CAs as investment analysts

We know the Chartered Accountants (CAs) as watchdogs and bloodhounds. Can they also play the role of investment analysts, adding value to global financial institutions? What does such a transformation demand? Posing these questions to Mr Bala Srinivasa, Managing Director - Strategy and Business Development, Amba Research (I) P Ltd, Bangalore ( >http://bit.ly/F4TBalaS ), during a recent interaction in Business Line , I found him come up with some ready answers. We continued our conversation with an extended e-mail exchange. Excerpts from the interview.

What has been your experience with CAs working as investment analysts?

More than 50 per cent of Amba's 650 plus analysts hold a CA or equivalent accounting qualification, and our experience has been very good. Generally, a CA has a good head for numbers and brings fundamental knowledge of accounting and financial statements, which is helpful when functioning as an investment analyst. It does, however, take some time for a CA to learn the practical aspects of working as an investment analyst, particularly when it comes to dealing with incomplete and ambiguous information.

Most CAs come ingrained with a “historical” analysis perspective. What they learn at Amba is to complement that with “forward-looking” assessment, which is critical for investment analysis. This is a skill that can be mastered with experience. Some of our best analysts are CAs who have benefited from Amba's analyst training programme, which boasts of being the only one of its kind, approved by the internationally-acclaimed CFA Institute. Two areas where CAs naturally excel are financial modelling and accounting diagnostics. A good-quality CA can dig deeper into financial statements and unearth both drivers of profits and issues with earnings, which may not be apparent at first glance. CAs are determined to get every detail right, and this is good when working with clients who are particular about accuracy and preciseness.

Would you elaborate on the learning and the unlearning CAs have to engage in when involved in investment analysis?

Demanding portfolio managers or managing directors at investment banks and global financial institutions realise significant productivity, revenue, and cost benefits by leveraging confident, competent, and smart analysts to support their individual investment analysis process. The learning and unlearning occurs in-house, such as at Amba, via the initial analyst training programme and the subsequent, intensive ongoing education programme sessions.

CAs, in particular, are taught to think beyond pure numbers and to understand the bigger picture — macroeconomic, sector- and company-specific qualitative factors that influence an investment thesis. There is also significant focus on writing and verbal communication skills that are needed to translate analysis into actionable intelligence. We also help CAs unlearn the tendency to take “company management” statements at face value. Unlike at an audit, the CA-turned-analyst needs to treat the investor, not the management team of the company that he is analysing, as his client. He to build an investment case that is original, and not derived primarily from what the CEO or the CFO is promising to deliver.

Can you describe the typical work that CAs are required to engage in, at a cutting-edge investment analysis firm serving global financial institutions?

Let me share with you a few pointers from my firm, where clients view the analysts as an extension of their own teams. Our CAs-turned-analysts therefore support a very wide swathe of capital market-oriented analytical processes and tasks. From an investment research perspective, such tasks include financial modelling, valuation, investment report writing, news and data gathering, sector analysis, and thematic research.

Many of our CAs help clients initiate coverage and then maintain the coverage universe. Others listen in on earnings calls and provide their clients with analytical updates. We also have a quantitative analysis team that supports more data-intensive tasks such as mathematical and statistical modelling, index creation and maintenance, and capital market-specific programming. We also have CAs who have diversified into providing front- / middle-office services such as sales and marketing support.

What are your views on the additional qualifications and training relevant to investment analysis and for pursuing career growth that CAs may explore?

Capital market-focused knowledge process outsourcing (KPO) is a good path for CAs looking for new careers to follow. A third-party vendor, such as Amba, provides its employees exposure to different types of research work, and this exposure is far wider than that which even analysts in London or New York have.

At Amba, the bulk of the work focuses on the international financial markets. For those up to the challenge, getting the CFA charter is therefore a top goal to pursue and one that truly augments career advancement.

Developing additional specialist skills in a given sector, asset class, or region is another way to move up the ladder. The key, then, is for a CA to locate a firm that gives them opportunity to move into a managerial role once they gain the relevant experience.

These roles require a combination of subject-matter expertise and team leadership and interpersonal skills.

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