NISM Series XV cheat sheet

SEBI (Research Analysts) Regulations, 2014 govern registration, conduct, and record-keeping for research analysts; registration with SEBI is mandatory before issuing research reports for consideration.

Registration categories: an individual research analyst, a partnership firm, a body corporate, or an LLP; a research analyst cannot be engaged in any other business that creates a conflict of interest unless disclosed and segregated.

Minimum qualification: a postgraduate degree in finance, economics, or a related field, or a graduate degree plus relevant experience; passing NISM Series XV is a certification requirement for the individual.

Net worth requirement: individual research analysts and partnership firms must maintain net worth of at least INR 1 lakh; bodies corporate and LLPs must maintain at least INR 25 lakh.

Research analysts must disclose holdings, financial interests, and material conflicts in each report; they must not trade in securities they recommend for a defined period around publication.

Records of research reports, recommendations, and the basis for those recommendations must be maintained for at least five years.

Recommendations must be based on research and must distinguish clearly between facts and opinions; price targets must state the time horizon and methodology.

Research reports must carry the analyst's name, registration number, and a disclaimer; reports must not use misleading or exaggerated language.

Revenue recognition under Ind AS 115 uses a five-step model: identify the contract, identify performance obligations, determine transaction price, allocate the price, and recognise revenue when obligations are satisfied.

Key ratios: current ratio = current assets / current liabilities; quick ratio excludes inventory; debt-to-equity = total debt / shareholders' equity; interest coverage = EBIT / interest expense.

Return measures: ROE = net income / average shareholders' equity; ROA = net income / average total assets; ROCE = EBIT / capital employed.

Free cash flow to firm = EBIT × (1 − tax rate) + depreciation − capital expenditure − increase in working capital.

DCF valuation discounts free cash flows at the weighted average cost of capital (WACC); terminal value is often estimated using the Gordon growth model: TV = FCF × (1 + g) / (WACC − g).

Relative valuation uses multiples such as P/E, EV/EBITDA, P/B, and dividend yield; the analyst must ensure comparability of accounting policies and growth assumptions.

Quality of earnings checks: operating cash flow versus net income, receivables growth versus revenue growth, inventory turnover trends, and related-party transactions.

Dividend discount models value equity as the present value of expected future dividends; the Gordon growth model requires the growth rate to be below the discount rate.

GDP is measured by the expenditure approach (C + I + G + net exports), the income approach, and the value-added approach; nominal GDP uses current prices, real GDP uses constant prices.

Inflation measures: CPI tracks a basket of consumer goods; WPI tracks wholesale prices; core inflation excludes food and energy.

Monetary policy tools of the RBI include the repo rate, reverse repo rate, cash reserve ratio, statutory liquidity ratio, and open market operations.

Fiscal policy indicators: fiscal deficit = total expenditure − total receipts excluding borrowings; revenue deficit = revenue expenditure − revenue receipts; primary deficit = fiscal deficit − interest payments.

Business cycle phases: expansion, peak, contraction, trough; leading indicators precede the cycle, coincident indicators move with it, and lagging indicators follow it.

Industry analysis frameworks: Porter's five forces (rivalry, new entrants, substitutes, buyer power, supplier power) and the industry life cycle (introduction, growth, maturity, decline).

Market indicators: market capitalisation = share price × number of shares outstanding; the P/E ratio = market price per share / earnings per share; the dividend yield = dividend per share / market price.

Return measures: holding period return = (ending value − beginning value + income) / beginning value; arithmetic mean return versus geometric mean return; the geometric mean reflects compound growth.

Risk measures: variance and standard deviation of returns; beta measures sensitivity of a security's returns to market returns: beta = covariance(security, market) / variance(market).

CAPM: expected return = risk-free rate + beta × (market return − risk-free rate); the security market line plots expected return against beta.

Sharpe ratio = (portfolio return − risk-free rate) / standard deviation of returns; Treynor ratio = (portfolio return − risk-free rate) / beta.

Diversification reduces unsystematic risk; systematic risk (market risk) cannot be eliminated through diversification.

Correlation coefficient ranges from −1 to +1; a correlation of −1 between two assets allows construction of a zero-variance portfolio.

Time value of money: present value = future value / (1 + r)^n; future value = present value × (1 + r)^n; NPV = present value of cash inflows − initial investment.

