of the legal system, Tax systems etc

Environmental Factors: Factors like Pollution level, environmental awareness, conservation etc.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

Boston Consulting Group (BCG) Analysis

As per the analysis, business segments can be classified as:

Stars: This is a business where market is growth is rapid and company has a large market share.

Cash Cows: This segment requires low cash infusion, low growth and steady cash-flow.

Question Marks: Business segments in a fast growing market, but having low market share.

Dogs: Business segments, which have slow growth rates and intensive competitive dynamics

Structure Conduct Performance (SCP) Analysis:

Structure analysis: Industry structure refers to the competitive intensity in the industry (number of players),
concentration of business in industry, relationship among the various players, market size, its growth rate, etc. It is
similar to what we study as part of Porter’s 5 Forces model and the SWOT Analysis model.

Conduct analysis: The conduct of this business depends on aspects such as pricing and product innovation. Each
industry will have its peculiar behavior. So, while looking for an industry’s conduct, analysts have to study several
factors such as business cyclical.

Performance Analysis: While analyzing performance of an industry, analysts will look at several numerical ratios,
which are dealt with in great detail in the unit on quantitative analysis. Based on structure and conduct of the
industry, it would generate financials for the investors/owners. Businesses with High return on capital are the ones
which create wealth for shareholders and owners in the long run.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

Key Industry Drivers:

 Telecom

 IT/ BPO/ KPO

 Banking/ NBFC/ Housing

 Media

 Retail

THESE ARE SHORT NOTES BASED ON THE NISM BOOK

TO GET THE UPDATED QUESTION BANK WHICH CONTAIN RECENT VERY IMP

Q&As WITH EXPLANATIONS, PLEASE VISIT WWW.PASS4SURE.IN

OVER 96% PASS OUT RATIO !!

 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

VII. COMPANY ANALYSIS- Qualitative Dimensions

Each company has its unique way of doing business. Thus, it becomes imperative for analysts to understand the
entire business model of the companies.

Competitive Advantage/ Points of differentiation for Business entities

 Brand
 Long track Record
 Clean and Ethical Management
 Takeovers/ Buyouts
 Monopoly/ Large market share

Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis

Every business has its own strengths and weaknesses. It is good for the analysts to clearly understand and document
both of these to have a clear picture of the situation. Similarly, opportunities to the business and potential risks to
the business can be documented by the analysts in the form of opportunities and threats. In a way, SWOT analysis is
nothing but a way of documenting strengths, weaknesses, opportunities and threats at one place in a concise
manner.

Quality of Management

Analysts should also pay attention to the quality of independent directors in a business Independent directors is a
big fallacy where companies/promoters choose to keep their friends and others, without thought of relevance, as
their independent directors. This is treated as more a tick mark exercise rather than a genuine exercise to bring
some thinkers to the business to take it forward. Analysts should focus on the qualifications and experiences of
these independent directors, how many meetings they attend and what are their contributions to the business. It
may be good practice to interact with some of them to understand them better.

Pricing Power and Sustainability of This Power

Pricing power means ability of the company to command pricing of its products or services. While companies would
love to charge as much as they can to the customers, in practice, it may not be possible. Pricing is a function of many
parameters, external and internal, least of which is the company’s will. Therefore, pricing power is generally a
function of industry dynamics, elasticity of demand and branding and customer loyalty/addiction. Presence of strong
brands and/or virtual monopoly plays an important factor in the pricing power.

Organization Structure
Organizations need to be systems and processes driven rather than individuals driven. Therefore, there has to be a
clear hierarchy of decision making in an organization and it should not be dependent on one or two individuals.
Organization dependent on one or two people, is prone to a risk called “Key man Risk ”. These aspects, while missing
in most of the reports today, would play critical role in future success or failure of businesses.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

Critical Business Drivers/Success Factors

Each industry/sector has a specific set of factors which affect its profitability and prospects. Buying a company’s
shares without having knowledge of these critical drivers could mean
purchasing a potential loser. Analysts should be able to put their fingers on critical drivers of an
industry and analyze them in great detail for the business under consideration.

