Tag Archives: Equity Research

The equity research AI world is transforming fundamentally. While once reliant on manual data handling and analysis, rigid models, and labour-intensive processes, firms are incorporating artificial intelligence (AI) to generate sharper insights, quicker execution, and wise investment decisions. The amount of structured and unstructured data available to market participants has exploded in the financial ecosystem — from earnings results to satellite data to social media buzz — traditional approaches are simply unable to keep up. AI is disrupting the current status quo by simplifying complexity into clarity.

From real-time sentiment analysis to predictive modeling, alternative data integration, and automated research generation, AI is fundamentally changing equity analyst workflows. While technically this is mostly about efficiency, it is intertwining the richness, accuracy, and agility of delivering important equity research AI contributions in the rapidly changing market landscape. Large firms have embraced AI, and mid-sized firms are not far behind, while global institutions are in the process of following an accelerated path of digital transformation. This suggests that the competitive advantage will continue to shift towards those who can use intelligent systems to inform, adapt, and act.

 

AI in Finance

AI in finance is accelerating. The global market for AI in finance is projected to be $38.36 billion in 2024 (up from $29.80 billion in 2020), with estimates of between $450 billion to $2 trillion being discussed by 2030 at a CAGR of between 25% – 35%. Change is underway with AI playing a significant role. AI is transforming the service delivery of financial services by replacing manual tasks with automated processing, increasing efficiencies, and making data-driven decisions possible.

Equity Research AI in Finance

Equity Research AI in Finance

Consider AI as it relates to asset management. In equity research AI tools are now being used t analyze vast and varied data sources, identify patterns, optimize strategies, and ultimately use the information to generate a more informed investment decision. According to NVIDIA’s (2024) Financial Services Industry Survey, nearly 75% of organizations reported that they received efficiency gains from AI, and nearly 60% of organizations that reported efficiency gains reported cost savings of at least 30%. Also of note, 75% of organizations reported they were able to improve customer satisfaction. Just under 80% of financial service organizations reported they were likely to increase their investment in AI in the next two years, reinforcing AI as a strategic investment opportunity.

The following are the benefits of equity research AI:

AI-Driven Data Analytics

Data analytics is a challenge for asset managers, as it requires them to consolidate inputs from many sources and quickly find meaningful signals before the market reacts. Equity research AI helps address this issue by:

Ingesting both structured and unstructured data from diverse sources, including company filings, social media, earnings calls, and alternative data sets

Utilizing Natural Language Processing (NLP) and machine learning (ML) to provide real-time sentiment and impact analysis

Allowing analysts to process much larger volumes of information – up to 100 times more volume than utilizing more traditional research methods

AI-driven analytics will provide a more complete and accurate view of the market, enabling investors to find “hidden” market signals while being able to act with more speed and conviction.

AI-Powered Financial Modelling

In the fast-moving market today, relying on prior spreadsheets and fixed assumptions can be limiting. AI, on the other hand, makes financial modelling more dynamic and adaptive through:

Creating customized valuation models that align with different fund strategies and market conditions

Automated scenario analysis, stress testing, and probabilistic forecasting

Significantly decreasing model-development time by up to 50% and updating cycles by up to 80%, enabling quick responses

AI does not just allow for automation, it increases the quality of decision making by providing comprehensive and integrated valuation techniques, including a DCF, comparables, and real options approach, all integrated into a single, intelligent model.

AI-Augmented Research

With a myriad of economic, political, and regulatory factors always shifting, research teams must operate opportunistically. AI shortens the research process by:

Using large language models (LLMs) and generative AI to produce investment theses, earnings previews, and summaries quickly.

Automatically capturing earnings calls summaries, extracting key points from SEC filings, and sourcing competitive intelligence.

Delivering real-time alerts and dashboards that highlight actionable intelligence from the markets.

With these capabilities, AI shortens the length of time to initiate research by as much as 40%, This creates the capacity for analysts to focus on strategic, high-value work.

AI-Driven Portfolio Management

To maximize Alpha, timely signals ahead of shifts in the market are key. AI empowers portfolio managers to take advantage of opportunities by:

Monitoring portfolios in real time, automatically rebalancing portfolios based on changes in risk & return

Access to predictive modelling for sector momentum, macro trends, and performance anomalies.

Embedding AI-based insights and strategies within quantitative and qualitative risk frameworks.

Research (including research performed by the University of Hamburg) shows AI-based models can provide returns up to 1.5% annually. At Sutherland, firms using AI-based tools produce returns exceeding market expectations over 60% of the time, creating more improved and consistent returns. 

Analyst Productivity and AI

A study indicated that more than 80% (81.12%) of finance professionals report utilizing AI-powered tools in their equity research AI process. Only 18.88% reported they were not using AI-powered tools at all. Regarding frequency, 60.22% of those surveyed reported using AI either “occasionally” (30.11%) or “frequently” (30.11%). Fewer employ AI “always” (15.05%), while some rarely (10.75%) or never (9.68%) use AI-powered tools at all.

Analyst Productivity and AI

Analyst Productivity and AI

Overall, the adoption of AI tools is driven largely by significant benefits such as improved efficiencies, better speeds of data on-boarding, increased job satisfaction (86.52%), which are developed through handling menial, habitual and repetitive tasks such as data collection and reporting and related deliverables, allowing the analyst to apply more towards higher-valued outputs.

AI Adoption by Size of Firm

Usage also differed by the size of the firm to a degree; however, there was little differentiation between firms, with mid-sized firms ahead (91.18%), followed by small firms (85.71%) and larger firms (83.33%). Boutique firms (1 – 50 employees) reported the lowest number of AI users (75%). Global firms (5001+ employees) reported relatively lower than other firms (71.43%), which may reflect organizational or legacy challenges within global firms.
>This may suggest that mid-sized and larger firms may be better able to adopt AI into the research workflow than global firms, which may still be going through the motions of large-scale membership in a digital transformation effort.

Time Savings from AI Tools

Time savings realized from AI adoption also correlate with firm size. Professionals at global and large firms report the most significant time savings:

45.96% of respondents at global firms’ report saving 10+ hours per week

37.32% of respondents at large firms save 6–10 hours per week

On the other hand, boutique firm professionals reported the least time savings, with 50.45% of them saving just 0–2 hours per week. This disparity suggests that larger firms may have more advanced AI infrastructures or better integration, enabling greater operational efficiencies.

Key Trends Shaping Equity Research AI

AI is revolutionizing equity research by enabling analysts to process vast datasets, uncover hidden patterns, and respond to market changes with real-time sentiment analysis. As ESG data becomes central to investment decisions, AI is accelerating compliance tracking and sustainability analysis. There’s a clear shift toward quantitative analysis, especially in emerging markets, where AI helps interpret complex financial structures. The growing use of alternative data—like social media, satellite imagery, and transaction records—further expands research depth. As AI handles routine tasks, analysts are evolving into strategic, tech-savvy partners with a deeper focus on ESG and continuous learning.

 

Magistral’s Services for Equity Research AI

Magistral offers the following services for equity research-

AI-Powered Financial Modeling and Forecasting

For equity research AI Magistral utilizes AI and machine learning to create predictive models. They increase accuracy in earnings forecasts, stock price predictions, and financial ratios. These models limit manual error and allow for a stream of real-time analysis based on market events.

