Job profile: Financial Researcher
Desired Qualification: MBA finance, Chartered Accountancy
Schools that can be considered: IIMs, NMIMS Pune, MDI Gurgaon, IMT Ghaziabad, ISB Hyderabad, XLRI Jamshedpur, FMS Delhi University, ICAI (for CA) - pan India centers
Investment banks - Barclays, Citigroup, Nomura Securities
Insurance companies - LIC, ICICI Prudential Life Insurance
PE firms - Chrys Capital, ICICI Venture, Baring Private Equity Partners, Sequoia Capital
Consulting Firms - Ernst & Young, McKinsey, Boston Consulting Group
A FEW months ago stock prices of three mining companies declined, leaving potential buyers uncertain which one to buy. As a retail (individual) investor, you will also ponder on the best bet, going over basic calculation and mostly likely, relying on hunch to choose one. A researcher, however, will nail the winner, almost correctly, based on empirical data factoring in a whole host of features. For instance, companies’ market share, mining tax, volume growth assessment, enterprise value to earning before interest and so on.
It is a researcher who can take the following aspects into account to arrive at a profitable company for you. For instance, he would examine parameters like company’s spend on R&D. If Company A is spending more than its competitors on R&D, then to what extent it is likely to impact the cost structure of the company in future and whether it would give you capital gains, to what extent and at what stages. Or whether Company B is likely to give better profits because its mines are located in Maharashtra or Madhya Pradesh, which have a reasonably well developed infrastructure. These intense analyses based on a range of factors is best left to competent professionals, who are financial researchers and whose recommendation scope goes much beyond the realm of individuals; to Institutional Investors and global capital markets.
Demand for Financial Researchers
We live in such an era of financial market integration, trade liberalization, mergers and acquisitions that if US financial markets sneeze, rest of the world catches a cold. Or if Euro zone’s financial behaviour indicates a downward trend, markets all over bob in lows and ups. That’s how integrated the world is. So, as the character of financial markets changes, finance functions of corporations also shift focus, moving from traditional to a whole new host of activities like global investments, financial planning, risk-hedging etc., re-defining the role of researchers, making it all the more significant.
“Study of finance has become mathematical,” says Prof Michael Barnes, Dean, Jindal Global Business School who has worked with The World Bank and possesses 25 years of work experience with various banks. Having closely observed the market trend over years, he indicates that a good researcher in non-academic finance sector needs to go beyond MBA finance studies to Economics and Maths. The banks, finance sector, corporates and consulting firms seek research professionals who have concentrated knowledge in finance markets. Those who want to focus on academic research, would, however, need a fairly advanced degree of mathematical skills for quantitative analysis, says the finance professor.
The demand for researchers in both these areas is increasing because there is a need for a positive financial engineering to combat current extraordinary situations of debt crisis, rising deficits and introduction of financial discipline to safeguard the investments and pension funds of common man. Institutional and retail investors are looking for risk-free investment instruments.
Playing the part
A financial analyst is not to be confused with a financial researcher (FR). An FR plays much bigger role than a financial analyst. “FRs are involved more in core and high end financial activities than financial analysts,” says Prof. Pratap Chandra Biswal, Associate Professor (Finance), MDI.
While analysts make presentations to clients considering a company investment, or produce reports and ratings on a company, an FR develops financial and risk management models for companies making recommendations to senior management, valuing corporate deals like M&A. “For example, they also suggest venture capitalists whether to invest in private equity firms,” Biswal gives further drift on the function. Their functions overlap.
Consulting firms use FR expertise in valuation of companies. FR takes into account companies’ different businesses and different phases in business life cycle, embarks on risk assessment and study other details with an aim of presenting a viable, profitable model different from the existing one. Some researchers, lets say, in an investment advisory company, will only focus on investor relations. Some, in banks, for instance will focus on equity or bonds or on assets and liability etc. With experience, analysts move on to researchers’ role. “That’s applied research,” says Prof. Barnes. Unlike corporate professionals, those interested in academic FR role, would test theories along with applied research, and focus on creating new models and techniques, while challenging the old theories and practices. They also focus on identifying future trends and long-term growth prospects.
Jobs exist in Investment banks, Insurance companies, credit rating agencies, private equity firms, mutual fund houses, hedge funds, consulting firms, trading exchanges and financial market regulators, among others. MBA Finance candidates, right out of school, are hired as financial analysts preparing research reports for companies, applying valuation models, tracking stocks. CAs, equipped in accounting practices, are mostly hired for managing accounts, funding requirement and tax management.
A combination of CA and MBA or CFA and MBA is much sought after for analysts and later, a researcher’s profile as experience is imbibed. Prof. Uday Damodaran of XLRI says that during the course students gain familiarity with quantitative and qualitative analytical tools and are therefore good match for research profiles. B-schools are active in roping in industry players as well for better placements. For instance, early this month Narsee Monjee Institute of Management Studies (NMIMS), tied up with Amba Research, a global investment research firm to offer a corporate valuation/equity research programme for finance professionals. XLRI held private equity conclave Gnosis 2011 in Mumbai in November calling Industry experts, thereby providing a platform for its
students to seek employment.