Risks in the business

There are risks in every business, which may range from business aspects to operational aspects to execution aspect
and others. The risks may be apparent and known or they may be unknown. Analysts should focus a lot on the risk
aspects in various dimensions of the businesses. A good businessman would always have cognizance of the risks in
the business and the steps that need to be taken to protect the business from their effects.

Compliance Orientation of the Company

Some companies are very compliance oriented and follow rules and regulations in words and spirit. On the other
hand, many companies pay no attention to the subject and are regularly pulled by regulators/exchanges and other
regulatory and government bodies for non compliances. Track record of compliances by the company should
become a part of checklist for the analysts. And, we must also remember what Warren Buffet stated:

“Honesty is a very expensive gift, don’t expect it from cheap people”.

Documentation on Guidance v/s Actuals

Investors always are curious to know what the future plans of a company are. Many management take the full
advantage of this curiosity and have a track record of painting a rosy picture each time they speak to manipulate
emotional aspects of audience. Unfortunately, no one keeps track of what a management said and what it did. Good
research analysts would always go to the track record of commitments and the delivery. A track record of company’s
actual performance vis-à-vis its guidance at the beginning of a quarter/ year can give analyst a good idea of how
much of the company’s talk should be taken at face value and how much should be discounted.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

VIII. COMPANY ANALYSIS- Quantitative Dimensions

History of Business v/s Future of Business

The historical performance of a company is the initial parameter used to select companies for research and analysis
in industries seen as favorable for investment. Once companies have been selected on the basis of their historical
performance, the next step is to see how the business environment in the future is likely to affect their performance.
New products or innovations from one company are quickly and easily replicated by others in the industry. Hence, in
such cases using history to extrapolate future may be relatively easier, however, the same must be done with
substantial caution.

Basics Of P&L Statement Basics Of Balance sheet Basics Of Cash Flow Statement

 Net Sales  Sources of Funds  Operating Cash-Flow

 Direct Costs  Equity  Investing Cash Flow
 Earnings before  Reserves & Surplus.  Financing Cash Flows
Interest, Tax,  Net Worth
Depreciation and  Long Term Debt
Amortization.  Current Liabilities
 EBITDA Margin  Application Of Funds
 Depreciation  Fixed Assets
 Amortization  Current Assets
 Interest
 Other income
 Profit Before Tax
 Profit After Tax

Contingent Liabilities

Contingent liabilities are liabilities that may be incurred by an entity depending on the outcome of an uncertain
future event. Prominent examples of contingent liabilities are:

Outstanding lawsuits
Disputes with Tax Authorities
Guarantees provided

If size of the contingent liabilities is large in comparison to the P/L statement and Balance Sheet of the business, one
needs to exercise caution while analyzing the business.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

Quality of Business in the Past through Quantitative Lenses

Profitability Ratios Return Ratios Leverage Ratios

(+) EBITDA Margin (+) ROE (+) D/E Ratio

(+) PAT Margin (+) ROCE (+) Interest Coverage

Ratio
Liquidity Ratios Efficiency Ratios

(+) Current Ratio (+) Assets Turnover

(+) Quick Ratio (+) Inventory Turnover

1. EBITDA Margin

This ratio is useful in finding out the profitability of the company purely based upon its operations and direct costs.

2. PAT Margin

PAT Margin Shareholders of a business get their dues only at the end, i.e. after paying all stakeholders. Hence, they
would like to know how much of the business generated by the company actually comes their way. This is found by
calculating PAT Margin.

3. ROE

It Stands for Return On Equity. ROE communicates how a business allocates its capital and generates return.

4. ROCE

It stands for Return on Capital Employed. This ratio uses EBIT and calculates it as a percentage of the money
employed in the firm by way of both equity and debt. Higher the ratio, better the firm since it is generating higher
returns for every rupee of capital employed.

