Paid Equity Research, Is it worth it?

In the past two months, few Blogs/websites – including the prominent S P Tulsian (www.premiuminvestments.in) are no longer available for free to the common public. We had been using them over a six month period and found them quite valuable. They analyzed typical mid cap and small cap stocks from an fundamental perspective with a long-term perspective. Without complicating the analysis, they came out with concise recommendations. No longer it is available now for free public use. This raises the query whether it is worthwhile for investors to pay for fundamental research.

Typically, Investors get detailed research reports from the following sources:

• Big brokerage houses like ICICIDirect, Motilal Oswal, and Kotak Securities offer free research when one signs up for their trading services.
• Brokers like India Infoline, HDFC securities offer some research for free to the pubic
• Blogs that offer third party research from a variety of sources. They have had content ownership issues, with research firms objecting (legitimately!!) to the usage of their research. The main challenge here is their unpredictability. The frequency is not predictable and the nature of research varies. Often the blog becomes unavailable after some time.

The other category is that of paid research. Again there are a couple of categories:

• Organized players like K R Choksey, Equitymaster offer paid research. The cost varies from Rs. 5000- 15,000 per year depending on the type of research (long-term, short-term calls, derivatives etc). The research universe is mainly for large-caps and mid-caps.
• Smaller players like S P Tulsian offer research, which covers small caps and ultra-small caps. The cost is again between Rs. 5,000-10,000 per year.

The question is whether is worthwhile going in for a paid research. It depends on the nature of the usage.

• If one is a serious player with a mid-cap, small-cap focus then following the specific content makes sense. Large cap research typically does not add significant value and it might be cost-effective to buy an index Exchange Traded Funds (ETF's).
• Market prices are liquidity driven in the short run. Market and company news again drives the price. Brokers have better access to this than retail investors and might provide topical research.
• For investors who add more than 4-5 lakhs per year to their portfolio, the cost of research (assume 10k) falls to 2%. This is the average mutual fund administration charge. For smaller portfolios, the cost of research is proportionately higher.

In summary, paid research is a worthwhile investment for research for serious investors with large portfolio. For others, there is enough "free" research to keep you informed and occupied.