Data Collection and Processing Automation

Magistral uses AI-based tools for automating the collection of financial statements, news articles, regulatory filings, and alternative data. They also process those documents/ files to minimize the time taken in data collection. They also reduce the overall time needed to produce an equity research report using equity research AI.

Sentiment Analysis and News Tracking

Magistral leverages natural language processing (NLP) models to evaluate news stories, social media, and earnings call transcripts, enabling political, economic, and other factors to track market sentiment for these various financial instruments, along with uncovering signals that can influence investor decisions.

Incorporating Alternative Data

For equity research AI Magistral also utilizes alternative data such as web traffic analytics, various satellite images, and credit card transactions to supplement research models using AI, which dives deeper into the perspective of standard financials.

Support for Quantitative and Technical Analysis

In context of equity research AI Magistral develops and adopts AI-based quantitative research. It is done so that it can utilize historical market data, technical indicators, and algorithms. They can find patterns, look for anomalies, and exploit trading opportunities.

Customized Dashboards and Visualization Tools

For equity research AI Magistral creates AI-enhanced dashboards that visualize key metrics, sentiment scores, and forecast data. This leads to enabling faster decision-making for buy-side and sell-side analysts.

Back-Testing and Model Validation

Equity research AI models undergo extensive back-testing to assess performance throughout market cycles. This can take many months. Magistral uses model tuning, validation, and model interpretability analysis to ensure models are compliant and reliable.

Outsourced Research Operations with AI Augmentation

For equity research AI Magistral leverages its offshore teams to provide economic research outsourcing services. We combine the use of human labor and AI-based research productivity tools to improve workflow and research coverage.

 

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to prabhash.choudhary@magistralconsulting.com

Key benefits include:

  • Real-time sentiment analysis and predictive modeling
  • Automated generation of financial models and investment research
  • Integration of alternative data for sharper insights
  • Enhanced portfolio management and real-time rebalancing
  • Improved analyst productivity and decision-making agility

AI systems use Natural Language Processing (NLP) and Machine Learning (ML) to ingest and analyze unstructured data from earnings calls, company filings, social media, and more. This allows analysts to uncover hidden signals and act swiftly.

Large language models (LLMs) and generative AI create earnings previews, investment theses, and market summaries efficiently. AI also extracts key points from earnings calls and filings, significantly shortening the research cycle by up to 40%.

Surprisingly, yes. Around 91.18% of mid-sized firms report AI usage in equity research, compared to 83.33% of large firms and 75% of boutique firms. Global firms lag slightly due to legacy systems and the complexity of large-scale digital transformation.

Accuracy, speed, and timely availability of reliable information on which hedge funds operate are guiding principles. Such an environment requires Equity and Country Themed Reports as critical sources. These reports help hedge fund managers identify the trends, risk monitors, and profitable areas of investment-cum-opportunities spread across sectors and geographies.

This broad consultation is able to determine the value of Equity and Country Themed Reports, analyses their impact on the developed geographies such as the US, UK, Europe, and Middle East countries; tracks new trends, and balances niche-specific solutions toward solving hedge fund orders in general around the world.

 

Important Features of Equity Reports

Equity reports are the backbone of hedge fund strategies as they offer extremely detailed information on the performance of a company, its financial metrics, and sector dynamics. The reports are quite crucial for hedge funds to find high-potential investments and mitigate risks well.

Key Features of Equity and Country Themed Reports

Key Features of Equity and Country Themed Reports

Detailed Financial Measures

Equity reports provide some kind of summary concerning the financials in terms of, for example, EPS growth rate, P/E multiple, a dividend yield, and RoE. For instance, 2024 S&P 500 P/E has already hit an unbelievable high of 22x and add to that some facts regarding investors’ confidence-a bonanza for sectors especially those so-called high-growth sectors such as technology or energy. Considering this, hedge funds subsequently calculate the expected returns based on the outlook of the equity through analysis and Equity and Country themed reports.

Industry Analysis

The boom in the growing industries is the expectation of equity reports. The renewable energy sector can have up to a 15% compounded annual growth rate by 2030, thanks to the clean energy plans U.S. and Europe have planned. Similarly, the technology sector is exciting in using technological advancements through AI and cloud computing and hence calls for special attention.

Geographic Diversification

Equity reports of hedge funds produce opportunities geographically. The average yield of dividend in European stocks is 3.2% as compared to that of the U.S. stocks, which recorded an average of 2.1%. Gaining maximum profit, the geographical view helps optimize funds for portfolios.

Sectoral Opportunities

Technology

NVIDIA and Microsoft are applying AI innovations in order to offer hedge funds great growth opportunities.

Energy

The U.S. and Europe have invested a lot into the renewable energy sector, and is being steadily on the growth, thus proving to be long-term opportunities in the sector.

Financial Services

The U.S., the U.K. and European financial sectors remain very stable and good for risk-adjusted returns.

 

Macro View for Country-Themed Reports on Global Strategies

Whereas equity reports may only be provided as company-specific, Country-Themed Reports deliver a more balanced view according to the specific political, economic, and regulatory setting of the given country. It hence provides hedge funds with the best macro-driven strategy, that is, an investment properly diversified.

Global Impact of Equity and Country Themed Reports

Global Impact of Equity and Country Themed Reports

Regional Insights in Country-Themed Reports

United States

Since inflation also moved up to 3.2% in 2023, hedging funds should monitor the monetary policies that could be done in the United States Federal Reserve. Themed country reports present the impact of fluctuating interest rates on real estate, consumer goods, and the technology industry.

United Kingdom

Although economic growth in 2023 may rise modestly around the UK as the driver from financial services to renewable energy sources expands, country-specific information is certainly required. Any hedge fund contemplating direct investment into companies domiciled in the UK, for example, will without question rely on country reports regarding GDP, currency, or post-Brexit regulatory action.

Eurozone

Eurozone has an inflation rate of 2.5% in 2023, so stable and dynamic; it’s a good investment location. Industrials and clean energy have been the investment opportunities. Germany and France are the two biggest economies in the Eurozone.

Country-specific reports bear risks on geopolitical tensions and ECB monetary policies.

Middle East

It is an area of interest to hedge funds, wherein oil-exporting economies continue pushing investments in the energy sector. The country reports, reflecting Middle East and Central Asia oil price trends, have very detailed analysis of Saudi Arabia’s diversification agenda with Vision 2030 and geopolitics.

The two critical components that would be understood in relation to the risk of political instability, currency fluctuation, and regulatory change are Equity and Country Themed Reports. For example, the strength of the Euro against the U.S. dollar impacts international equity returns. Hence, it becomes a macroeconomic analysis and currency that is very important in country-specific reports.

 

Highly developed Equity and Country Themed Reports

One of the needs on the world financial front with vast growth has emerged. Hedge funds exploit all the modern technology to strategize further and stay ahead of the competition through Equity and Country Themed Reports.

Technological Revolution

AI and Predictive Analytics

Quite fundamentally, AI application in Equity and Country Themed Reports has brought a renovated hedge fund decision-making. For example, predictive modeling enables one to obtain opportunities for growth in sectors like renewable energy and technology where hedge funds can catch up with the current trends of the markets.