5. Debt/ Equity Ratio

It indicates the levels of debt in a business. This helps one analyse its outstanding obligations in comparison to its
total assets.

6. Interest Coverage Ratio

This ratio tells us how many times the earnings of the business can pay its interest obligation. Higher the ratio,
higher is its repayment capability or ability to survive.

7. Accounts Receivable Turnover Ratio

This ratio indicates how fast company converts its sale in to cash. Higher the ratio, better the firm, as it means that
very small portion of its revenues are in the form of credit.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

8. Inventory Turnover Ratio

This ratio indicates how many times assets of the business are churned / put to use to generate revenues for the
business.

Other Major Points for comparison

 Peer Comparison
 Dividend and Earnings History
 History of Corporate Actions
 Ownership and Insider trades

IX. Corporate Actions

Dividend: Companies distribute part of the profits and retain part of the profits in the business. The part of the
profits distributed is called the Dividend

Rights Issue: When shares are issued to the existing investors of a company at a discounted price; it is called a Rights
Issue.

Bonus issue: A bonus issue, also known as equity dividend, is an alternative to cash dividend. Bonus shares are
issued to the existing shareholders by the company without any consideration from them.

Stock Split: A stock split is a corporate action where the face value of the existing shares is reduced in a defined
ratio. A stock split of 1:5 means split of an existing share into 5 shares.

Share Consolidation: Share consolidation is the reverse of stock split. In a share consolidation, the company
increases the par value of its shares in a defined ratio and correspondingly reducing the number of shares
outstanding to maintain the paid up/subscribed capital.

Mergers and Acquisitions: Mergers, acquisitions and consolidations are corporate actions which result in a change in
the ownership structure of the companies involved. In a merger, the acquirer buys up the shares of the target
company and it is absorbed into the acquiring company and ceases to exist. In an acquisition or takeover, the
acquiring company acquires all or a substantial portion of the stock of the target company.

Loan Re-Structuring: Loan or debt restructuring is a mechanism available to companies in financial distress who are
unable to meet their obligations to their lenders to restructure their debt by modifying one or more of the terms of
the loans. This may include the amount of loan, rate of interest, the mode of repayment.

Buyback of Shares: A company may deploy excess cash on the balance sheet in various way. One of the ways is to
that it would offer a choice to the shareholders to have the money through selling their shares back to the business
or in kind in terms of enhanced value of each share in terms of Earning Per Share (EPS) and Book Value Per Share
(BV).
De-listing Of Shares: Delisting of shares refers to the permanent removal of the shares of a company from being
listed on a stock exchange. Delisting may be compulsory or voluntary.

Share Swap: Swap, simply means, exchange of something. Accordingly, share swap means exchanging one set of
shares with another set of shares.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

X. Valuation Principles
(*Readers are advised to read the following topics through the Study book)

Difference between Price and Value

Discounted Cash-Flow Model
Absolute Valuations V/s Price-Value Sense

Earnings based Valuation Metrics

 Price to Dividend Ratio

 Price to Earnings Ratio
 Growth Adjusted PE Ratio (PEG Ratio)
 Enterprise Value to EBITDA Ratio
 Enterprise Value To Sales Ratio

Asset based Valuation Metrics

 Return On Equity
 Return On Capital Employed
 Price To Book Ratio
 Net Asset Value Approach

Relative Valuations (Trading and Transaction Multiples)

Relative valuation is basically intuitive. We do this all the time in our personal lives. Here, we try to value an asset
looking at how the market prices similar/comparable assets. Practically, all the earnings and assets based valuation
parameters defined above can be looked at for each business historically for several years. One can also look at
these parameters as comparison across the peers and/or industry ratios to build a sense whether something looks
cheap or expensive.

Sum Of The Parts Valuation

Several businesses operate as a cluster/bundle of businesses rather than one business. For example, ITC, L&T and
other corporations have different business under one umbrella. Best way to value these businesses is to value each
business separately and then do the sum of those valuations. This method of valuing a company by parts and then
adding them up is known as Sum-Of- Parts (SOP) valuation.

