Uplifting research standards: CFA Capital Market Awards a springboard for the equity research profession

The ninth annual CFA Capital Market Awards organized by CFA Society Sri Lanka – scheduled for June this year – looks to recognize and reward professionals who have established benchmarks for the advancement of domestic capital market participants. In the lead-up to the event, the CFA Society shines a light on winning entities from the 2021 edition of the awards, giving voice to valuable insights from participating over the years.

The Best Equity Research Report is one of five major accolades presented at the CFA Capital Market Awards. Through this, CFA Society Sri Lanka aims to reward and recognize analysts producing best-in-class research, and promote best practices in fundamental equity research and an informed, efficient capital market.

Softlogic Stockbrokers has bestowed the Gold award in the Best Equity Research Report category for 2021. Speaking of the awards, Managing Director Softlogic Capital PLC Iftikar Ahamed noted “Softlogic Stockbrokers have taken part in the awards since its inception, winning a number of accolades over the years. Our research team at Softlogic Stockbrokers continuously strives to provide timely and relevant insights to both our investors and our internal investment decision-makers. Therefore, we commend CFA Society Sri Lanka for recognizing industry analysts and providing them the incentive to raise standards further”.

Reflecting on the role of investment research today, Head of Research at Softlogic Stockbrokers Mahesh Udugampala says: “It plays an important part not only at Softlogic Stockbrokers but across the Softlogic Capital arm of the business, including corporate finance and fund management. All our recommendations are backed by in-depth analysis and research.”

There are, however, challenges, in conducting company research, with limited access to company details and data not being comparable across sectors chief among them. Udugampala also notes that on the macroeconomic side, while Sri Lanka’s databases are considered relatively good for a developing country, access to information is not on par with developed countries and so improvement is needed.

Furthermore, although there’s been an improvement over the years in terms of transparency, many companies are yet to fully appreciate that being transparent with company information can lead to better research and valuations, Udugampala asserts.

Maintaining consistency in research publications is vital, as is striking a balance so that investors are not overwhelmed with information. To this end, Udugampala opines that “it can be challenging to be consistent with research because, from a Sri Lankan perspective, macroeconomic conditions seem to change every day. But we look to provide core coverage in a consistent manner, without spamming investors, who are becoming increasingly busy and don’t have the time to read through all of the research reports available.”

From an analyst’s standpoint, it is also important to have soft skills – being able to articulate investment themes and speak with investors – as well as an understanding of the ground realities, according to Udugampala.

He elaborates: “Many broking houses and research analysts are Colombo-centric and tend to miss out on what’s happening in the rural economy. As an analyst, it’s important to have a finger on the pulse of what’s happening out there in the villages and how the demand dynamics change.”

On the subject of Environmental, Social and Governance (ESG) reporting, he observes that while most companies are usually focused on governance, there is an increased focus on sustainability reporting, with environmental and social aspects gaining traction, with CFA also promoting these practices: “There have been many programs conducted and investors are increasingly looking at this area. The CFA Research Challenge criteria include a separate section on ESG concerns, which encourages analysts to consider those angles when researching a company.”

“We are seeing more focus on sustainability. Listed corporates are giving greater emphasis to sustainability practices in their financial reports as well,” adds Shadini Silva, Manager – Equity Research at Softlogic Stockbrokers.

Spotlight on CFA Capital Market Awards

Softlogic Stockbrokers’ Gold award-winning achievement at the 2021 CFA Capital Market Awards is mainly attributed to its report incorporating in-depth research, coupled with presenting it in a manner that was easy for investors to absorb and understand. Silva further notes that the report “was more focused on graphics for ease of use and understanding, in line with the prevalent trend.”

As for the benefit of winning the accolade, Udugampala says it confirms positive perceptions regarding the quality of work: “This award offers immense recognition as it’s conferred by CFA Society Sri Lanka. It cements the fact that our research is more reliable and accurate in the eyes of the investor.”

“The award also provides recognition for the credibility of the analyst and appreciates the hard work they put in,” adds Silva.

The impact of the awards on the investment research industry can be seen in the improved quality of research reports produced today versus five years ago, according to Udugampala: “The research is more in-depth and the quality improves every year as broking firms compete with each other to publish better research reports.”

Looking at the investment research products on offer, Udugampala and Silva note that the ways in which information is put across to investors require change. This includes shorter reports with a greater focus on graphs and clear explanations, along with more one-on-one conversations with investors and dissemination of information through social media platforms. As Silva points out, “in-person meetings via virtual platforms play a major role in communicating with investors, and research houses are giving more focus to this aspect.” Silva notes that these changes are now recognized as key judging criteria in the Capital Market Awards, which encourages the industry to raise its standards. 

Commenting on the role of the CFA Society, Udugampala states that further steps can be taken to improve financial literacy in the country: “CFA Society Sri Lanka has done a lot to develop the caliber of professionals working in the industry. For capital markets to develop there needs to be more investor participation, so greater awareness will prove key over the next couple of years.”

Silva echoes this sentiment, concluding that “the Colombo Stock Exchange (CSE) together with research houses and the CFA Society could conduct more awareness programs, which would directly benefit the next generation of investors in the country.”