Big Data Integration

Big data analytics revolutionizes the depth and reliability of Equity and Country Themed Reports to provide hedge funds with actionable insights on the risk management and investment strategy through macroeconomic indicators, geopolitical events, and sectoral data.

Developed Markets Focus

The hedge funds have been shifting their attention towards developed markets like the U.S., the U.K., and Europe. Hedge fund firms are functioning with the existence of strong regulatory systems and financial systems. The country-specific reports in the three above-mentioned countries have real insights in terms of the market trends. There are also fiscal policies concerning interest rate movements, which in turn has been helpful in a hedge fund firm’s decision-making process. Equity and Country Themed Reports have played a big part in this as well.

Sectoral Innovations

Renewable Energy

Irrespective of whether it has happened or not, there have been significant investments in the United States and Europe regarding renewable energy. This is a great space for hedge funds to capitalize

Technology

Hedge funds will have to place equity in innovation that is led by AI solution, cloud computing and security solutions

 

Magistral Consulting’s custom Equity and Country-based Reports

In this complex global marketplace, hedge funds will have to fit into the unique contours of investment strategy. Magistral Consulting will be able to create tailor-made Equity and Country Themed Reports by which hedge funds can make insightful decisions with an actionable view through customized Equity reports.

Equity Analysis

Magistral provides equity analysis that goes granular on statistical data including EPS growth, P/E and dividend yield. All these reports are prepared for hedge funds in order to determine sector performers which include renewable energy equities as well as the technology stock. Hence, on data-driven basis, such a hedge fund, the equity fund can be built. Equity and Country Themed Reports are also a key feature of our services.

Country themed reports

Country-specific magistral reports will include more in-depth macroeconomic forecasts, political risk assessments, and currency analysis. From the reports, it is gathered that the Eurozone report would answer a couple of questions regarding the monetary policy effects of the ECB on the fixed-income market and equity opportunity in industrials and renewables and the like.

Sector-Specific Insights

Magistral is of the view that it needs to provide sector-specific projections of growth industries in line with hedge fund strategy. It covers clean energy, technology, and financial services. In such an eventuality, the company would be able to get properly calibrated and consistent results. It is done with the use of strong data models and Equity and Country Themed Reports.

International Risk Special Insights

Magistral has report analyses with great geopolitical risk analyses, interest rates, and volatility in currencies that allow for hedging capabilities and capitalizing on all the emerging opportunities in volatile markets.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to prabhash.choudhary@magistralconsulting.com

Equity Reports include detailed financial measures such as EPS growth rates, P/E multiples, dividend yields, and ROE. They also offer sectoral analysis, highlighting growth opportunities in industries like renewable energy and technology, and geographic diversification data to optimize portfolio performance in regions like Europe, the US, and the Middle East.

Country-Themed Reports deliver a macroeconomic perspective by analyzing political, economic, and regulatory environments. They provide region-specific insights, such as the impact of Federal Reserve policies in the US, post-Brexit regulations in the UK, ECB monetary policies in the Eurozone, and oil price trends in the Middle East, helping hedge funds craft well-informed, diversified strategies.

Technological advancements, such as AI and big data analytics, have transformed the depth and reliability of these reports. AI-driven predictive modeling identifies growth opportunities in sectors like renewable energy and technology, while big data integration provides actionable insights on macroeconomic indicators, geopolitical risks, and sectoral trends.

Magistral Consulting specializes in delivering tailor-made Equity and Country-Themed Reports. These include granular equity analyses with detailed metrics, country-specific forecasts covering macroeconomic and political risks, and sector-specific growth projections. Magistral’s reports empower hedge funds with actionable data to make informed investment decisions and capitalize on emerging opportunities.

Investment banks hold a crucial position in offering various types of research services for the clients from the financial industry, particularly the buy-side entities. Some of these clients are asset management firms, hedge funds, pension funds, insurance financial institutions, and private equity among others who rely on the services of investment banks to gain relevant information and recommendations that could help in decision making regarding investments.

Non-transactional activities are other areas where investment banks can assist. With all these advantages in place, these firms rely on their skills, capital, and economic insight to deliver customized research services that will meet the needs of their institutional clients. Therefore, investment banks assist institutional investors to search for investment opportunities or yields, evaluate the risks inherent in companies, industries or macroeconomic factors affecting them, and necessarily, manage portfolio performance. Investment banks have to maintain a strategic relationship with the clients to understand their investment goals, risk tolerance level or their preferences regarding sectors and so on so forth, through this process, investment banks have to make sure that the research reports have some valuable tips for the clients.

The reasons for institutional investors relying on buy-side research generated by investment banks include the following. It gives them a good source of information about the market trends, industry or group of stocks, etc, thereby enabling them in decision making. Besides, it also assists them in unearthing alpha opportunities and risks for making investment decisions. It also assists institutional investors in understanding the latest regulatory changes, shifts in global political climates, and other macroeconomic factors affecting returns on investment.

Types of Buy-Side Research

Research arms of investment banks also provide a number of reports that vary depending on different categories of institutional investors. These categories are relevant when try to organize and categorize buy-side research activities, while some intersections may occur depending on the objectives of the research.

Types of Buy-Side Research

Types of Buy-Side Research

Equity Research

This is used in examining single stocks, with emphasis being put on the fundamental and relative analysis, performances, and growth projections of stocks. Equity research reports are comprised of estimates of Corporates’ future earnings, the intrinsic value of the Corporates and advice on investing in stocks, managing a portfolio etc.

Fixed Income Research

In a way of analysing credit state, yield, and some level of interest rate change, the type of research covers correlating bonds with debt securities. Reports offer the framework to evaluate trends in bond issuers, credit ratings, and markets to effectively and efficiently maintain optimal fixed-income portfolios together with managing interest rate risk.

Macroeconomic Analysis

Examining broad economic trends such as GDP growth and inflation, this analysis identifies market opportunities and risks. Reports offer insights into economic indicators, central bank policies, and global market dynamics, aiding investors in strategic asset allocation and risk management.

Industry Research

Industry research presents information regarding certain industry, its trends within the industry, stated relationships between players in the specific industry and shifts in the regulatory environment. Such reports investigate market size, growth conditions, and legal restraints to facilitate the investment decision-making process by analyzing risks in certain sectors.

Thematic Research

Although focused on newer trends such as ESG investing or disruption technology, this research is valuable to investors with long horizons. Research produces estimates assessing drivers, investment recommendations, and factors of concern related to a specific theme to help investors integrate themes into their investment plans.

Benefits of Buy-Side Research

Benefits of Buy-Side Research

Benefits of Buy-Side Research

Informed Decision-Making

Buy-side research enables institutional investors to gain knowledge on the market, environment, and security. This assists them in making the right decisions when investing in various activities. In this way, they can find good investment prospects and develop a more accurate portfolio approach.

Risk Mitigation

It offers an exhaustive analysis of individual companies, sectors, and macroeconomic factors. Overall, through considering aspects such as balance sheets, competition and legislations, the investors can be in a position to mitigate some of the risks since they are able to avoid high risks.