Capital Asset Pricing Model

Capital Asset Pricing Model - CAPM, which establishes the relationship between risk and expected return forms the
basis for cost of equity. It has three components: the risk free rate of return (Rf); a return that reflects the return
expected on a stock market portfolio (Rm); and a return that compensates for the business and financial risks
specific to the stock of the company itself, known as the company's beta. Beta of a stock measures change in the
stock prices with change in the benchmark index/stock market.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

XI. Fundamentals Of Risk and Return

 Return On Investment = Net Profit/ Investment *100

Simple Return: Simple Return is called single period return or absolute return. However, this computation does not
take the period over which the return was earned into consideration.

Annualized Return: The annualized return calculation does not take the time value of money into consideration.
Time value of money is the concept that money has the ability to be invested to earn more money. Therefore,
money received earlier is worth more than money received later.

CAGR: CAGR (Compounded Annual Growth Rate) calculations assume that the periodic returns received from an
investment can be re-invested to earn returns and this forms part of the total returns of the investment. It is
calculated as the rate of return at which the original investment grows to the final investment value.

XIRR: The underlying CAGR for multiple flows has to be calculated by using XIRR function in Excel. The procedure
stated in the previous example can be followed here as well: separate columns should be created for inputting dates
and corresponding matching cash flows.

Risks in Investment:

Inflation Risk
Inflation risk represents the risk that the money received on an investment may be worth less when adjusted for
inflation. Inflation risk is also known as purchasing power risk.

Interest Rate Risk

Interest rate risk refers to the risk that bond prices will fall in response torising interest rates, and rise in response to
declining interest rates. Bond prices and interest rates have an inverse relationship.

Business Risk
Business risk is the risk inherent in the operations of a company. It is also knownas operating risk, because this risk is
caused by factors that affect the operations of the company.

Market Risk
Market risk refers to the risk of the loss of value in an investment because of adverse price movements in an asset in
the market.

Credit Risk
Credit Risk or default risk refers to the possibility that a particular bond issuer will not be able to make expected
interest rate payments and/or principal repayment. Debt instruments are subject to default risk as they have pre-
committed pay outs.

Liquidity Risks
Liquidity risk refers to an absence of liquidity in an investment. Thus, liquidity risk implies that the investor may not
be able to sell his investment when desired, or it has to be sold below its intrinsic value, or there are high costs to
carrying out transactions.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

Call Risk
Call risk is specific to bond issues with the possibility it will be called prior to its maturity.

Re-Investment Risk
Re-investment risk arises from the probability that income flows received from an investment may not be able to
earn the same interest as the original interest rate.

Political Risk
Risk associated with unfavorable government actions - possibility of nationalization, change in tax structures,
licensing etc. is called political risk.

Country Risk
Country risk refers to the risk related to a country as a whole. There is a possibility that it will not be able to honour
its financial commitments.

Beta

Beta is a measure of the systematic risk of a security or a by comparing the volatility in the investment relative to the
market, as represented by a market index. It measures the risk of an investment that cannot be diversified away.
Beta of 1 indicates that the security's price will move with the market.

Beta of less than 1 means that the security will be less volatile than the market. And, beta of greater than 1 indicates
that the security's price will be more volatile than the market.

Concept of Margin Safety

Margin of Safety is the term popularized by Mr. Benjamin Graham and his followers, most notably Mr. Warren
Buffett. In simple words, margin of safety refers to the difference between value and prices, when securities are
bought at a price significantly below their intrinsic value.
While Margin of safety allows an investment to be made with minimal downside risk, it doesn't guarantee a
successful investment. There is no universal standard to determine how wide the "margin" in margin of safety
should be. Each investor must come up with his or her own number.

Basic Behavioral Biases

 Loss-aversion bias
Loss aversion refers to investor's tendency to strongly prefer avoiding losses to acquiring gains. The fear of loss leads
to inaction.

