The Hindu Business Line : Crucial role of securities analysts

They are cryptically called ‘quants’ in the US, and elsewhere are known variously as financial analysts, market analysts, research analysts and investment analysts. In essence, their functions are the same: To get to the bottom of financial statements, gather business and commercial intelligence, track corporate performance, compile and analyse data and information on different aspects of business and industry and make a professional appraisal of the happenings on the economic, commercial and financial fronts.

However, where both research and other corporate finance/investment banking services are offered within the analysts’ firm, they are required to guard against the symbiotic relationship that comes to exist between these activities giving rise to conflicts of interests which may unduly or improperly influence and impair research objectivity and affect investor confidence in the integrity of the market.

They make their findings available to economic players so as to enable them to take decisions suited to their best interest, whether it is a matter of buying, selling or holding stocks, or of using their investible funds to good purpose. This is the minimum expected of them. They will be enhancing their value to their customers if they combine with all these skills a bent for research and futuristic projections of needs and demands for new products or technologies, to help organisations keep abreast of market trends and put into effect measures anticipating different types of contingencies.

With the reach and range of economic decisions, financial transactions and market operations expanding to an unimaginable degree and with hundreds of billions of dollars flooding the India’s markets, the proficiency with which securities analysts carry out their responsibilities has become critical to healthy and orderly growth of the financial sector.

Channelling of funds into productive and profitable investments in a number of familiar and new areas crucially depends on the discharge of their responsibilities by securities analysts with personal and professional integrity and financial acumen.

Enlarged participation

The information and guidance they provide can be a veritable boon especially to the average investor who is bewildered by the mention of shares, bonds, debentures, demats, derivatives, p-notes, futures, forwards, swaps and options — those ubiquitous staples of trading floors. He is also unable to figure out the implications of buzzwords such as holding companies, mergers, acquisitions, takeovers, public-private partnerships, strategic alliances and special purpose vehicles.

By inspiring the necessary trust and confidence in the way they carry out their responsibilities, securities analysts can open up avenues for enlarged participation by average householders and make the markets more broad based than they are now. Indeed, with a domestic savings rate touching 35 per cent, the average householders can become the mainstay of the markets; at present, less than three per cent of national household savings come to bourses, in contrast to the US where more than half of the households, including housewives, are active market players.

The Securities and Exchange Board of India (SEBI) deserves ample praise for its comprehensive regulations governing the conduct of securities analysts so that they are above board in the performance of their duties and avoid conflicts of interest in appraising the value of securities or reporting on the advisability of investing in securities, or buying, selling or otherwise dealing in stocks and shares.

It will be worthwhile for the Chairman of the SEBI to have the further honing of the skills of securities analysts discussed at a national convention, with particular reference to the challenges and opportunities arising from the emergence of India as the third largest economy in the near future, and the safeguards and forward planning this may call for.

B. S .RAGHAVAN

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