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Learn how to answer the most important equity research interview questions and how to prepare for an equity research interview.
Q1) Tell me being a successful analyst what requires which one skill you have?
Suggested Answer: If you want to be a good analyst you need to know about financial models, fundamentals and financial statements, sectors and industries, and valuation. You also need to know how to solve problems, be analytical and detailed-oriented, and be confident enough to trust your gut when the market is wrong.
Note: If you're good at these skills, you'll be more likely to do well in an interview.
Q2) Do you think your analysis skill will useful for our organization?
Suggested Answer: Yes, because I have a good understanding of financial accounts, a company's business model, or the strengths and weaknesses of management, as well as a solid understanding of macroeconomic trends or key political issues regionally or globally that could have an impact on one's stocks or the stock market in general, among other things.
Q3) Tell me outlook on the economy and the stock market?
Suggested Answer: In the year 2020, the Indian economy has performed significantly better than expected. Nifty 50 and Sensex have increased by 15 percent and 16 percent, respectively, from January 1, 2020 to December 31, 2020, according to Bloomberg data. Although the Government of India and the Reserve Bank of India have made significant contributions to rural revitalization, their efforts have received insufficient recognition. Favorable policies and rural tailwinds are expected to be the primary drivers of the recovery of the urban economy while the rural economy continues to struggle. Economic and health indicators are showing signs of gradual normalisation, paving the way for an upward revision to GDP forecasts in the coming months. Political stability is a critical factor in ensuring that the markets remain stable. Despite the fact that valuations are expensive and take into account the majority of positive factors, an increase in commodity prices poses a threat to inflation. However, we do not anticipate that this will have a significant impact on our recommended portfolio. We have selected stocks that have either strong business models that have stood the test of time, or that are available at a compelling valuation and/or that pay an attractive dividend yield, as the case may be.
Q4) Tell me about Federal Fund rate and what do you think will happen to them over the next 5 year?
Suggested Answer: People use the term "federal funds rate" when they talk about the rate set by the Federal Open Market Committee (FOMC). Overnight, commercial banks borrow and lend each other their excess reserves to each other. This target is the rate at which they do this. There are eight meetings of the FOMC, the Federal Reserve System's policy-making body. They meet eight times a year to set the target federal funds rate, which is part of the Fed's money policy. This is used to help the economy grow, and it helps.
According to my viewpoint, interest rates should be raised in response to the economic consequences of the pandemic.
Q5) Are you prepared to work in a high-stress environment like equities research?
Suggested Answer: When it comes to work, I believe that pressure can be beneficial; working under time constraints has taught me how to priorities and balance my workload. In one instance, I had three extremely important assignments due in the same week, and I managed to complete each assignment on time because I meticulously organized and planned how I would approach each project.
Q6) How you will rate yourself in financial modelling scale of 1 to 10?
Suggested Answer: For many years, I've been working with a financial modelling project. There are many aspects of the programme with which I am comfortable, and in those areas, I would place myself very high, perhaps 9–10 on the scale. I'm confident that I can get through it without assistance or mistakes.
Q7) If you have five quarterly results and you have to prepare in next 2 days how you will handle?
Suggested Answer:
I'll double-check the deadline for publishing a report before moving forward with the publication process.
First and foremost, I will listen to earnings calls.
Second, I'll make notes some notes, reference notes, and growth projections.
Third, make use of shortcuts to construct a consensus model.
Forth and last, I will give a report on quarterly results.
Q8) If fed interest rates were to go upwards, which sectors do you think would benefit?
Suggested Answer: Some industries, in my opinion, will benefit from an increase in interest rates in the future. The financial industry is one of the sectors that tends to benefit the most from this trend. Because they can charge higher interest rates for lending, banks, brokerages, mortgage companies, and insurance companies often see an increase in their earnings when interest rates rise.
Q9) If you were to get a job here, what would be your dream sector and why? How would you compare XYZ firm to other firms?