 Confirmation Bias
Confirmation bias, also called my side bias, is the tendency to search for, interpret, or prioritize information in a way
that confirms one's beliefs or hypotheses. It is a type of cognitive bias and a systematic error of inductive reasoning.

 Ownership Bias
Things owned by us appear most valuable to us. Sometimes known as the endowment effect, it reflects the tendency
to place a higher value on a position than others would. It can cause investors to hold positions they would
themselves not buy at the current level.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

 Gambler’s Fallacy
Predicting absolutely random events on the basis of what happened in the past or making trends when there exists
none. It is the mistaken belief that if something happens more frequently than normal during some period, then it
will happen less frequently in the future or vice versa

 Winner’s curse
Tendency to make sure that a competitive bid is won even after overpaying for the asset. While behaviorally it is a
win, financially, it may be a loss.

 Herd mentality
This is a common behavior disorder in investing community. This bias is an outcome of uncertainty and a belief that
others may have better information, which leads investors to follow the investment choices that others make.

 Anchoring
Anchoring is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of
information offered when making decisions.

Pass4sure.in – the best way to clear NISM exams.

XII. Qualities of a Good Research Report

Research report is a multipurpose document and does the following:

“Presents an investment idea - Provides market perspective - Detailed company analysis.”

Writing research reports, to an extent, is a creative process. What an analyst does is to take in is a lot of financial
information and give out is an understandable version of what that financial information mean. The process of
converting numbers to views does demand for the certain qualities. As with many other creative processes, there is
no single answer to this question but there are certain ground rules which one can follow to make a good report.

 Clarity of Idea
 Simplicity of delivery
 Presenting the argument clearly
 Narrative structure
 Create customized reports according to the reader type

Like any other writing projects, compiling research reports also have three important steps -
Planning, Drafting and Editing. Major sections of a report:

 Fact based selection

Peer group analysis, shareholding pattern, company fundamentals, key financial indicators and financials.

 View-based selection
Company Business, Key Strengths, Key concerns, Industry Overview.
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

Rating Conventions

In financial markets, while rating stocks, various conventions are used by the research analysts. These
recommendations are typically made to reflect the analyst’s view on the total returns that the security will make
over a specified time horizon, or the returns of the security relative to the returns of the market or to the peer
group. Different research agencies may have different definitions for each term.

 Buy
 Overweight
 Hold
 Underweight
 Sell

Checklist Based Approach to the Research Reports

To ensure consistency in the decision making process, it becomes imperative to note down important decision
drivers in a disciplined and committed manner. Accordingly, checklists could be a great way for analysts to stay
disciplined and methodical when it comes to researching new ideas, maintaining an existing portfolio and exiting
positions.

XIII. LEGAL AND REGULATORY ENVIRONMENT

Regulatory infrastructure in Financial Markets

1. Ministry Of Finance

 Department of Economic Affairs

 Department of expenditure
 Department of revenue
 Department of Financial Services
 Department of Disinvestments

2. Ministry of Corporate Affairs

The Ministry of Corporate Affairs is primarily concerned with administration of the Companies Act and other allied
Acts, rules and regulations framed there-under mainly for regulating the functioning of the corporate sector in
accordance with law. The Ministry also supervises three professional bodies, viz., ICAI, ICSI. ICWA
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

3. Reserve Bank Of India

 Monetary Authority
 Regulator and supervisor of financial system
 Manager of foreign exchange
 Issuer of currency
 Developmental Role
 Banking functions

4. Securities And Exchange board Of India

Securities and Exchange Board of India (SEBI) is the regulatory authority for the securities market in India. SEBI’s
primary role is to protect the interest of the investors in securities and to promote the development of and to
regulate the securities. SEBI’s regulatory jurisdiction extends over corporates in the issuance of capital and
transfer of securities, in addition to all intermediaries and persons associated with the securities market.