Alpha Generation

A key motivation of buy-side research is generating Alpha, or returns above a particular index. Through ‘stock picking,’ which involves detailed examination of a company’s balance sheet and issuing research to locate mispriced securities, investors can achieve better returns per unit of risk.

Portfolio Diversification

It also assists investors in expanding their portfolios both across various asset types, industries, and geographical locations. This does not concentrate much in one sector and makes the overall portfolio to be very strong. In this way, financial investors can invest in a diversified portfolio by means of gaining insights from different analyses of various sources.

Competitive Advantage

It is, hence, expected that very few institutional investors use buy-side research to create a lead over their competition. It helps them identify new trends, analyze the potential of the market, and invest in opportunities others cannot see. In this manner, they will remain relevant to new trends in the market and to research findings, hence helping position them in ways they can outperform the rest.

Long-Term Perspective

The ability to take a long-term view about what is really driving investment performance empowers investors to construct resilient portfolios that help one get through short-term market ups and downs and deliver stable returns over time.

Research Process followed by Investment banks

Gathering of data

Reputable information is to be collected for financial reports, industry reports, official filing, and market data.

Financial Analysis

During this stage, the analyst considers the data gathered using various techniques or tools from financial analysis. It may be done by ratio analysis, cash flow analysis and forecast, and discounted cash flow evaluation to analyze and compare the health and performance of firms.

Qualitative Research

Other than the standard financial analyses that might be performed, qualitative techniques are utilized to understand the underlying market environment and competition landscape.

Scenario Analysis

Assessing how different scenarios might affect investment returns, in light of factors such as the state of the economy, changes in legislation and policies, and political risks. It is important to note that the use of the scenarios assists investors to evaluate the robustness of their implemented investment strategies and test for risks and opportunities.

Client Collaboration

It also means that there is constant coordination to ensure that the research solutions achieved are in tune with the client goals. Investors are asked to provide feedbacks and inputs as to how the research reports are relevant to the investment requirements, including investment strategies, risk tolerance and preferred sectors.

Customization and Presentation

The research reports can be developed specifically to meet the needs of this or that client.

Compliance and Quality Assurance

Measures are put in place for research activities to adhere to the legal requirements and other requirements of the trading standards such as conflict of interest, insider trading and Material Non-Public Information. Compliance professionals manage the research processes to ensure adherence to all applicable regulations and that the research products are honest, accurate, and impartial.

Industry Trends

Alternative Data Sources

Growing demand for non-traditional data sets, including satellite imagery and social media sentiment analysis.

ESG Integration

Stable growth in the integration of environment, social and governance into the research process related to investments.

Technological Advancements

AI, Machine Learning, and NLP Adoption for Quick Analytics, Personalization of Research, and Student Retention

Collaborative Approach

Closer collaboration between investment banks and institutional clients in jointly creating a customized research solution

Dynamic Landscape

Evolving trends highlight the need for investment banks to adapt and innovate in the buy-side research space.

Buy-Side Spending on Investment Research

Buy-Side Spending on Investment Research

Buy-side investment research spending dropped by 3.5 percent in 2023 to $13.7 billion, 19.4 percent below the peak of 2015. Financial uncertainty in markets, falling banks, high interest rates, and weak initial public offer markets, couple with changes in regulation with regard to the payment for research, are drivers. Sell-side and independent research has been in decline; large fall in fundamental equity research.

Buy-Side Research Services by Magistral Consulting

Customized solutions for Equity Research

Magistral Consulting excels in the delivery of equity research solutions customized for its clients. These include fundamental and relative analysis, performance evaluation, and projection of growth potential of single stocks. Magistral adds amazingly valuable detailed reports pointing out future earnings estimates and intrinsic value assessments that would really help an investor to make wise decisions while investing in stocks and managing a portfolio.

Comprehensive Fixed Income Analysis

Magistral Consulting offers in-depth fixed income research on credit states, yields, and interest rate changes. Its reports consist of frameworks for assessing bond issuer trends, underlying markets, credit ratings, and interest rates. It assists its clients in maintaining optimal fixed-income portfolios along with empirical management of interest risks.

In-Depth Macroeconomic Analysis

Focusing on broad economic trends—GDP growth, inflation—Magistral Consulting delivers macroeconomic analysis that pinpoints the opportunities and risks in markets. Their judgments about economic indicators, the policy of central banks, and the dynamics of global markets assist investors in the key areas of strategic asset allocation and risk management.

Industry and Thematic Research Expertise

Magistral Consulting focuses on a wide array of industry-specific research with a view to providing insights into the size of the market, its growth conditions, and changes in its regulatory shifts. Not only that, but they also undertake thematic research on such emerging trends as ESG investing and disruptive technologies, thus guiding their linking by investors into long-term investment strategies.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to prabhash.choudhary@magistralconsulting.com

Buy-side research encompasses an entire gamut of research services provided to institutional investors such as asset management firms, hedge funds, pension funds, and private equity. More definitely, it would be the research that helps clients make the right kind of investment decisions based on market or company/industry/macro trends and corporate and macroeconomic facts.

The buy-side services of an investment bank involve equity, fixed income, macroeconomic, sector/industry, and thematic research.

Buy-side research controls the risks by facilitating assessments at the corporate, sector, and macro levels for the investors. This actually enables awareness and avoidance of the high-risk potential investments since the analysis includes points on balance sheets, competition, and regulatory changes.

This would matter due to the fact that alpha generation attempts to generate return in excess of a benchmark index. Buy-side research helps the investor in identifying mispriced securities through in-depth company analysis, thereby aiding the investor to extract better returns for every unit of risk taken.

Buy-side research Institutional investors utilize it for onboarding wise decision-making, mitigating the risks involved, diversifying the portfolio, achieving a competitive edge, and attaining a long-term perspective. It helps an investor to look for investment opportunities, manage associated risks, and work on resilient port.

Introduction

In the realm of finance, equity research plays a pivotal role for investors, serving as a guiding light to aid them in making well-informed investment decisions within the intricate landscape of financial markets. As investors traverse the complexities of this financial terrain in pursuit of lucrative opportunities, understanding the essence of it becomes paramount. This guide endeavors to shed light on various facets, encompassing its significance, methodologies, and best practices.

It holds indispensable value for investors as it furnishes a sturdy groundwork for assessing the performance and future potential of publicly traded companies. Through a thorough exploration of its intricacies, investors acquire invaluable insights that bolster their confidence in navigating financial markets.

Throughout the course of this guide, readers will immerse themselves in the fundamental tenets of equity research, delving into its methodologies and strategic approaches. From scrutinizing fundamental aspects to leveraging technical tools, this guide provides an exhaustive overview of the analytical methods employed by experts to discern opportunities and mitigate risks in the dynamic realm of the stock market.

Understanding Equity Research

It embodies a systematic and meticulous approach to dissecting financial data, with a primary focus on publicly traded companies. The overarching objective is to furnish investors with insightful recommendations, guiding them in pivotal decisions regarding stock purchase, sale, or retention. This multifaceted process entails a thorough examination of diverse factors, ranging from the company’s financial performance to prevailing industry trends, competitive dynamics, and broader macroeconomic conditions.