Suggested Answer: My favorite industry is the information technology sector because it has a low level of debt in comparison to other industries. Now, in order to compare one company to another, I will examine some key ratios such as the price-to-earnings ratio and the net profit margin.
Q10) You attend concall and you will know the company unable to earn profit in next quarter then how you will drop the ratings?
Suggested Answer: To put it simply, I will try to figure out why they aren't making any money. After that, I'll look into the industry and sector to see what factors are driving growth. After conducting due diligence, I will write about why the company is unable to make a profit and what the reasons are for the company's rating decline.
Q11) Why do DCF projections typically go out between 5 and 10 years?
Suggested Answer: The ability to predict the future in a reasonable manner determines the length of the forecast period. A tenure of less than 5 years is frequently deemed insufficiently long. When the time horizon exceeds ten years, it becomes increasingly difficult to forecast accurately.
Q12) What do you mean by Equity coverage?
Suggested Answer: Initiation of coverage indicates that one or more equity analysts will begin to provide sell-side research about a stock and make investment recommendations as a result of that research and recommendations. In the financial industry, coverage refers to the analysts' ongoing work of reviewing and reporting on a company's business, as well as making a recommendation, such as a buy or sell recommendation.
Q13) Is it still possible to get to know management about internal information of companies?
Suggested Answer: It is dependent on the company. If a company is one of our clients, there are various options for obtaining information from management or conducting a company visit.
Q14) What is the difference between buy-side and sell-side in equity research?
Suggested Answer:
Buy-Side –The side of the financial market that purchases and invests large amounts of securities for the purpose of money or fund management is known as the derivatives market.
Sell-Side –The sell side of the financial market is the side that deals with the creation, promotion, and sale of traded securities to the general public. It is the opposite of the buy side.
Q15) What are five questions you'd ask the company management? What other criteria would you use to evaluate management?
Suggested Answer: I'll ask a few questions that are frequently asked.
What do you think the sales will look like in the next 12-24 months? What is the most beneficial use of the cash on the balance sheet of the company? Is the company planning to raise capital to fund future growth, and if so, what is the company's strategy for growth? Who are the primary competitors in your industry, and what strategies do you intend to use to defeat the company?
Q16) When analyzing any stock what parameter you use ?
Suggested Answer:
Quality Ratings
Financial Leverage
Company’s Liquidity
Positive Earnings Growth
Q17) Why private companies going listed in stock exchange?
Suggested Answer: The primary goal of listing is to raise money for a good cause. The company has the ability to issue new shares in order to raise funds for growth and expansion. When the shares are subscribed for, there is an inflow of significant funds from the market, which provides the company with the resources it needs to meet a significant portion of its financial obligations.
Q18) What are the disadvantages of PE?
Suggested Answer:
Does not take other factors into consideration
Does not take other factors into consideration
Requires context
Does not take growth into consideration
The price of a share does not take debt into consideration
Q19) How to do Sensitivity Analysis in Equity Research?
Suggested Answer: Furthermore, depending on the industry, it may be necessary to include known variables that can affect variable prices in order to make a profit. Example: If we are testing the price sensitivity of UPS to a shift in oil prices, we would want to include an estimate of how much this shift in oil prices will affect margins. The margins from quarters where oil prices were around average for the previous 5 years could be compared to margins from quarters where oil prices were in the top 20th percentile for that same period. Depending on the results of this analysis, UPS may be able to demonstrate that it successfully hedges against spikes with futures or other financial instruments. It could also provide a factor that could be used to project the impact of a change in oil prices, whether positive or negative.
If it is a highly leveraged company, adjustments to the wacc will have a significant impact, whereas if it is a less leveraged company, the impact will be less dramatic.
Q20) What is Free Cash Flow to Equity?
Suggested Answer: This metric measures how much "cash" a company can return to its shareholders after deducting taxes, capital expenditures, and debt repayments.
