Indian Securities Market and the Research Analyst's Mandate
What the domain covers
The exam tests whether you can describe how Indian securities markets are structured and where research fits, using SEBI's terminology rather than loose market jargon.
Market structure
- Primary market: new issuance - IPO, FPO, rights issue, preferential allotment, QIP. Money goes to the issuer.
- Secondary market: trading between investors on exchanges (NSE, BSE); no new capital reaches the issuer.
- Supporting infrastructure: SEBI (regulator), clearing corporations (NSCCL, ICCL), depositories (NSDL, CDSL) holding securities in dematerialised form, DPs, merchant bankers, registrars.
- Instrument groups: equity, debt, derivatives (futures and options), mutual funds, currency and commodity segments.
Who is a research analyst
Under the SEBI (Research Analysts) Regulations, 2014, a research analyst is a person who prepares, or is primarily responsible for the substance of, a research report, or who makes a buy/sell/hold recommendation. The report must contain analysis of a security or issuer and a recommendation; marketing material and general market commentary are not research. The role exists to reduce information asymmetry, so independence and disclosure sit at its centre.
Research approaches
- Top-down: economy → industry → company.
- Bottom-up: company first, then industry and macro checks.
- Fundamental vs technical vs quantitative: earnings and valuation driven, price and volume driven, model driven.
Worked example
The RBI cuts the repo rate by 50 bps. A top-down analyst expects rate-sensitive sectors to re-rate and screens autos. For a two-wheeler maker with 0.8x debt/equity, 65% variable-rate borrowings and 40% of sales financed by loans, the analyst reasons: interest cost falls and the EMI burden falls, so volumes may rise. But steel costs are up 12%, and the firm has 30% spare capacity it must fill before margins improve. Conclusion: an earnings upgrade is plausible but not automatic, so the call is 'accumulate', not 'buy', pending the next quarterly volume print.
Traps
Confusing primary and secondary flows; treating every broker note as regulated research; assuming index weighting is price-weighted, when Sensex and Nifty are free-float market-cap weighted.