The Importance of Equity Research

The paramount significance of equity research cannot be overstated, as it serves as a linchpin in facilitating informed investment decisions. By unraveling the intrinsic value of stocks, it empowers investors to meticulously assess the associated risks and rewards inherent in each investment opportunity. Furthermore, it assumes a pivotal role for institutional investors, fund managers, and financial analysts, offering indispensable insights that underpin strategic investment formulations and portfolio management.

Methodologies in Equity Research

Analyzing financial data and market trends to gauge the performance and future outlook of publicly traded companies is a core aspect of equity research. Analysts employ a range of methodologies to collect data, assess information, and create investment suggestions. Below, we outline the primary methodologies that are commonly used:

Methodologies in Equity Research

Methodologies in Equity Research

Fundamental Analysis

Fundamental analysis serves as the bedrock of equity research, focusing on evaluating a company’s stock’s intrinsic value by examining its financial performance and qualitative attributes. Analysts meticulously review the company’s financial statements, including income statements, balance sheets, and cash flow statements, to evaluate metrics such as revenue growth, profitability margins, earnings per share (EPS), and return on equity (ROE). Additionally, qualitative factors such as the company’s business model, management team, competitive advantages, industry dynamics, and macroeconomic trends are considered. Fundamental analysis assists investors in understanding a company’s underlying value and making well-informed decisions regarding stock transactions.

Technical Analysis

Technical analysis is a strategy that involves predicting future price movements and spotting trading prospects by reviewing past market data, particularly price and volume patterns. Analysts utilize various technical indicators, chart patterns, and statistical methods to understand market trends and investor behavior. Commonly used technical indicators include moving averages, the relative strength index (RSI), Bollinger Bands, and MACD (Moving Average Convergence Divergence). This method is widely favored by short-term traders aiming to capitalize on market inefficiencies and exploit trends in price movements.

Quantitative Analysis

Quantitative analysis examines financial data using statistical and mathematical models to find trends or correlations that can inform investment choices. This strategy uses quantitative methods to quantify risk, forecast stock prices, and optimize investment portfolios. These methods include regression analysis, time series analysis, and machine learning algorithms. To produce extra returns, or alpha, in the financial markets, quantitative analysts, or “quants,” often use quantitative models or unique trading methods.

Qualitative Research

Qualitative research focuses on understanding the qualitative aspects of a company, industry, or market that are difficult to quantify. Analysts conduct interviews with company management, industry experts, suppliers, customers, and other stakeholders to gain insights into the company’s strategy, competitive positioning, growth prospects, and potential risks. Qualitative research also involves analyzing industry reports, news articles, regulatory filings, and other non-financial sources of information to gain a holistic understanding of the investment opportunity.

Key Components of Equity Research Reports

Equity research reports are vital tools for investors, providing comprehensive insights into the performance and potential of publicly traded companies. These reports typically consist of several key components, each playing a crucial role in informing investment decisions. Below are the essential elements commonly found in its reports:

Key Components of Equity Research Reports

Key Components of Equity Research Reports

Executive Summary

Functioning as the pivotal snapshot, the executive summary serves as the distillation of the research report’s essence. It concisely delineates crucial findings, investment recommendations, and the target price, furnishing stakeholders with a swift yet comprehensive overview of the analysis.

Company Overview

This segment delves deeply into the intricacies of the company under scrutiny, presenting a panoramic exploration of its business model, products/services, market positioning, and competitive advantages.

Financial Analysis

A meticulous dissection of the company’s financial performance constitutes the cornerstone of this section. From meticulously scrutinizing revenue growth and profitability margins to delving into liquidity ratios and leverage ratios, analysts proffer an exhaustive assessment of the company’s financial robustness and operational efficacy.

Valuation Analysis

Valuation analysis assumes pivotal importance within Equity Research, endeavoring to gauge the intrinsic value of the company’s stock. By harnessing a diverse array of methodologies such as discounted cash flow (DCF), comparable company analysis (CCA), and precedent transactions analysis (PTA), analysts strive to ascertain a fair and precise valuation.

Investment Thesis

Representing the apex of exhaustive analysis and contemplation, the investment thesis articulates the rationale underpinning the investment recommendation. Irrespective of bullish or bearish sentiments, the investment thesis furnishes stakeholders with a crystalline insight into the research findings and analysis, empowering them to make judicious investment decisions.

Challenges and Limitations of Equity Research

Despite its indispensability, it is not devoid of challenges and limitations, necessitating a nuanced understanding:

Information Asymmetry

Analysts often grapple with the challenge of accessing timely and accurate information, leading to information asymmetry among market participants.

Bias and Conflicts of Interest

The specter of bias and conflicts of interest looms large in Equity Research, especially in cases where analysts are affiliated with investment banks or brokerage firms. Such affiliations may potentially compromise the objectivity and impartiality of research reports.

Market Volatility

Effectively predicting stock prices and valuations is extremely difficult due to the inherent volatility of financial markets and the unpredictability of economic situations. It demands for a versatile and adaptable strategy.

Regulatory Compliance

Compliance with an array of regulatory requirements, including Regulation AC and MiFID II, imposes additional burdens on its analysts, necessitating meticulous adherence to regulatory stipulations.

Magistral’s Equity Research Services

Magistral Consulting emerges as a reliable entity in the industry, known for its comprehensive Research services. With a firm dedication to delivering insightful and actionable research, Magistral Consulting stands out as a prominent provider of equity analysis services in the financial market.

Fundamental Analysis

Our service enhances fundamental analysis through a range of offerings including customized models tailored to investors’ needs for assessing financial statements and predicting future performance, detailed quarterly earnings reviews highlighting key financial metrics and trends, transcripts and reviews of earnings calls providing insights into management perspectives and expectations, and thematic reports focusing on specific equity sectors or industries, enabling investors to gain deeper insights into industry dynamics and make more informed investment decisions.

Quantitative Analysis

We support quantitative analysis through data processing (cleansing, mining, classification), data analysis (statistical tools, correlation, regression), and specialized commodities performance tracking, enabling investors to gain valuable insights and make informed decisions in financial markets.

Credit Analysis

We aid credit analysis through Country and Company Risk Analysis. It assesses economic and political factors in different countries and evaluates individual companies’ financial health, management quality, and industry dynamics, empowering investors to make informed credit decisions.

Content Marketing

We boost content marketing with Industry Reports, Indices Tracking, and Event/News Analysis. Its insightful reports attract audiences, data-driven analysis enhances credibility, and timely updates keep marketers informed. Overall, Magistral enables compelling content creation, driving engagement and building brand authority.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to prabhash.choudhary@magistralconsulting.com

Introduction

For institutional investors, buy-side research is essential in making investment decisions. To find appealing investment opportunities and effectively manage investment portfolios, requires doing in-depth study and research. Buy-side research is carried out by analysts who work directly for institutional investors, as opposed to sell-side research, which is carried out by analysts employed by brokerage companies and primarily serves to make recommendations to customers. Buy-Side Research and Analytics are concerned with determining the asset’s full potential. It tries to provide answers to the following important queries regarding the asset being traded. The most important component of the Buy-side research is locating the asset itself to purchase.

