In India, research reports are free, so research in effect is a cost centre
The positives:
* Analysts find undervalued stocks and recommend these stocks to existing and prospective clients who can profit from this.
* brokers who cover institutional clients will cover large caps
The not so positives:
* The prime objective of a research report is to induce a transaction. It allows the sales force to go out into the market, sell stocks and generate commissions. Every transaction brings in broking income
* It is essential to bring out a "buy" report. This will help target new and existing clients. A sell report will impact only those clients who hold that stock. By perception, people rather buy low and sell high. Not many people involve in short selling.
* At times, the owner of a broking firm or the portfolio of a broking firm might have a stock that is not doing well. It might then release a Buy report which might cause interest in the market and thus help increase its price.
Solutions:
* An investor should be able to differentiate reports based on which broking house is originating the report
* There is a disclosure section, large brokerages state whether they own the stock or a sister firm of the brokerage has an investment banking relationship with the company. This is something a retail investor should look for.
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