5. Insurance Regulatory and Development Authority of India (IRDAI)

IRDAI regulates the insurance sector in India in accordance with the terms of the IRDA Act, 1999. IRDAI is the
licensing authority for insurance companies and defines the capital and net worth requirements for insurance
companies. IRDAI’s mission is to regulate, promote and ensure orderly growth of the insurance sector, including the
re-insurance business, while ensuring protection of the interest of insurance policyholders.

6. Pension Fund Regulatory and Development Authority (PFRDA)

The PFRDA is the authority entrusted to act as a regulator of the pension sector in India under the PFRDA Act, 2013.
It was constituted in October 2003 with the following responsibilities:
(a) To promote old age income security by establishing, developing and regulating pension funds.
(b) To protect the interests of subscribers to schemes of pension funds and related matters.

The PFRDA has been assigned the responsibility of designing the structure of funds and constituents in the National
Pension System (NPS).

Important regulations in Indian Securities Market

1. Securities Contracts (Regulation) Act, 1956

The Securities Contracts (Regulation) Act, 1956 (SCRA), provides for direct and indirect control of virtually all aspects
of securities market to SEBI – instruments, intermediaries, issuers and investors. It prevents undesirable transactions
in securities by regulating the business of securities dealing and trading. The act covers a variety of issues

2. Securities and Exchange Board of India Act, 1992

The SEBI Act of 1992 was enacted “to provide for the establishment of a Board to protect the interests of investors in
securities and to promote the development of, and to regulate, the securities market and for matters connected
therewith or incidental thereto”. SEBI Act, 1992, lays down that subject to the provisions of the SEBI Act, 1992, it
shall be the duty of the Board to protect the interests of investors in securities and to promote the development of
and to regulate the securities market, by such measures as it thinks fit
 NISM SERIES XV – RESEARCH ANALYST
SHORT NOTES BY PASS4SURE.IN

3. Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015

The regulations prohibiting insider trading have been made pursuant to section 30 of the SEBI Act, 1992. The
regulations define “insider” as any person who is a connected person or one in possession of or having access to
unpublished price sensitive information. The regulations define unpublished price sensitive information (UPSI) that
affect the company or its securities as those that is not generally available and which can materially affect the price
of the securities.

4. SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulation, 2003
(amended in 2007, 2012 and 2013)

The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations prohibit fraudulent, unfair and manipulative trade practices in securities. These regulations have been
made in exercise of the powers conferred by section 30 of the SEBI Act,
1992. This regulation defines fraud as inclusive of any act, expression, omission or concealment committed to induce
another person or his agent to deal in securities. There may or may not be wrongful gain or avoidance of any loss.
However, that is inconsequential in determining if fraud has been committed.

5. Securities and Exchange Board of India (Research Analyst) Regulations, 2014 (amended in December 2016)

Timely and accurate information about investment products is an important ingredient for making investment
decisions. Considering the volume and complexity of information it would be difficult for an investor for analyzing
and grasping the information. In this context the Research Analysts play an important role. They make
recommendations about whether to buy, hold or sell securities. They analyze information to provide
recommendations about investments decisions. Investors often often rely on their advice. However, such advice
from investment analysts is many times prone to conflicts of interest that may prevent them from offering
independent and unbiased opinions. Since the prime objective is to protect investors and enhance confidence in the
market, it is a major concern of regulatory authorities to identify and deal with conflicts of interest arising from the
production and dissemination of research reports. Indeed, the effort to address potential conflicts of interest
affecting the production and dissemination of research by securities firms is truly a global one, with regulators in
almost all developed market economies having proposed or implemented new rules for research related conflicts of
interest.

TO GET THE UPDATED QUESTION BANK WHICH CONTAIN RECENT VERY IMP

Q&As WITH EXPLANATIONS, PLEASE VISIT WWW.PASS4SURE.IN

OVER 96% PASS OUT RATIO !!

FOR ANY QUERY – PLEASE WRITE TO [email protected]

ALL THE VERY BEST FOR YOUR EXAMS