There are many different types of transactions in the financial sector. Every time a transaction takes place, there are two parties involved: one who sells the asset and one who purchases it. The sell-side refers to the party selling the asset, and the buy-side refers to the party purchasing the item. Private or public businesses, real estate, and other financial assets that produce returns or increase in value over time are examples of assets. The success of a transaction is significantly influenced by buy-side research.

Insights and a thorough grasp of numerous investment options, such as stocks, bonds, commodities, real estate, and alternative investments, are the main goals of buy-side research. Buy-side researchers seek to discover new trends, find cheap assets, and evaluate the risks of potential investments by undertaking in-depth analysis. The typical framework for buy-side research is an investment strategy or mandate established by the institutional investor. This strategy specifies the portfolio’s asset classes, investment goals, risk tolerance, and asset classification rules.

It is a dynamic, ongoing activity. Researchers closely monitor economic data, news items, and market moves that can affect investment decisions. To get more data and strengthen their analysis, they also actively engage in conversation with company leaders, subject matter experts, and other market participants. Institutional investors typically rely on buy-side research to assist them in managing their portfolios and selecting profitable investments. It necessitates superior analytical and research skills in addition to a profound understanding of financial markets, commercial trends, and valuation procedures.

Categories of Buy-Side Research

These divisions offer a structure for arranging and categorizing activities related to buy-side research. The distinctions between these categories can, however, be ambiguous, and there may be overlaps or hybrid approaches depending on the precise research goals and investment tactics used by various organizations.

Categories of Buy-Side Research

Categories of Buy-Side Research

The following categories can be used to categorize the research:

Equity Research

Individual stocks or equities are the focus of equity research. It includes assessing a company’s financial performance, growth potential, strategic positioning, and valuation.

Fixed Income Research

Bonds, fixed-income securities, and debt instruments are all fixed-income research subjects. It primarily focuses on yield analysis, bond valuation, credit risk assessment, and interest rate risk assessment.

Macro Research

Examines various macroeconomic elements, such as financial and geopolitical developments, interest rates, inflation, and economic indicators. Investors can explore the effects of macro factors on investment opportunities and the general state of the economy.

Sector Research

Analysis of particular sectors or industries is the main goal of sector research. It involves assessing the financial performance of enterprises within the sector, industry dynamics, market trends, competitive environments, and regulatory developments.

Quantitative Research of Buy-Side Research

To analyze financial data and produce insights, quantitative research employs mathematical and statistical models. Designing investing strategies, creating and testing quantitative models, and doing quantitative analysis of market data are all included.

Environmental, Social, and Governance (ESG) Research

ESG research aims to assess businesses and investments using environmental, social, and governance standards. This process includes analysis of elements including carbon footprint, labor practices, board makeup, diversity and inclusion, and ethical issues.

Alternative Investments Research

Research on alternative investments includes non-conventional asset classes like commodities, real estate, hedge funds, private equity, and venture capital. It entails monitoring liquidity, examining risk-return profiles, appraising investment opportunities, and comprehending the particular traits and tactics linked to alternative investments.

Benefits of Conducting Buy-Side Research

Asset management companies and institutional investors can profit greatly from research research. These advantages and benefits highlight the critical role that buy-side research plays in assisting institutional investors and asset management companies in making investment decisions, managing risks, and achieving investment goals.

Benefits of Conducting Buy-Side Research

Benefits of Conducting Buy-Side Research

The following are some major advantages and benefits of buy-side research:

Enhanced Decision-Making

The research offers insightful analysis and data that help investors make decisions. It assists investors in making knowledgeable decisions regarding assets by conducting in-depth analyses of businesses, markets, and industries.

Risk Mitigation

Research conducted by the buy side is essential for risk management. It assists investors in reducing risks and making knowledgeable risk-return trade-offs by doing thorough analysis and due diligence.

Alpha Generation

Alpha, or excess profits earned above a benchmark, is what buy-side research attempts to produce. The research can help generate alpha and outperform the market by conducting in-depth analysis and spotting inexpensive securities or investment opportunities.

Portfolio Diversification of Buy-Side Research

It enables portfolio diversification by thoroughly examining various asset classes, industries, and geographical areas. Diversification increases the possibility for superior risk-adjusted returns while lowering concentration risk.

Competitive Advantage

Investment businesses can gain a competitive edge by conducting superior buy-side research. Buy-side research can assist investors in staying ahead of the market and spotting investment opportunities before they are generally known through proprietary research methodology, distinctive insights, and differentiated viewpoints.

Long-Term Perspective

A long-term investment horizon is frequently emphasized in buy-side research, with an emphasis on sustainable growth and wealth generation. Buy-side research urges investors to have a long-term perspective and steer clear of short-term market swings by examining the fundamental variables influencing investment performance.

Magistral’s Buy-Side Research Services

Magistral Consulting has helped numerous Investment Banks, Family Offices, Hedge Funds, and Private Equity firms in outsourcing buy-side research operations. It has clients based in the United States, the United Kingdom, Europe, and Australia.

Some of the services provided by Magistral Consulting for Buy-Side research are listed below:

-Hedge Funds, Family Offices, and Fund of Funds: Stock and Equity Research, Valuation and Equity Research, and, Manager Research.

-Private Equity and Venture Capital: Private Companies Due Diligence, List Bidding, Valuation, and Financial Modeling.

-Investment Banks: Research for Private Companies, Listed Companies, Asset Managers, and Real Estate (Housing, Infrastructure, Specialty Lodging, etc.).

-Corporate Mergers & Acquisitions: Target List Building, Due Diligence, Valuation and Analytics, Post-Merger Integration Support, and, Selection of the Right partners like Brokers, Investment Bankers, etc.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research.

For setting up an appointment with a Magistral representative: visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to  prabhash.choudhary@magistralconsulting.com

Introduction

By focusing on the fundamental variables that affect a company’s current business and prospects, the Equity Research and Analysis reflects the procedures used to estimate a security’s worth. It is the practice of analyzing the markets and companies to provide expert fund managers with recommendations on which stocks to buy. Equity research and analysis is the study of a company and its environment to judge the following:

– Whether to buy or sell its stock

– To calculate the price where one can bid for a target company

– To provide extensive financial insights and recommendations to investors on whether to purchase, hold, or exit a particular investment

Types of Equity Research and Analysis

There are three significant kinds of equity research and analysis explained below:

Economic Analysis

It entails evaluating or investigating subjects or concerns from an economist’s standpoint. This enables investors to examine the market from a broad perspective down to the individual stocks. Analyzing economic data may identify present market stability and understand the future.

Fundamental Analysis

Fundamental analysis is a method for finding a stock’s actual value. A stock’s current price may not accurately reflect its actual value. In the market, the stock might well be overvalued or undervalued. The fundamental analysis aids investors in determining the health of a company, resulting in the stock’s current value. This is accomplished by applying a variety of qualitative and quantitative parameters. The primary goal of this strategy is to find fundamentally sound organizations to make long-term investments in them.