Equipping oneself for international markets?
As per Prof Barnes, most MBA finance students in India are weak in communication skills, team work and in global perspective. He explains, “In official roles, team work is needed and not interpersonal competitiveness.” In order to gain overseas placements, course curriculum should have more of global case studies than dominating India-centric cases. In a nutshell, a polished communication skill along with a global outlook would make a local, a transnational employee. Salaries of a fresh MBA fluctuates greatly depending on B-school, previous academic background, place of job location, the company which hires etc. Mumbai, the commercial hub, for example pays more than Delhi. Therefore, one fresher may start with Rs. 20, 000, while the other may enter the market at Rs. 50,000 or more.
Be the Best
A good researcher would abstain from forecasting or predicting the markets. He would not play an astrologer’s role, says an expert. ‘Neither would he generalize the data,” agrees Prof. Barnes. One of the reasons why sub prime crises inflicted havoc on American market in 2007 is the ‘usage of old data’, he adds. Have an open mind to learn new developments in industry, read financial news from around the world, and enhance your financial IT software skills. “It is essential to develop proficiency in spreadsheets, databases, learning financial models and their applications,” says Biswal. In addition to domain skills, communication, people and networking skills are an added advantage.
College-fresh candidates enthusiastically go on an over drive, without getting into the depths of detail and cross verifying the data. This should be avoided at all costs. It is a mistake that costs heavily to you, company and the client. Money managing is a science, which entails the art of handling money and people. People put faith in your expertise. So, get a blend of both and dive into the exciting world of finance! NIIT University (NU) in partnership with ICICI Bank offers a new degree, MBA (Finance & Banking), to working professionals with minimum three years of full-time experience. We reviewed this industry-relevant MBA that offers equal-duration training in the classroom and industry. Read on...
Researchers more demand now
Judhajit Das, Chief Human Resources, ICICI Prudential Life Insurance tells company’s requirements while hiring researchers and more.
Q: Are financial researchers more in demand now? Why?
A: In companies like Insurance, MFs and brokerage houses, Investment analysts/researchers have been around from the last decade or so. However, in larger business or conglomerates, researchers’ expertise for strategic decision making and fund raising is being felt and these groups also have built in-house capability to employ them as they operate globally, that too with multiple businesses.
Q: Where exactly do MBA finance students find the most appropriate fit?
A: It’s in the BFSI sector. However, they are required in non-financial corporate as well. Their typical roles would be in the area of audit, financial control, and business planning, treasury and investment operations. In terms of our preference, we are open to both MBA’s and CA’s or for a candidate who has attained any other reputed financial qualification. However, in functions such as audit and accounting we prefer CA’s as they are inherently more suited for the job.
Q: Could you name a few colleges that ICICI visits to scout talent?
A: For Investments, finance and marketing functions, we approach IIM’s and other reputed business schools like Welingkar, S P Jain etc. Their average salary is Rs. 10 lakhs excluding variable pay. Cultural and role fitment coupled with good communication skills, inter-personal skills and an aptitude for financial analysis are all given due consideration before hiring.
|Your role as a researcher in various sectors and set-ups:
- Corporate Firms - A researcher in, let’s say, ABC steel firm, will track the overall steel sector including its competitor’s performance, company’s own financial position, deciding on investment destinations, assessing financial implications like business viability, risk versus return, level of equity/debt exposure, investment, exposure in instruments that maximize profit while minimizing risks, capital restructuring and so on.
- Banks - A researcher would assess how much credit cost per head would be viable. What interest rate should be charged, what financial planning dynamics can be charted out for an individual and a family with diverse needs. How much is the bank surplus? How much ought to be invested in stock market. Works on asset-liability mismatch.
- Investment Banks - Assisting corporate clients with research on sectors, companies, regulatory compliances. Enabling clients to contextualize and disclose relevant financial data.
- Insurance Companies - right from statistical calculations in determining premiums, to surplus fund investment, to raising capital from equity markets.
- Mutual Funds: Researchers here access the overall economic position, the stock market position, within it, the sectoral composition, planning and distributing risk over sectors, studying individual scrips, seeing their fundamentals and their performance, investing after appropriate due diligence.
- PE and VCs – When an individual approaches them seeking investment in his/her idea, the researchers prepare a financial intelligence report detailing if the business is sustainable, what would be the degree of returns, how much capital should be disbursed at what phases, whether after a few years, what would be the valuation of the ideated company, what would be its market capitalization, whether it can be listed on the stock market etc.
- Hedge Funds - cater to wealthy individuals, the money rotates world over in mature and emerging markets, seeking best investment opportunities. The researcher should have know-how of the emerging trends in capital markets, various markets’ economic health, and its socio-political climate as well.
- Consulting Firms/Corporate clients - Company may want to diversify, expand or shut down its business/s or consolidate its position. Researchers seek financial intelligence to achieve the company’s goals, provide consultation, also give tax and other finance-related services.