It can only be used in situations where the company's leverage is not volatile, and it cannot be used in situations where the company's debt leverage is changing.
FCFE= Net Income +Depreciation & Amortization + Changes in Working Capital + CAPEX + Net Borrowings
Q21) What’s earning season? How would you define it?
Suggested Answer: The majority of companies report their earnings within the same month, which means models must be updated in the week/weeks prior to the company's earnings report.
Q22) What you know about comparable companies
Suggested Answer: The value of a target can be determined by comparing it to similar companies that have key characteristics in common with the target (e.g., business, financial, performance drivers, and risks).
Is intended to reflect "current" value in accordance with current market conditions and sentiment
Q23) If you were a portfolio manager, with $10 million to invest, how would you do with it?
Suggested Answer: You need to know about the people in charge, some valuation metrics (like PE multiples, EV/EBITDA, and so on), and some operational statistics about these stocks so that you can use the information to back up your claims about them.
Q24) Pitch a stock to me
How To Answer:
Give the company's name and a brief description of what it does.
Provide a high-level overview of the company's financials to demonstrate its size and profitability.
Due to any competitive advantages it may possess, explain why it is undervalued or more attractive than its competitors.
Consider how there is a long-term trend in its favor—it isn't just looking good for the next month or two, for example.
Discuss how the company's fortunes will improve dramatically over the next 5-10 years.
Q25) Where do you see Market in next 5 10 Years
Suggested Answer: In my opinion, the market is bullish because the economy is recovering from the Covid-19 pandemic, and the technology sector, pharmaceuticals, and fast moving consumer goods (FMCG) will continue to grow rapidly in the future.
Q26) What are your long term goals?
Suggested Answer: As I read through the job description for this position, I made a list of short- and long-term objectives that I hoped would help me achieve the objectives set forth. I intend to go above and beyond what has been asked of me. Taking on larger, more challenging targets in the long term will allow me to better assess my abilities and abilities. During this initial period, I intend to shape myself in order to be better prepared to deliver on larger goals in the future.
Q27) What is financial modeling and how is it useful in equity research?
Suggested Answer: Financial modelling is a method of projecting a company's financials in a very organized manner. Because companies only provide historical financial statements, a model can assist in understanding the company's fundamentals - ratios, debt, earnings per share, and other parameters.
Using financial modelling, you can predict how a company's balance sheet, cash flow statement, and income statement will look in future years.
Q28) What is the PEG ratio, and how does it differ from the P/E?
Suggested Answer: The PEG ratio is the price-to-earnings ratio of a company divided by the rate at which its earnings are growing over a period of time (typically the next 1-3 years). The PEG ratio is a method of adjusting the traditional price-to-earnings ratio by taking into account the expected growth rate in earnings per share in the future. In the case of companies with a high growth rate and an elevated price-earnings ratio, this can aid in the "adjustment."
The price-to-earnings ratio (P/E ratio) is widely used and simple to calculate, but it has some drawbacks that investors should be aware of when using it to determine the value of a stock. In contrast to the P/E ratio, which does not take into account future earnings growth, the PEG ratio provides more information about the value of a stock.
Q29) How would you analyze a chemical company?
Suggested Answer: Chemical companies invest a significant amount of their resources in research and development. As a result, if the debt-to-equity ratio can be calculated, it will be easier for analysts to determine how effectively the chemical company is utilising their capital. A lower debt-to-equity ratio always indicates that a chemical company is in better financial shape.
Q30) What is meaning of MiFID II?
Suggested Answer: MiFID II is a revision of the Markets in Financial Instruments Directive (MiFID), which was first published in 2004 and has been in effect since then. It serves as the foundation for financial legislation in the European Union, and it is intended to provide assistance to traders, investors, and other participants in the financial sector. The primary goal of MiFID II is to maintain the strength, fairness, effectiveness, and transparency of financial markets.
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