institutional investors - The Capital Letter

Arvind Kalyan, RedeFin Capital

Institutional cash-₹50+ lakh Cr sloshing through Indian equities-runs on research. But try asking a fund manager what equity research actually is. Most will fumble. And individual investors? Forget it. They’re reading headlines and calling it analysis. The gap between institutional reality and public understanding is vast. Here’s what actually happens inside the black box-how research gets made, why some investors swear by it, what a proper report looks like, and why India’s mid-cap story hinges on better analysis.

What Is Equity Research, Really?

Strip away the jargon. Equity research answers one question: What should this company be worth? It’s systematic-combining financial models, industry intelligence, management scrutiny, and valuation work. Output: BUY, HOLD, or SELL. That’s it.

What separates real research from noise? The model. An analyst publishes a target price-say, ₹500 per share-because a spreadsheet shows it. Current price is ₹350. That ₹150 jump (43% upside) is the bet. Everything supporting it lives in assumptions: revenue growth, margins, exit multiples. Twist one assumption, the thesis breaks. That’s why the model matters-it’s auditable. Unlike market chat, research forces you to show your work.

600+

SEBI-registered research analysts in India

₹3,000-4,000 Cr

Annual size of India’s equity research market

Three Types of Equity Research: Sell-Side, Buy-Side, and Independent

Sell-Side Research (Brokerage Houses)

Banks and brokers churn out research. Used to be free-buried in commission. Your broker published stock reports to keep you trading. Then came MiFID II. Suddenly, clients had to pay. Research decoupled from execution. Accountability shot up.

But conflicts still lurk. If a bank’s IB team is landing advisory mandates from Company X, the research side feels pressure. 2008 made this obvious. Today-especially post-SEBI rules in India-it’s regulated. Still. A large brokerage’s equity research is rigorous because they have armies of analysts. Quality and conflicts? Both real.

India’s SEBI cracked down in 2015-2018 (Research Analyst Regulations). No overt “you publish a BUY, we give you a mandate” deals. Still, sell-side research is built for reach, not purity. They’re selling access, not just truth.

Buy-Side Research (Fund Internal Teams)

Mutual funds, pension funds, insurance houses-they hire analysts to dig. These teams aren’t SEBI-regulated as “research analysts.” They’re portfolio people. They research for one reason: to build better positions. No external pressure. No marketing. A fund manager spends months building a financial model, reaches conviction, builds the position. Nobody sees the work. That’s the point. This research prints alpha.

Independent Research (Fee-Based, Conflict-Free)

Then there’s the pure play. SEBI-registered analysts who aren’t brokers. They don’t execute trades. They don’t land advisory mandates. They charge subscription fees to funds. Kedge (RedeFin’s equity shop) sits here. MiFID II kicked off this model. Funds wanted research with zero ties to commissions. They’d pay. Analysts delivered rigorously. Now it’s 20%+ annual growth. Institutions prefer it. Transparent model. You pay, you get unbiased output.

Why Institutions Are Shifting to Independent Research

Institutional money (₹50+ lakh Cr deployed) is moving cash to independent shops. Why?

No commission baggage: Your research fee doesn’t subsidise someone’s trading desk
Mid-cap coverage that actually exists: Large brokers ignore mid-caps. Independents focus there. Gaps get filled.
SEBI lit a fire: Regulators pushed analyst independence hard. Institutions know it.
Alpha lives here: Consensus research builds bubbles. Good alpha comes from non-consensus, deeply researched bets

How Institutions Deploy Equity Research Across Four Core Functions

1. Idea Generation

A fund manager sees a Kedge initiation on a ₹15,000 Cr IT services firm. 25%+ revenue CAGR. 8x EV/EBITDA. Supply-chain shift tailwind from India-China stress. Thesis: “mid-tier consolidation play.” Bang. Portfolio candidate born.

2. Due Diligence Support

Insurance fund eyes a ₹5,000 Cr infrastructure asset. Before writing the cheque, they consume 5-10 equity reports on the company, peers, sector. Research scaffolds DD-model framework, management red-flags, regulatory exposure. No surprises on the due diligence table.

3. Portfolio Monitoring (Thesis Validation)

Q3 earnings hit. Margins compressed. Analyst’s model assumed stable spreads. Now what? Portfolio manager pulls the quarterly update, reassesses. Maybe trim. Maybe exit. Thesis broken. Research flags it.