Fundamental analysis examines connected economic and financial elements to determine a security’s intrinsic value. Fundamental analysts look at everything that can impact the value of a security, from macroeconomic issues like the condition of the market and industry circumstances to microeconomic elements like the company’s management effectiveness. The goal is to calculate a value that investors can compare with the current security price to determine if the stock is undervalued or overvalued. This approach contrasts with technical analysis, which predicts price direction by analyzing past market data such as volume and price.

Discounted Cash Flow Analysis is a proven technique for fundamental analysis

Quantitative Analysis

It has to do with the information found in a company’s financial statements. It entails everything from collecting simple statistical information to doing complicated calculations. This study aids in determining investment possibilities, including when to purchase stocks.

Qualitative Analysis

It considers data that cannot be stated numerically. The factors usually included in the qualitative analysis are Management experience and performance, Industry and competition, and corporate governance.

Technical Analysis

Technical analysis is a study of patterns and statistical data to determine market trends and stock selection. It is a type of investment analysis that employs price and volume data, usually represented visually in charts. The charts are evaluated using several indicators to produce investing recommendations.

Importance of Equity Research and Analysis

The direct relationship between many local and global forces involved makes equity markets volatile. As a result, a better grasp of the equity market through equity research can help us better understand market changes and aid in the process of reaching our financial goals. As a result, equity research is fundamental, and the findings of equity research experts, from giant corporations to individuals who invest a portion of their assets in the stock market.

Equity research entails performing a comprehensive examination to determine the market value of a company’s stocks. Furthermore, it is used to indicate the probability of a rise or fall in its share price in a broader sense. It is common knowledge that the company’s expected financial results influence share price growth or fall over the next few years, and this serves as the analytical foundation upon which research analysts base their recommendations.

Importance of Equity Research

Importance of Equity Research

Because equity analysts interact with corporate management, they have a clear image of the firm’s current situation, and they have regular informal meetings with other research analysts, which allows them to propose a company’s position prudently.

These results help analysts spot patterns in a company’s growth and decline, and investors generally seek their advice to ensure they achieve their investment goals.

With the rise in volatility in the equity markets, decision-makers rely on equity research analysts who succeed at formulating premium equity research reports to measure the value of a company’s equity shares and try to decipher the likely future course of its fair price based on edging equity research report patterns. Along with the market for high equities research reports, there has been an increase in the demand for equity analysts to assess company fundamentals and advise investors on how to position themselves in its stock.

Enabling Smarter Equity Investment Decisions

By leveraging top equity research reports or the expertise of a skilled research analyst, investors equip themselves to make more cautious and informed decisions in the equity markets. When they invest methodically and follow research-backed recommendations, equity investing becomes a well-calculated risk that has delivered significant returns for many.

Challenges in Equity Research and Analysis

– Obtaining data is the most challenging aspect of equity analysis. A large volume of data must be crunched in making informed market decisions, and the data quality supplied is crucial. The purpose of equity analysis should be to provide market information. Inefficiencies arise from a lack of information, resulting in stock misrepresentation.

– Technology is another crucial area as it is critical to have updated technology to analyze the financial data procured for equity analysis.

– Lack of capital is another factor that hinders equity analysis as it is equally important to have proper economic credentials to utilize the quality data and expert talent to analyze them.

Magistral’s Service Offerings in Equity Research and Analysis

Here is how Magistral helps its clients like Hedge Funds, Family Offices, Equity Advisors, and Other Investors in Equity Research

Magistral's Equity Research and Analysis Services

Here is how Magistral helps its clients like Hedge Funds, Family Offices, Equity Advisors and Other Investors in Equity Research

Fundamental Equity Research and Analysis

The stock’s intrinsic value is measured by fundamental analysis. This analysis comprises customized models, quarterly earning reviews, earning call reviews, and equity and Industry themed reports which are as follows:

Customized Financial Models

Financial customized models are numerical representations of a company’s business throughout the past, present, and the predicted future. These models are designed to aid in decision-making. Company leaders could use them to estimate the expenses and profitability of a new project.

Discounted Cashflow (DCF) Modelling

This valuation method determines the present value of an investment based on its future cash flows. It helps investors calculate how much an investment is worth today by projecting future returns. Company owners can apply this method to any investment or stock purchase, including privately held companies. DCF uses a discount rate to determine whether the future cash flows of investment are worth investing in. The discount rate is a risk-free rate of return.

Quarterly Earnings Review

Companies use quarterly earnings reports to disclose their financial performance every quarter. These reports include key metrics such as net income, earnings per share (EPS), earnings from continuing operations, and net sales. One can assess a company’s financial health and determine whether it is worth its investment by examining quarterly earnings reports.

Earnings Call Review

Analysts use the information gleaned from earnings calls to conduct a fundamental study of the company. The company’s financial accounts are the starting point for fundamental research. Analysts will scrutinize these documents and listen to verbal indications from corporate management all through the earnings call. During an earnings call, analysts may inquire about main concepts or specific details in the footnotes, such as inventory and “less accumulated depreciation” sections.

Equity and Industry Themed Reports

It is in-depth research of a specific theme. Generally, themes are weighted differently for each sector. It identifies winners and losers in a single theme based on technology leadership, the position in the market, and other factors. It also improves the decision-making by a clear picture of fitting all stocks in a theme together.

Quantitative Equity Research and Analysis

It is the technique of using mathematical and statistical modeling, measurement, and research to understand the behavior of a particular stock. Analysts represent given reality in numbers. In data processing, cleaning and mining of data are done, and further, it is analyzed by correlation, regression, and various other tools, which are discussed below:

Data Processing and Analysis

Analysts now routinely use quantitative tools to extract enormous amounts of data from various financial sources. To evaluate financial instruments, investment banks create equilibrium models; mutual funds use time series to identify risks in their portfolios, and hedge funds attempt to glean cues and statistical arbitrage through noisy market data. Over the last decade, quantitative finance has focused on creating computer systems that process enormous datasets. More quantitative finance research has shifted towards the microstructures of capital markets as even more data exists at a higher frequency. Experts painstakingly construct data processing methods and quantitative frameworks to efficiently extract information from financial data.

Commodities Performance Tracking and Analysis

Commodities go through cycles. When the supply of a specific commodity is scarce, prices will rise. Prices fall when there is an excessive amount of commodity in the market. Ideally, commodities that are performing at multi-year peaks or lows are viewed. The scenario tends to vary over time, resulting in a good trading opportunity.

Credit Equity Research and Analysis

Credit analysis is a type of financial research that evaluates whether a company can meet its debt obligations. It assesses the appropriate level of default risk when investing in a company’s debt instruments. Analysts conduct a credit study to determine the company’s ability to repay its debts. Analysts then perform further analysis to uncover deeper insights, as outlined below:

Country Risk Analysis

Analysts refer to the process of evaluating a country’s ability to transmit payments as country risk analysis. It considers political, economic, and social variables to assist businesses in making strategic decisions when doing business in a country. Every company transaction has some level of risk. Country risks arise when a country’s economic structures, policies, socio-political institutions, geography, or currencies undergo changes.

Company Risk Analysis

A company risk analysis assesses the likelihood of an unanticipated adverse event affecting critical company activities and projects. Organizations conduct risk analyses to identify when a negative consequence is likely to occur, assess the risk’s impact on a specific business sector, and determine where they can minimize the risk. In the worst-case situation, where an unexpected negative impact happens, a business analysis creates a control plan to return corporate operations to normalcy.

