Primary research
First-hand information an analyst gathers directly — plant visits, and conversations with customers, suppliers or employees — rather than sourced from published reports.
In plain language
An annual report tells an analyst what a company wants to disclose, once a year. It does not tell the analyst what is happening on the factory floor this month.
Primary research closes that gap. It means going and finding out directly — visiting the company's own facilities, talking to the people who buy from it, supply to it, or work for it — rather than relying only on what has already been published.
How it works
The workbook: research analysts "often... have to conduct primary research that may involve visiting the company's facilities, speaking to customers, suppliers, employees, and others." This complements secondary research, because an annual report is published only once every 12 months and becomes dated quickly, and because it rarely covers industry or economy conditions in depth.
Primary research sits next to a boundary the workbook draws carefully: gathering scattered public and private observations and combining them is acceptable mosaic analysis. Being handed a specific, unpublished, price-sensitive fact directly — such as an unannounced acquisition — crosses into insider information, which is not.
A worked example
Illustrative. An analyst visits a cement company's plant and observes capacity utilisation running at around 92%, well above the 85% the company had guided to in its last earnings call. Combined with rising cement dispatch data from a trade body, the analyst revises the volume growth forecast for the company upward by roughly 8 percentage points — a conclusion no annual report alone could have produced this early.
Why NISM asks about it
Chapter 4.2 (The role of research in investment activity) and Chapter 1.3 (pre-meeting research principles) both cover primary research. Expect a question naming a research activity — a plant visit, a customer call — and asking whether it is primary or secondary research.
Common exam traps
- Primary research is not insider trading. Observing a plant's utilisation directly is legitimate primary research; being told a specific unpublished, price-sensitive fact by an insider is not — the workbook draws this line through the idea of mosaic analysis.
- Pre-meeting preparation (reading annual reports, knowing the industry) is what makes a primary-research meeting with management useful — the workbook lists it as a separate discipline analysts must bring to any interview.
Check yourself
1.An analyst hears three things in a week: a factory employee mentions the purchase department is busier than usual; a dealer says stock is clearing faster; and the company has advertised openings for a second shift. She combines them into a view that volumes are running ahead of expectations. This is best described as:
- a)Insider trading, because none of the three facts was published by the company
- b)Mosaic analysis, which the workbook states is acceptable
- c)Insider information, because the employee is connected to the company
- d)Primary research, which is prohibited for research analysts
Show the answer
Answer: (b) Mosaic analysis, which the workbook states is acceptable
The workbook describes this exactly: often analysts collate information from different sources, which individually may not be significant but when put together with other public or non-public information may provide critical insight. These is called as mosaic analysis. Such mosaic analysis is acceptable.
Options A and C both rest on the same misconception, which the workbook rebuts directly: it is not necessary that all such information would fall under insider information. Insider information is material non-public information that, when published, would immediately affect a buy or sell decision, judged on source, impact and certainty. A remark about workload fails on impact and certainty — indeed the workbook uses that very example to say it need not be insider information.
Option D is wrong twice over: this is a mix of primary and secondary research, and primary research is not prohibited — the workbook says analysts often have to conduct primary research including visiting facilities and speaking to customers, suppliers and employees.
Where this is taught
Free preparation for NISM Series XVRelated terms
- Quantitative researchAn approach to studying companies or markets built on statistical and numerical methods — time series, regression and econometrics — rather than reading qualitative business factors.
- Research AnalystUnder the SEBI (Research Analysts) Regulations, 2014, a person who, for consideration, is engaged in the business of providing research services — including a part-time research analyst.
- Secondary researchInformation an analyst gathers from already-published sources — annual reports, industry journals and market research — rather than collecting it first-hand.
- Insider informationMaterial non-public information which, if published, would immediately affect an investor's decision to buy or sell a security — information a research analyst must not collate.
- Mosaic analysisAssembling many individually insignificant pieces of information, public and non-public, into a critical insight — a practice the workbook states is acceptable.