4. Sector Thesis Validation

Kedge drops a rural India sector report. Fund manager’s thinking: should rural FMCG be overweight? Report answers. Macro-micro linkages clear. Thesis validated or killed. Positioning adjusted.

₹50+ Lakh Cr

Assets under management in Indian equities by institutional investors

20%+

Annual growth in independent research demand post-MiFID II

The Anatomy of a Professional Equity Research Report

Structure matters. Here’s what professionals build:

Investment Thesis (Front Page)

One page. Boom. Example: “ABC Consumer is a BUY at ₹250, target ₹350 in 18 months. Why: strong brands, rural push, scale margins. Risks: input costs, competition.” That’s it. Everything else proves it.

Company Profile & Business Model

10-15 pages: Who are they? What do they sell? To whom? Revenue drivers. Cost levers. Competitive moat or lack thereof.

Financial Analysis & Historical Trends

5-10 pages: Five years of data. EBITDA progression. ROIC. Free cash flow. Is this story real or accounting magic? Analysts sniff it out.

Financial Model & Forecasts

5-10 pages: Revenue, EBITDA, capex, working capital, FCF for 5-10 years out. Assumptions shown. “Revenue CAGR 15%, EBITDA margin steady at 22%.” No black boxes.

Valuation (DCF + Relative Comps)

5-8 pages: DCF model output with sensitivity tables (what if discount rate moves? what if terminal growth shifts?). Peer multiples. P/E, EV/EBITDA, P/B. Both methods converging on a price band.

Risk Factors & Thesis Vulnerabilities

3-5 pages: What breaks the thesis? Input costs spike. Regulation changes. Margin compression. Analyst owns the gaps upfront.

Target Price & Rating

1 page: 12-18 month target (DCF or comps), BUY/HOLD/SELL rating, risk/reward stated.

“Nobody buys a report. They buy conviction backed by track record. Did your target prices hit? Did your earnings calls nail it? Did you flip your view when the facts shifted? That’s credibility. Everything else is noise.”

– Institutional portfolio manager, multi-asset fund

Key Metrics Institutions Use to Evaluate Research Quality

Target Price Hit Rate

Did the analyst’s 12-18 month targets actually work? Within ±15% of reality? Or consistently wrong? Below 50% hit rate? You’re not a skilled analyst. You’re a coin flip.

Earnings Estimate Accuracy

Analyst publishes EPS guidance. Compare to actual results. How often do they miss? Do they revise constantly (reactive) or predict ahead (predictive)? Pattern matters.

Sector Coverage Depth

Large-caps get 100 analysts. Mid-caps? Crickets. India’s mid-cap universe (₹10,000-50,000 Cr: 150+ stocks) is criminally under-covered. Analysts digging here build franchise value with institutions.

Idea Originality & Non-Consensus Calls

Everyone calling BUY on a stock? Herd behaviour. Bubbles form. Smart analysts stake contrarian positions early-with work backing it. A SELL on a favourite beats the 50th BUY recommendation every time.

150+

Mid-cap stocks in NSE Nifty Midcap 150 Index

5-7%

Annual outperformance of Nifty Midcap 150 vs. Nifty 50 (5-year CAGR)

SEBI Research Analyst Regulations & India’s Compliance Framework

India has teeth in its rulebook. SEBI’s Research Analyst Regulations (2015, amended 2018) govern the space:

Registration is mandatory. Anyone publishing research must be SEBI-registered. 600+ analysts on record as of 2025.
Conflict disclosure required. Holding shares in Company X? Earning advisory fees? You declare it. Every report.
No quid pro quo. Can’t be “we’ll rate your stock BUY if you give us the M&A mandate.” Explicit ban.
Standard disclaimers. Past performance doesn’t guarantee future returns. Liability limits. Every report, same boilerplate.
Analyst pay not tied to ratings. Your bonus can’t move because you called a SELL. Prevents gaming.

Kedge (RedeFin’s equity shop) operates as SEBI-registered RAs. Everything meets conflict standards. Everything is institutional-grade.

The Mid-Cap Opportunity & Research Gap

Mid-cap India (₹10,000-50,000 Cr) has crushed Nifty 50-5-7% annual outperformance over five years. Yet less than 30% of research coverage. Massive gap. This is where money is made.

