Importance Of Equity Research in 2021
Equity research is an integral part of capital markets’ operations which supports investment banking, wealth management, and equities businesses. The traditional equity research business has come under pressure in recent times due to increasing competition in this space. Despite several headwinds, the service continues to be in demand. Notably, Equity Research has remained relevant in both 2019 and 2020 amid the challenges faced by markets such as the US-China trade war and the COVID-19 pandemic, respectively.
In 2021 too, markets continue to trend higher, despite the COVID-19 pandemic’s impact and a slowdown in economic activities. Thus, opportunities and demand for equity research would continue to be higher this year, as well as in the years to come. In 2021, we believe equity research would be likely driven by the key catalysts mentioned below.
Incremental demand for equity research amid challenges
Some business models are designed to withstand a 50% decline in revenues, while several others are unable to handle challenges such as the recent pandemic and bankruptcy. Consequently, valuing companies during such times is difficult. Equity research becomes important in such circumstances and the investment community relies on equity research analysts to make informed decisions.
Adoption of artificial intelligence (AI) technologies to generate new investment ideas
As volatility is at an all-time high, banks need to keep track of the positioning and flow from different groups of investors including hedge funds, institutions, asset managers, and retail investors, among others. Adoption of AI technologies to generate new investment ideas would likely help banks to cater to the aforesaid group. Furthermore, in the current scenario, interpreting high-frequency market data in real-time is considered critical for equity research. We believe that the use of AI in equity research — automation of basic financial analysis and research maintenance — will lead to cost efficiency.
Demand for environmental, social, and governance (ESG) research
In 2020, amid the COVID-19 pandemic, demand for ESG research has also sharply increased, as the pandemic brought these issues into focus. ESG considerations gained prominence last year as markets placed higher weights on both reputational and financial dimensions to ESG risk. A lack of coverage on ESG research remains a major hurdle for investors as they look to expand their ESG investments. We believe in 2021, new coordinated solutions from equity research providers would help fill this gap.
In the current environment, information is considered the most valuable thing one can own, as most of the investment community relies on it. This information should come from a reliable source. Equity Research analysts come to the rescue here as they can provide investors with relevant research to make better and informed decisions.
