Sell-side analyst
An analyst at a firm offering investment banking, broking or advisory services who publishes research in the public domain with a buy, hold or sell call and a price target.
In plain language
The sell-side analyst writes the research most investors actually see: the broker report with a rating, an earnings forecast and a price target.
The reports are public. Their employers earn from broking commissions, investment banking mandates and advisory work — which is exactly why this is the category the SEBI Research Analyst Regulations spend most of their energy on. An analyst whose firm is also raising money for the company being rated has an obvious reason to be kind to it.
How it works
Per section 1.1, sell-side recommendations include the analyst's expectation of the company's future earnings and the future price performance of the security — the price target.
The SEBI (Research Analysts) Regulations, 2014 build walls around that conflict:
- Compensation (regulation 17): no bonus or salary linked to any specific merchant banking, investment banking or brokerage transaction; pay reviewed annually by a board committee with no representation from those divisions.
- Quiet periods (regulation 18): where the firm acted as manager or co-manager, no report or public appearance for 40 days after pricing of an IPO or 10 days after pricing of a further public offer (compliance may approve an exception in writing). An underwriter of an IPO may not publish for 25 days from the date of the offering. No report for 15 days before and after the expiry, waiver or termination of a lock-up agreement.
- No selling: analysts may not take part in sales pitches and deal road shows.
- Disclosures (regulation 19): whether the analyst, firm, associates or relatives own 1% or more of the company at the end of the month before publication; compensation from the company in the past twelve months; whether the firm managed or co-managed its public offer in that period.
A worked example
Illustrative. A broking house was co-manager of an IPO priced on 1 March. Its analyst finishes an initiation report on 20 March.
40 days from pricing: 1 March + 40 days = 10 April
Earliest publication without compliance approval: after 10 April
The report carries a Buy with a price target of Rs 1,020; the stock trades at Rs 850.
Expected return = (1,020 − 850) ÷ 850 = 170 ÷ 850 = 20%
If the firm's rating system — which regulation 20 requires it to define, with a time horizon and benchmark — says Buy means more than 10% over twelve months (the workbook's own illustration in Chapter 13), the rating is consistent with the target.
The report must also disclose that the firm co-managed the IPO within the past twelve months and whether it received compensation from the company in that period.
Why NISM asks about it
Chapter 1 (Introduction to Research Analyst Profession) defines the sell-side analyst; Chapter 14 (Legal and Regulatory Environment) carries regulations 16 to 20, which are written largely with sell-side conflicts in mind; Chapter 13 covers rating conventions. Expect number questions on the 40 / 10 / 25 / 15-day windows and the 1% ownership disclosure.
Common exam traps
- "Sell-side" does not mean the analyst recommends selling. It describes firms that sell services — broking, banking, advisory — to clients.
- 40 days is for an IPO, 10 days for a further public offer, both counted from the day the securities are priced, and both only where the firm acted as manager or co-manager.
- The 25-day rule is for an underwriter of an IPO and runs from the date of the offering — the first date the security was offered to the public, not the pricing date.
- Compliance can approve publication inside the 40/10-day and 15-day windows in writing. The 25-day underwriter rule in regulation 18(2) carries no such proviso.
- The ownership disclosure threshold is 1%, measured at the end of the month immediately preceding publication — not on the publication date.
Check yourself
1.Research reports of buy-side analysts are:
- a)Published in the public domain with price targets
- b)Generally for internal consumption and not available in the public domain
- c)Sold to subscribers on an annual basis
- d)Filed with SEBI before circulation
Show the answer
Answer: (b) Generally for internal consumption and not available in the public domain
These analysts generate investment recommendations for their internal consumption viz. used by the fund managers within organization. These reports are usually only for internal consumption and are not available in public domain.
Who they work for: Buy-side Analysts generally work for Asset managers like mutual funds, hedge funds, pension funds, Alternative investment funds, Foreign Portfolio investors or portfolio managers that purchase and sell securities for their own investment accounts or on behalf of their investors/clients. Their reports are circulated among the top management/investment managers of the employer firms.
Option A describes the sell-side: Sell-side Analysts typically publish research reports in public domain on the securities of companies or industries with specific recommendation to buy, hold, or sell the subject security, including the analyst's expectations of the future earnings of the company and future price performance of the security ("price target").
Option C describes independent analysts, who sell their research to others on a subscription basis.
The simplest way to keep the three apart is by where the report goes: public domain, internal only, or sold on subscription.
2.An analyst who works for a boutique firm and sells sector reports by subscription to institutions and stock exchanges is:
- a)A sell-side analyst
- b)A buy-side analyst
- c)An independent research analyst
- d)A portfolio manager
Show the answer
Answer: (c) An independent research analyst
Independent Research Analysts work for research originators or boutique firms separate from full-service investment firms and sell their research to others on a subscription basis. Their clients could be investors, institutions, investment bankers, regulators, stock exchanges, fund managers etc.
Note the breadth of that client list — regulators and stock exchanges appear on it, which is distinctive to the independent category.
They also do commissioned work: they also provide customized research reports on the businesses or industries or sectors on specific requests. The purpose of these reports could vary from investment activity to understanding competition landscape to mergers and acquisition etc.
The defining contrast with the sell-side is the employer: independent analysts are at firms separate from full-service investment firms, whereas sell-side analysts work for firms that provide investment banking, broking, advisory services for clients.
And with the buy-side: buy-side analysts work for asset managers... that purchase and sell securities for their own investment accounts or on behalf of their investors/clients, and their reports are not available in public domain.
Where this is taught
- Series XXI-B · Chapter 3: Investing in Stocksintroduced here
- Series XV · Chapter 1: Introduction to Research Analyst Professionintroduced here
- Series X-A · Chapter 8: Investing in Stocksintroduced here
Related terms
- Buy-side analystAn analyst employed by an asset manager — a mutual fund, pension fund, hedge fund, AIF, FPI or portfolio manager — whose recommendations are written for the employer's own fund managers, not the public.
- Chinese WallAn enforced separation inside a firm between departments holding confidential price-sensitive information and those dealing with clients, sales or public research.
- Conflict of interestAny interest of the analyst's own — a shareholding, a fee, a relationship — that could bias the research, and which the regulations require to be disclosed rather than merely avoided.
- 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.
- Research reportA document presenting an investment idea — analysis plus a recommendation. SEBI excludes market commentary, index discussion, internal notes and statistical summaries from the definition.
- Price targetA sell-side analyst's forecast of where a security's price will be over a stated time horizon — the number that turns a Buy, Hold or Sell rating into a specific, checkable prediction.
- Independent research analystThe third of the workbook's analyst categories: one who works for a research originator or boutique firm separate from full-service investment firms, and sells research on subscription.