Role of Equity Research and Reporting in Financial Markets

Getting to know Capital Markets

Capital markets allow buyers and sellers to engage in trade of financial securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and institutions.

The capital market consists of primary markets and secondary markets. Primary markets deal with trade of new issues of stocks and other securities, whereas the secondary market deals with the exchange of existing or previously-issued securities. Another important division in the capital market is made on the basis of the nature of security traded, i.e. stock market and bond market.

The equity capital market (ECM) is broader than just the stock market because it covers a wider range of financial instruments and activities. These include the marketing and distribution and allocation of issues, initial public offerings (IPOs), private placements, derivatives trading, and book building. The main participants in the ECM are investment banks, broker-dealers, retail investors, venture capitalists, private equity firms, and angel investors.

What is Capital Market Research?

It primarily means analyzing the company’s financials, performing ratio analysis, financial modeling, and exploring scenarios with the objective of making a buy/sell stock investment recommendation. Equity Research analysts discuss their research and analysis in their equity research reports. Once equity research analysts have prepared the financial modeling and found the fair valuation of the company, they need to communicate this to their clients through Research Reports. It is intended to help an investor make a decision about the allocation of resources. This research report is very professional in nature and is prepared with a lot of caution.

Financial modeling is the process of estimating the financial performance of a project or business by taking into account all relevant factors, growth and risk assumptions, and interpreting their impact. It enables the user to acquire a concise knowledge of all the variables involved in financial forecasting.

Before investing in the stock market, capital market research needs to be undertaken. Research involves finding the companies and stock prices that would best suit the financial situation of the investor. The company profile and the size of the company are important parameters of stock market investment research.

Role of Equity Research in capital markets

Companies constantly produce large amounts of information regarding their financial status, their success in business markets and their current investments. Much of this information is required for legal purposes, but it also provides necessary data for the stock market. Most investors do not have the time or resources to follow this massive amount of company information. Equity research analysts work to compile this data, along with relevant market information, to provide investors with useful recommendations.

Capital market research is an essential activity for companies because it enables them to provide products and services that are useful for the targeted consumers. This approach enhances the profit making possibilities of companies, and should be done as early as possible.

The companies can earn more dividends and at the same time minimize risks as a result of research on capital markets. One big advantage of capital market research is establishment of proper communication between the companies and the customers. The customer reactions to various services provided by the companies can be measured as a result of capital market research.

The companies can thus do away with wrong policies and look to take the right steps. The companies can also locate the right opportunities through market research. The companies can also analyze whether they are making progress in the right direction. If the company undertakes capital market research before launching a new product or service then it stands a better chance of getting a good return. Risk minimization is another reason for undertaking capital market research.

Through this research, the exact needs of the market and the general public can be gauged and the products and services can be made very demand oriented.

Since data research and reporting is a valuable part when dealing in private and capital markets, we will be exploring these topics further in our upcoming blog articles.