Reports and Newsletters

It is a strategic approach to creating and distributing valuable industry reports, indices tracking analysis, and event and news analysis. These are as follows:

Industry Reports and Indices Tracking

Analysts use various tools to prepare industry reports, while index trackers replicate the performance of specific stock indices. These trackers closely follow the index’s fluctuations, helping investors select equities that align with the index’s movements.

Event and News Analysis

An event study is a statistical method of evaluating the impact of a specific event or a piece of news on a company and its stock. A piece of bad news or event can bring the value of a stock down, whereas a piece of good news can bring the value of a stock upwards.

About Magistral consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to prabhash.choudhary@magistralconsulting.com

 

 

 

.Introduction

Equity Research of listed stocks forms a major part of operations in Hedge Funds, Investment Banks, and many Asset Management firms.

Analysts use different methods to conduct equity research, but they primarily aim to determine a stock’s intrinsic value and assess whether it is overvalued or undervalued. Based on this analysis, they issue buy, sell, or hold recommendations to asset managers or their clients.

What makes an equity research exercise comprehensive?

Though equity research exercise could potentially be a theoretical exercise where an Equity Research analyst puts in a few hours’ of efforts, crunch numbers, and comes up with a recommendation.  Analysts almost always prepare these models and simply feed in the P&L, Balance Sheet, and Cash Flow numbers—readily available in the public domain for listed stocks—to determine the valuation and recommendation for the stock.

It is however the further details that determine the quality of the research. These are a variety of sources, qualitative inputs and their quantification, Evaluation of the ongoing news and buzz related to the stock, social media activity, rumors, and the subjective calls of analyst that makes the difference. It’s amazing that some analysts even track the brand of the watch that the CEO wears to the analyst conferences. They make subjective calls on the stock on an information point as minute as that or say body language of the management in a conference call.

If a stock is to watched as closely as needed to take calls worth millions, it’s not possible for an equity research analyst to proceed in a templated way for all the stocks she needs to track. It needs to go much beyond that.

Equity Research Inputs

Parts of a comprehensive Equity Research exercise

Here is what differentiates a comprehensive analysis from a basic one

Sources of Information: Sources of information if more the merrier. Sources of information if diverse allows us to analyze the stock closely. For example, a database that carries information about all the legal cases pending against a company would add color to the analysis that will have a material impact on the overall recommendation for the stock. Usual sources of information are P&L, Balance sheet, and cash flow statements, all of which are publicly available for a listed stock apart from news about the stock, regulatory filings, 10Ks, conference calls, and ESG related compliance documents.

Forecast and Assumptions: A financial forecast is often oversimplified by merely projecting past growth into the future, but that approach is rarely accurate. The core of any robust forecast lies in its assumptions, which must be reasonable and ideally validated by industry experts. Companies may be optimistic about new strategies, but such expectations should be evaluated against industry benchmarks. If a company’s forecast outpaces industry projections, one must examine whether it has outperformed the industry before. For example, if a healthcare firm claims it will lead the market in five years, has it achieved similar milestones in the past? The strength of any financial model depends on the depth and validity of its assumptions—verified by data and historical performance.

Company Valuation Analysis

Equity Quantitative Research focuses on valuing a company using multiple methods to ensure consistency across different approaches. When there’s a significant difference in valuations, the analyst must determine the most suitable value with strong justification. Analysts commonly apply valuation models such as Discounted Cash Flow (DCF) to project future cash flows and discount them to present value. They use Relative Valuation to benchmark the company against its peers and determine whether it’s undervalued or overvalued. They also employ the Sum of the Parts method to break down a diversified business into individual components and evaluate each separately. Risk Assessment is also critical—it identifies potential risks and quantifies their impact on the company’s valuation. Together, these methods help analysts build a more balanced and defensible view of a company’s worth.

Qualitative Assessment

Numbers do tell the story but miss while indicating the future, which is unknown. That is where the qualitative inputs come into play. An experienced analyst can convert these qualitative inputs into quantitative ones that impact the valuation. Some of these qualitative inputs are quality of management, Competitive intensity in the industry, ESG initiatives and risks, and analyzing Porter’s 5 forces. It’s to be noted that Porter’s 5 forces is a highly qualitative model and needs to be put on a quantification scale.

Different institutions approach equity research differently depending on their business and operational needs. Here is how Equity Research differs across institutions

Equity Research for Investment Banks

Equity Research at Investment Banks is as much as a Marketing exercise as it is operational. Usually, an Investment Bank would send stock recommendations to all its current and potential clients. Analysts sometimes avoid detailing these recommendations, as they reserve in-depth research for high-paying clients. They prepare an equity research report for every stock, using a template with similar content across all stocks the bank tracks. It also suggests the buy, sell, or hold recommendations along with the price range to expect for each stock. Detailed equity research is also done for the buy-side. There are multiple research report templates that are available with an Investment Bank.

Earlier the research cost was added to the brokerage cost for an investment bank. Now a regulatory notification in Europe bars Investment Banks from clubbing brokerage and research costs together. This means now research needs to be high quality and needs to be provided only when the client demands. It’s just a matter of time that these regulations catch hold in the United States and other financial markets across the world.

Equity Research for Hedge Funds

Equity Research for hedge funds is done towards the aim of portfolio management and taking long and short positions regarding listed stocks

Hedge Funds are quite secretive about the methodology they follow while picking up stocks. Sometimes firms justify secrecy. As they truly have something unique, but most of the time they use it as a marketing gimmick to avoid further questions about their methodology. Many claim to use Machine Learning and Artificial Intelligence to pick up the stocks. Equity Research in Hedge Fund parlance is the most critical part of Operations. There is also a huge reliance on Technology with trades mostly intraday and sometimes in milliseconds!! But there is nothing that has replaced the good old fundamental analysis.

Hedge Funds also specialize in technical analysis apart from fundamental analysis. Technical analysis uses mathematical formulas to project trends and thus the future stock price for short term trades.

Equity Research for Private Equity

Private Equity usually deals in Private stocks but sometimes they do pick up stake in listed companies as well. Private Equity firms conduct equity research differently from Hedge Funds and Investment Banks. They usually aim to buy a significant stake and therefore access much more information and management bandwidth. It uses that leverage to get and analyze information that is usually not available in the public domain.

Equity Research for Asset Managers

All other forms of Equity Research vary in complexity and methodology. But mostly sticking to finding the intrinsic value of the stock with the aim of finding undervalued stocks for investments. Some Asset Managers specifically perform equity research for retail investors.

Magistral’s Approach for Equity Research

Magistral is an equity research firm that focuses on Fundamental Research to find out the intrinsic value of a stock using multiple sources. We start with multiple sources in our methodology and continually refresh those sources to update the model with the latest intelligence. We also prepare customized Equity Research report. Here is how our Equity Research Process looks like

Magistral' Equity Research Approach

Magistral’s Equity Research Methodology

Our equity research services are customizable and scalable as per clients’ requirements. Magistral has delivered multiple Equity Research projects in the past

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.