hello everyone hi welcome to the channel of Wallstreetmojo friends we are going
to discuss a tutorial on equity research vs vs a credit research analysis
so let's get into the nitty-gritty of the same and understand what is good for
you and what is not so if you are really keen of making your career as a
financial analyst then the two areas stand out within finance equity research
and credit research both see broadly speaking equity research deals with
stocks and stock market let me get to you through the excel if you see equity
research I will just right over here equity research credit research so
equity research basically deals with broadly speaking with stocks and stocks
market stock and stock markets while credit research looks at the more of bond
market ok in in this in-depth tutorial will compare and contrast the key
differences that is between the two career choices a career equity research and
credit research now the first difference that we are going to analyze is the
conceptual difference see at the very inception we would like start with
helping you to understand the conceptual difference between the two if we see
what equity research what do you understand by equity research what is
the concept of equity research let's just get some info about the same
sea to start with the equity research it is about finding the valuation of a
company and mind you that the riches listed company on the stock exchange
second once you have decided on the company you look at its economical you
know aspects and stability and growth which can be GDP its rate of growth its
composition and the size of the market or the industry once the economics is
understood you get into the financial statement balance sheet and from its
historical performance now if you do the comparison of the past performance with
the current performance which is known as the financial statement analysis that
is FSA based on the management result on the historical performance in industrial
performance you use the equity calculation using the financial modeling
the fair price of the company has been calculated and the equity research
researchers play important role in filling in the
information gap between the buyer in the seller the main job of an equity
research is to spend a lot of time and energy on most important thing
researching about the stocks summarizing the equity research we can say that it
researches the stock or the share price of the register company now let's take
credit research see however credit research is more about bonds and
interest rates it is much more technical and complex you can say this is
technical and complex and in comparison equity research credit researches
categorized under the fixed income category which is known as FI fixed
income first credit research is based on 5 fundamentals okay the starting with
the rivalry with the industry you can also call it as a competition so the
first one is competition there's basically you know between the companies
of the industry the second is the fundamental which is the bargaining
power of the customer and then comes the this was the second one the competition
was the first second was the fundamental the third was the bargaining power of
the customers then the bargaining power of the supplier and then we have the
final threat of the substitute of the products finally we have the threat of
the new product launches or the new entries second the analysis of the
issuer is the next job okay that is your analysis portion of the insurance the
next some of the credit researcher when you study about the issuers credit
analysis you include the study of the issuers finances treatment here the
financial flexibility in this scenario and liquidity is extremely important
because the bonds and debentures are said to be the most liquid products of
the investors the key factors of the study and analysis include rating of the
company the net debt of the company the earning of the company before taxes in
depreciation and the amortizing for amortization for the last 12 months okay
so or one of the year you can also call it as a EBITDA or you can call it as a
EBITDA interest which is known as interest earning before interest tax depreciation
amortization coverage and the net debt only EBITDA of funds from the operations
upon the net debt see the debt upon capital and finally finally the
5 year credit default swaps or CDS so however the credit the consideration for
the differ within the industry see after
considering the basic fundamental fundamentals I'm doing the ratios
analysis it is very important to do their security analysis so the next
consideration that is is analyzing the views of these specific issues for
example like bonds or loans examining the capital structures and the process
of the capital structure is important for it well it will help you understand
the position of the company in the resolution stage then to the shock stage
and finally to the recovery stage so in the current market the level of the
bank debts have increased in comparison to the unsecured debt therefore during the
time of the deep recession the credit analysts expect lesser recovery okay
lesser recovery rate and in the downturn okay in that case and hence you need to
understand the problem arising in the bond documentation finally the reason
behind any credit research is to add the value in various ways of different
sectors and different security section in order to avoid black holes and
defaults and high value generation see the researchers use the traffic light
system in order to recommend investing in the bonds documentation for example
you know green light I'll just write below this like green light is given to
the issue whose operations are considered to be at lead to be leased at
risk for the investors whereas yellow light over there is given to the issue
of whose bonds are comparatively a little more risky than the green issuers
whereas the red light as the name and the color itself suggests red light issuer
is the most risky issuer in the market for the investing for
investing interest so to summarised the credit research we can say that its
analysis revolves around the documentation of the bonds of the issuer
now what are the prerequisites in the career that is required so I'm writing
the career portion over here see if we can give you idea about what you require
to become in one of the professionals in this area as an equity research to start
with the educational qualification is important to become an equity researcher
researcher you first need to have your bachelor's that is the most important
thing post at any degree would be really helpful
like MBA or CFA would really add a qualification is an added
qualification you require a very strong analytical skills understanding the
relevant valuation techniques and DCF modeling financial modeling report
writing so all those will play a very major role in this particular scenario
like mathematics and accounting techniques so you need to be very good
with verbal as well as the return skills because you will need to write very
various reports and fluency in communication will really be helpful you
need to be very good with your MS Office that is my like Microsoft Excel
PowerPoint word everything and handling with Bloomberg will be really plus in
this case some basic criteria are good time management skills clearly priority
of understanding along with being able to handle multiple projects at the same