Kedge digs here: mid-cap industrials, IT services, consumer, healthcare, fintech. Why? (1) Real growth, (2) prices misprice constantly, (3) deep analyst work unearths 10-baggers. Brokers chase mega-caps. This space is mine.

From Research to Action: The Institutional Workflow

The playbook:

Scan research. In-house analysts, external reports. Find thematic ideas fitting the mandate.
Validate the thesis. Commission deep work. Run models. Interview management. Peer analysis. Is this real or marketing?
Build position slowly. 2-8 weeks. Don’t tip off the market.
Monitor quarterly. Subscribe to updates. Earnings previews. Is the thesis still intact?
Exit when thesis breaks. Fundamentals re-rated. Fair value hit. Position trimmed or unwound.

Research feeds conviction. Conviction feeds execution. Execution feeds returns. Quality of research directly moves alpha. Garbage in-garbage out.

Why Independent Research Matters More Than Ever

Three forces pushing institutions toward independents:

1. MiFID II Unbundled Everything

Europe’s rule (2018): clients pay separately for research. Decouples research from trading commissions. Global shift. Institutions now expect conflict-free analysis, not bundled brokerage giveaways.

2. Institutional AUMs Exploding

₹50+ lakh Cr in Indian equities managed by funds, pensions, insurers. They can afford premium research. They demand specificity. Boutique analysts deliver. Large brokers can’t.

3. Mid-Cap Coverage Desert

Nifty Midcap outperforms. Yet it’s under-researched (brokers chase mega-caps). Independents fill the void. Rigorous, thematic analysis on 150+ stocks nobody else touches.

Key Takeaways

Equity research is systematic company analysis that produces fair value and investment recommendations for institutional and professional investors.
Three research types serve different institutional needs: sell-side (broker-published, execution-linked), buy-side (internal to funds, proprietary), and independent (paid, conflict-free).
Institutions evaluate research on target price accuracy, earnings estimate quality, sector coverage depth, and idea originality.
India’s 600+ SEBI-registered analysts operate under strict conflict-of-interest rules, creating a regulated, professional market.
Mid-cap India (₹10,000-50,000 Cr) is under-researched but outperforming large-cap indices; this gap creates alpha opportunities for rigorous analysts.
Independent, paid research is growing 20%+ annually as institutions value conflict-free, deep analysis for investment decisions.

Frequently Asked Questions

Q1: Is equity research still relevant post-passive investing boom?

Yes. While passive (index) investing has grown, active management still controls ₹25+ lakh Cr in Indian equities. These managers need research to generate alpha. Also, passive investing itself relies on research: index methodologies reflect analyst judgements about sector weighting, constituent selection, and earnings forecasts.

Q2: How do institutions decide which research to subscribe to?

Institutions evaluate: (1) analyst track record (hit rate, accuracy), (2) sector expertise and coverage gaps relevant to their mandate, (3) research depth (full models vs. Surface-level notes), and (4) cost relative to perceived alpha upside. A mid-cap specialist with 60%+ target price accuracy may command higher fees than a consensus large-cap analyst.

Q3: Can individual investors access institutional equity research?

Partially. Sell-side research from brokers is often free or subsidised to retail clients. Independent research is typically subscription-based and pitched to institutions, but some analysts (including Kedge) publish curated insights for retail audiences. DIY investors should be cautious about free research (check for conflicts) and favour sources with transparent track records and SEBI registration.

Q4: What is the difference between equity research and stock tips?

Equity research is systematic, model-backed analysis with documented assumptions and valuation. A “stock tip” is typically anecdotal, unmodelled, and unaccountable. Research should always show its work (assumptions, model, valuation methodology); tips rarely do. If you can’t see the financial model and assumptions, it’s not research-it’s speculation.

What’s Next?

Institutional investors looking to deepen their equity research discipline should consider:

Subscribing to sector-specific independent research aligned with portfolio thematic (e.g., rural India, infrastructure, IT services).
Building in-house research capability for non-consensus or under-covered stocks where information asymmetry creates alpha.
Auditing broker research for conflicts and consistency-compare sell-side recommendations to actual trading flows.
Engaging with research analysts directly (earnings calls, management meetings) to stress-test assumptions and build conviction.

The institutions that win are those that treat research not as a commodity but as a core input to investment discipline. Better research input. Better decision-making. Better returns.

Tag: institutional investors

How Institutional Investors Use Equity Research to Make Better Decisions