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Why Is Equity Research Important

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The rapid descent and subsequent sharp rise in equity across major capital markets including the US stock market during 2020 bought equities to the fore. The global pandemic caused each of the three major stock indices in the US to fall by more than 30%. Within a year, these indices have not only rebounded but are hitting new highs.

Several young investors, called “Robin Hood investors”, and traders have turned their attention to the equity markets due to a lack of employment amid the global lockdown. On average, 55% of adults in the US invested in the stock market in 2020. While the number is not as high as that during the 2008 crash, it is still substantial. An increasing number of investors, including institutional investors, are investing in the financial market. Investors such as pension funds, endowment funds and hedge funds invest in the financial market for different reasons. Equity research services are important for such institutions to ensure their investment goals are met.

Why is equity research important?

  • Risk involved:

Institutional investors have specific goals and may also have fiduciary duties towards their investors. Since equity investment involves an element of risk, acquiring equity research services ensures the investors achieve their goals and validate the confidence placed in them and fulfil their fiduciary duties. Taking the help of equity research service providers can help mitigate the risk involved. 

 

  • Volatility:

One of the most underrated elements of the financial market is the importance of psychology while investing in the equities market. Financial markets are highly volatile, and investments could see large movements even within an hour. While institutional investors often invest with a very long-term point of view, for funds such as pension funds and endowment funds, the volatility could have an adverse effect and impact their ability to hold on to their funds. Equity research service providers not only offer the confidence for investors to hold on to their funds but also regularly update them, helping build consensus.

 

  • An important tool for wealth creation:

The equity and financial markets could be the biggest tool for investor wealth creation in the long term. Investing in good businesses that could survive even the next generation could result in compounding the wealth invested. However, wealth creation does not happen overnight and needs a deep understanding of the business being invested in. Equity research service providers enable investors to find companies and businesses that could help them generate wealth in the long run. Pension funds and endowment funds that have responsibilities towards pensioners or for the upkeep of universities can benefit from such long-term wealth creation.

 

  • Investment mandates:

Investment mandates have been increasing, with investors looking to invest in companies and sectors that do not harm the environment. ESG investing is one of the emerging fields. Equity research service providers ensure that investors can fulfil their mandates by investing in companies that meet their criteria. Equity research service providers often have large teams that leverage technology and data to provide cutting-edge research-backed calls. Ensuring their clients are able to meet their investment mandates. Investment mandates could also include investing in firms that work in a specific sector or have displayed a particular type of performance in the past.

 

  • Multiple elements involved:

A large number of factors affect the price of an equity share. These include macro factors such as world economics, country economics, and interest rate scenarios. And micro factors such as sector-specific and company-specific factors. Because of the large number of factors involved. And the lack of time and understanding, investors often struggle to analyze companies properly. Equity research service providers’ stock recommendations are backed by exhaustive fundamental research.

Conclusion:

Equity markets are an important means of saving and growth for many forms of investors. Institutional investors are often the largest investors in equity markets and may invest on behalf of their clients or other beneficiaries. Equity research service providers would ensure investors make well-informed decisions and have proper risk management processes in place.

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