time let's see in case of the credit research candidates interested in the
profile should have a certain set of the interest also educational background so
we have listed line of some of the precursors required in a candidate for
caption profile so it can be degrees like such a CA that is Chartered
Accountant the cost accountant can also be like ICWA
then you have CMA that is the cost of an management accountant MBA can really be
helpful and other postgraduate degree in the field of the finance is an added
benefit to this course you should be interested in the performing credit
research appraisal along with the practice in the best practice of the
course interest in generating better trade ideas would be really great plus
you can say and you must be interested in building and maintaining various
credit risk model that would really be helpful one of your most important role
will be analyzing and studying the debt and loan portfolio performance of the
issuer so you need to streamline the quantitative research for the rate of
interest or the ROI so and you will have to enhance the basel based rating system
that would be only be internal of course if you are a credit analyst you will
have to have recommendation relating to you can say to lending and investments
related finally you will have to design credit strategies design the current
strategies and credit portfolio let's see the fourth difference that is the
employment outlook employment outlook let us understand the
employment outlook if you see for equities research
as a market has been growing so half the scope of the employment hence the market
in general is expecting a huge growth in demand of equity research so this is
because to mitigate the risk the use of the quantitative models of strategies is
becoming very important mostly the compare companies have been focusing on
the you can say candidate of data or qualitative data as a financial
information has become important to solve problems some of the biggest
employers in this are JP Morgan Morgan Stanley Credit Suisse
you have Morgan Stanley Credit Suisse then you have HSBC Barclays and so on
and so forth in case of credit research the requirement for the position of the
credit analyst has been very less and has been decreasing since 2004 in fact the
dip has been more than almost close enough to 6% globally with an average
dip of 1.1 percent annually okay so however with the improving market the
demand for the caption profile is expected to increase so the market is
expecting about more than 21,000 openings for the designation of credit
analysis which means that new positions for the job run of credit research will
increase by around 4.4% annually by the year or for 2018 so companies
hiring credit Research are like deutsche bank Barclays Barclays do higher
standard chartered HDBC you have city so this are some of the companies
that they hire now let's see the salary prospect which every candidate is
interested in let's give you an idea as to what should you expect out of the
career you choose if you go for Equity Research and equity research you can
earn as a junior analyst in the start of your career you will start not less than
around $45,000 to $50,000 annually as your base salary compensation and
allowance changes with the company's associate as in you know if you're if
you are basically an associate then in that scenario you as you grow in your
experience in your wages increases with your experience you may draw anywhere
close between 65,000 to 90,000 dollars annually along with about 50 to 100%
as a part of bonus as a senior analyst your salary you can
say you know annual package may increase up to 1 lakh 25000 to
2 lakh 50000 dollars including a bonus anywhere close to 2
to 5 times but the basics that salary their fees if you compare the same for
credit research then that is with the core with this course and an only
bachelor's degree you can start your career with a handsome package average
package of around 67000 dollars annually so let's see some of
the career pros and cons in both the cases let's see the pros of Equity
Research see the starting package and the future package seems to be very good
that is the remm remuneration is really good and healthy various career options
are open for equity researcher for for he can either work as an employer or as
a professional and he he has in it out of the idea of the market basically the
cons over here in this particular case is that you know he spends his life all
time and energy in basically stock research okay and his job includes a lot
of responsibilities as a little calculation mismatch can cost the
companies and his investors a lot resulting his in his career loss if you
see increase of the credit research the pros are at the great job growth over
here and you can say the opportunities are expected in coming 5 to 6 years
down the line great salary package to start with and also very big companies
to hire so you can see there M is really good different job opportunities to
choose from along the options of the industries if you see on the side of the
cons it might be very hectic job a profile you know and spending more than
around our 40 hours a week at a work again a very risky job over here or a
job with a high responsibility for calculation needs to be very accurate
okay the next that we are going to see the life balance over here if you if you
see the life balance in this case equity research job are really very hectic
it starts with around 7:00 a.m. and that is before the market starts 9:00 and
starting with the morning meeting right up to the following the market from
clients requires discussion to closure of the market and even after the market
closes working on the research pieces for the publication so
as an equity researcher finishes job around 7:30 to 8:00 in the evening close
enough to 8:00 in the evening which is spending more than around 12 hours a day
the job is quite tough and demanding in creditor in case of credit research however
you know if you see if creditors researchers job does not work in
accordance with the market hence he did not report on to work that early in the
morning yet his job is not that easy as he needs to research the data and
financial status of the company's or issue of the bonds so his research
work does not does not need a lot of time even a credit researcher spends
more than 40 hours a week at his workplace both the jobs are equally
demanding as they involve huge financial risk for their calculations and any
mistake can cost him a lot of financial loss and also their careers so now what
to choose in case of our equity research the job of the analyst sounds like a
dream job for a candidate passionate about money in the market however it
isn't easy to job to do if you are willing to spend most of your life
working surrounded with the hell number of challenges you must consider take
this as a career no doubt it provides you amazing growth both as a career wise
and money wise it also provides you excellent
exit opportunities too but if if you see the credit research if you are ready to
do a stressful job and play with the facts and figures of the companies take
decisions predict interest rates and give recommendations then this is a job
for you remember that this job is not easy job or job that can take it can be
taken as casually it is demanding job that needs to do a lot of both hard and
smart work thank you everyone
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