NISM-Series-XV: Research Analyst Certification Vocabulary Flashcards

This set of vocabulary flashcards covers key terminology, financial ratios, regulatory frameworks, and analytical models from the NISM Research Analyst Certification Examination workbook.

Research Analyst

As per SEBI Research Analysts Regulations, 2014, a person who, for consideration, is engaged in the business of providing research services and includes a part-time research analyst.

Sell-side Analysts

Analysts who typically work for firms providing investment banking, broking, or advisory services and publish research reports in the public domain with specific recommendations to buy, hold, or sell.

Buy-side Analysts

Analysts who generally work for asset managers such as mutual funds or hedge funds and generate investment recommendations for internal consumption by fund managers.

Securities

Transferable financial claims defined under Section $2(h)$ of SCRA, including shares, stocks, bonds, debentures, derivatives, and units of collective investment schemes.

Masala Bonds

Euro bonds issued outside of India that are denominated in Indian Rupees ($\text{INR}$), thereby transferring currency risk to the foreign investor.

Warrants

Financial instruments that provide the right, but not the obligation, to the holder to buy equity shares of the issuer company after a specified period at a pre-determined price.

Primary Market

Also called the new issue market, it is the segment where issuers raise fresh capital by issuing securities directly to investors.

Secondary Market

A segment that facilitates trades in already-issued securities, enabling investors to exit an investment or buy existing securities from other investors.

Anchor Investor

A qualified institutional buyer who makes an application for a value of ten crore rupees or more in a public issue made through the book building process.

Clearing Corporation

An entity that acts as a counterparty and guarantees the settlement of trades executed on the stock exchange, providing full novation of contracts.

Intrinsic Value

The discounted value of the cash that can be taken out of a business during its remaining life; the present value of expected free cash flows.

Enterprise Value (EV)

The overall value of a business focusing on gainfully employed capital, calculated as: $[\text{Market Value of Equity} + \text{Market Value of Debt}] - (\text{Cash and Equivalents})$.

Price to Earnings Ratio (PE Ratio)

A valuation ratio computed as: $\frac{\text{Market price per share}}{\text{Earnings per share}}$; it measures what the market is willing to pay for every 1 rupee of earnings.

Dividend Payout Ratio

A ratio calculated by dividing the Dividend Per Share ($\text{DPS}$) by the Earnings Per Share ($\text{EPS}$).

Yield to Maturity (YTM)

The expected rate of return on a bond if it is held until its maturity date, factoring in all future coupon payments, reinvestment income, and the redemption value.

Modified Duration

A metric of the sensitivity of the price of a bond to changes in interest rates, calculated as: $\frac{\text{Macaulay's Duration}}{1 + y}$.

Active Investing

An investing strategy involving the constant evaluation and identification of specific securities to purchase or sell to earn a return above a broader asset class.

Mosaic Analysis

The process of collating information from different sources that individually may not be significant but provides critical insight when put together.

Efficient Market Hypothesis (EMH)

A theory propagating that share prices incorporate and reflect all relevant information, making it impossible to consistently outperform the market.

West Texas Intermediate (WTI)

A high-quality crude oilPricing benchmark explored and physically traded in the United States, typically traded on the NYMEX.

Gross Domestic Product (GDP)

The market value of all final goods and services produced within a country’s frontiers during a specified period.

Fiscal Deficit

The budgeted excess of a Government’s expenditure over its revenues in a specific year, usually expressed as a percentage of GDP.

Repo Rate

The rate applied when the central bank lends money to financial institutions against approved securities with a promise to repurchase them.

Defensive Industries

Industries producing goods or services with low-income elasticity, experiencing minimal impact from economic cycles (e.g., healthcare, food).

Value Migration

A phenomenon where a trend creates a long-term advantage for one entity or industry at the cost of another, shifting shareholder value.

Porter’s Five Forces

A framework analyzing industry attractiveness based on: Threat of Substitutes, Rivalry, Bargaining Power of Buyers, Bargaining Power of Suppliers, and Barriers to Entry.

PESTLE Analysis

A model analyzing external macro-environmental factors: Political, Economic, Socio-cultural, Technological, Legal, and Environmental.

BCG Matrix

A portfolio analysis tool classifying business segments into Stars, Cash Cows, Question Marks, and Dogs based on market growth and cash generation.

ARPU

Average Revenue Per User; a key performance indicator used primarily in the telecommunication and internet service provider sectors.

Minimum Alternate Tax (MAT)

A tax levied if the income tax payable by a company is less than 15 \text{%} of its book profits (plus applicable cess and surcharge).

Pricing Power

The ability of a company to independently determine and charge the price of its products without losing customers to competitors.

SWOT Analysis

An evaluation framework of internal factors (Strengths, Weaknesses) and external factors (Opportunities, Threats) impacting a business.

Chinese Wall

A policy separating "insider areas" (having access to UPSI) from "public areas" to prevent the misuse of confidential price-sensitive information.

Goodwill

An intangible asset representing the excess consideration paid by a company over the fair value of the net assets acquired in a business takeover.

EBITDA Margin

A profitability ratio calculated as: $\frac{\text{EBITDA}}{\text{Net Sales}}$; it identifies gross profitability trends independent of funding or depreciation policies.

Return on Equity (ROE)

A measure of how efficiently a business allocates equity capital, calculated as: $\frac{\text{Profit After Tax (PAT)}}{\text{Net-worth}}$.

Dupont Analysis

A framework breaking down ROE into three components: Net Profit Margin, Asset Turnover, and Financial Leverage (Equity Multiplier).

Contango

A commodity market condition where the futures price is higher than the spot price of the underlying asset.

Backwardation

A commodity market condition where the futures price is lower than the spot price of the underlying asset.

Basis

The measure of the difference between the spot price and the futures price, denoted as: $\text{Basis} = \text{Spot Price} - \text{Futures Price}$.

Compound Annual Growth Rate (CAGR)

The smoothened rate of return at which an original investment grows to a final value, calculated as: $((\frac{\text{End Value}}{\text{Beginning Value}})^{1/n}) - 1$.

Systematic Risk

Also known as undiversifiable risk, it is caused by macro factors affecting the entire market, such as monetary policy or wars.

Unsystematic Risk

Also known as diversifiable risk, it is specific to an individual security or small class of investments (e.g., business or credit risk).

Jensen’s Alpha

A risk-adjusted return measure representing the excess return earned by a portfolio over the expected return calculated using CAPM.

Sharpe Ratio

A measure of risk premium earned per unit of total risk, calculated as: $\frac{\text{Return on portfolio} - \text{Risk free rate}}{\text{Standard deviation}}$.

Margin of Safety

The difference between the intrinsic value and the market price, providing a cushion against errors in an analyst's judgment.

Dow Theory

A foundational framework of technical analysis asserting that the market has three trends and that volume must confirm the trend.

Relative Strength Index (RSI)

A technical indicator measuring the speed and magnitude of recent price changes, usually scaled from $0$ to $100$, to identify overbought or oversold conditions.

Graded Surveillance Measures (GSM)

A regulatory mechanism applied to stocks with low market capitalization where valuation is not commensurate with business fundamentals.

Unpublished Price Sensitive Information (UPSI)

Any information relating to a company or its securities that is not generally available and which, upon becoming available, is likely to materially affect the price.