Research analysts must not front-run client trades; they must not trade in securities they cover for a defined period before and after publication of a report.

Insider trading is prohibited under SEBI (Prohibition of Insider Trading) Regulations, 2015; research analysts must not communicate unpublished price-sensitive information.

Independence: a research analyst must not accept compensation from an issuer that could compromise the objectivity of a recommendation; any such arrangement must be disclosed.

Recommendations must be clearly distinguished from personal views; reports must disclose whether the analyst or the firm holds a position in the recommended security.

Research reports must not contain false or misleading statements and must not omit material facts that would make a statement misleading.

Conflict of interest management: Chinese walls, restricted lists, and separate reporting lines between research and investment banking functions.

Grievance redressal: research analysts must maintain a complaint register and disclose the details of the compliance officer for investor complaints.

A research report should include: the recommendation, the target price and time horizon, the rationale, key risks, financial forecasts, valuation methodology, and disclosures.

Recommendations are typically buy, hold, and sell; the analyst must define the criteria for each rating and apply them consistently.

Forecasting should be based on verifiable data; assumptions must be stated explicitly and should be distinguishable from facts.

The report must be dated and must state the date of the underlying data; stale data must not be presented as current.

Communication of recommendations must be simultaneous to all clients; selective disclosure to preferred clients is prohibited.

The analyst must maintain records of the sources of information used and the analysis performed to support the recommendation.

Advertising and marketing materials must not contain exaggerated claims and must be consistent with the research report content.

Primary market: an initial public offering raises capital through a prospectus; the secondary market trades existing securities on exchanges.

Order types: market order executes at the best available price; limit order executes only at a specified price or better; stop-loss order triggers a market order when a price is reached.

Settlement in Indian equities follows the T+1 cycle for most trades; the exchange clearing corporation guarantees settlement.

Derivatives: a futures contract obligates the parties to trade at a future date; an option gives the buyer a right but not an obligation.

Mutual fund NAV = (total assets − total liabilities) / number of units outstanding; open-ended funds trade at NAV, closed-ended funds trade at market price.

Corporate actions: bonus issue increases the number of shares without changing market capitalisation; a stock split reduces the face value; a rights issue offers existing shareholders the right to buy new shares.

Bond pricing: price = present value of coupon payments plus present value of face value; yield to maturity is the discount rate that equates price to cash flows.

SEBI is the statutory regulator of the Indian securities market under the SEBI Act, 1992; it regulates intermediaries, issues, and market conduct.

Intermediaries regulated by SEBI include stock brokers, merchant bankers, underwriters, depository participants, and research analysts.

The Securities Contracts (Regulation) Act, 1956 governs trading in securities; the Companies Act, 2013 governs corporate disclosures and share issuance.

Investor protection measures: the Investor Education and Protection Fund, the SEBI complaints redressal system, and the mediation and arbitration mechanism.

Research analysts must comply with the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.

Know Your Client (KYC) norms require verification of identity and address before opening a trading or demat account.

Anti-money laundering obligations require reporting of suspicious transactions and maintenance of records for the prescribed period.

Common-size analysis expresses each line item as a percentage of a base item (revenue for the income statement, total assets for the balance sheet).

Trend analysis compares financial statement items across periods to identify growth patterns and structural changes.

DuPont analysis: ROE = net profit margin × asset turnover × equity multiplier.

Forecasting revenue: top-down approach starts with the market size and market share; bottom-up approach starts with the company's capacity and pricing.

Sensitivity analysis tests how the valuation changes when key assumptions (growth rate, discount rate) are varied.

Scenario analysis presents valuation under base, optimistic, and pessimistic cases, with clearly stated assumptions for each.

Report writing standards: clear structure, concise language, explicit assumptions, and a summary of key risks and catalysts.

Efficient market hypothesis forms: weak form (prices reflect past prices), semi-strong form (prices reflect all public information), strong form (prices reflect all information including private).

Behavioural biases: overconfidence, anchoring, herding, loss aversion, and confirmation bias can distort analyst forecasts and investor decisions.

Anomalies such as the momentum effect and the value effect challenge the strong form of market efficiency.

Analysts must guard against confirmation bias by seeking disconfirming evidence and documenting contrary views.

Market sentiment indicators include the put-call ratio, volatility indices, and fund flow data.

Technical analysis uses price and volume patterns; fundamental analysis uses financial and economic data; both must be clearly labelled in research reports.