NISM Series XV · Unit 4 of 15 · about 5% of the paper
Fundamentals of research: NISM Series XV notes and practice questions
The framework for doing research: approaches, sources and a disciplined process.
What to know in Unit 4
- Top-down and bottom-up.
- Qualitative and quantitative analysis.
- Research process and data sources.
Key terms, examples and exam traps
Top-down approach
The top-down approach starts with the economy, then selects industries and finally companies.
Example. An analyst first judges growth, then picks sectors, then picks stocks.
Exam trap. This statement is false: A top-down approach starts with a single stock.
Bottom-up approach
The bottom-up approach starts with individual company analysis and gives less weight to macro and sector views.
Example. An analyst picks strong businesses irrespective of sector or economy.
Exam trap. This statement is false: A bottom-up approach starts with the global economy.
Fundamental analysis
Fundamental analysis estimates a security's intrinsic value from economic, industry and company factors and compares it with market price.
Example. An analyst studies earnings and cash flow to judge fair value.
Exam trap. This statement is false: Fundamental analysis relies only on price charts.
Technical analysis
Technical analysis studies price and volume history to forecast future price moves, assuming patterns repeat.
Example. An analyst studies charts and indicators rather than financial statements.
Exam trap. This statement is false: Technical analysis studies a company's balance sheet.
Qualitative analysis
Qualitative analysis assesses non-numerical factors such as management quality, brand, competitive position and governance.
Example. An analyst evaluates the integrity and track record of the management.
Exam trap. This statement is false: Qualitative analysis uses only financial ratios.
Quantitative analysis
Quantitative analysis uses numerical data and models, such as ratios, forecasts and statistics, to evaluate securities.
Example. An analyst builds a forecast model of revenue and profits.
Exam trap. This statement is false: Quantitative analysis ignores numbers.
Intrinsic value
Intrinsic value is the estimated true worth of a security based on fundamentals, which may differ from market price.
Example. A stock priced at ₹80 is estimated to be worth ₹110.
Exam trap. This statement is false: Intrinsic value is today's market price.
Primary and secondary data
Primary data is collected directly by the analyst, such as management interviews and channel checks; secondary data is taken from existing sources like filings.
Example. An analyst visits a plant to gather information first-hand.
Exam trap. This statement is false: Annual reports are primary data collected by the analyst.
Research process
The research process involves defining the objective, collecting data, analysing, valuing, forming a view, writing and monitoring.
Example. An analyst follows steps from data gathering to publishing and updating.
Exam trap. This statement is false: The research process ends with the first report.
Margin of safety
Margin of safety is the gap between intrinsic value and the price paid, providing a cushion against errors in estimation.
Example. An analyst buys only when price is well below estimated value.
Exam trap. This statement is false: A margin of safety means paying more than intrinsic value.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which term is described here? Fundamental analysis estimates a security's intrinsic value from economic, industry and company factors and compares it with market price.
- Fundamental analysis
- Bottom-up approach
- Inflation
- Sum-of-the-parts
Q2. Which statement best describes “Primary and secondary data”?
- The quick ratio excludes inventory from current assets and divides by current liabilities, a stricter test of liquidity.
- Primary data is collected directly by the analyst, such as management interviews and channel checks; secondary data is taken from existing sources like filings.
- The cup and handle is a bullish continuation pattern with a rounded bottom followed by a small pullback before a breakout.
- The Sharpe ratio is excess return over the risk-free rate divided by standard deviation, measuring return per unit of total risk.
Q3. Which statement best describes “Quantitative analysis”?
- Clear language, supported claims and balanced treatment of positives and negatives make a report credible.
- Operating leverage depends on fixed versus variable costs; high fixed costs magnify profit swings as volume changes.
- A candlestick shows open, high, low and close for a period, with the body showing the open-to-close range and wicks showing extremes.
- Quantitative analysis uses numerical data and models, such as ratios, forecasts and statistics, to evaluate securities.
Q4. Which term is described here? The bottom-up approach starts with individual company analysis and gives less weight to macro and sector views.
- Cost structure
- Bottom-up approach
- Intrinsic value
- Prohibited compensation
Q5. Which term is described here? Qualitative analysis assesses non-numerical factors such as management quality, brand, competitive position and governance.
- Price-to-earnings multiple
- Qualitative analysis
- Advance-decline line
- Common-size statements
Q6. Which statement about “Top-down approach” is correct?
- Debt-to-equity is profit divided by equity.
- The RBI regulates research analysts.
- A top-down approach starts with a single stock.
- The top-down approach starts with the economy, then selects industries and finally companies.
Frequently asked questions
How much of NISM Series XV comes from Unit 4?
Unit 4 (Fundamentals of research) usually carries about 5% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series XV Unit 4?
Top-down and bottom-up. Qualitative and quantitative analysis. Research process and data sources.
Are these NISM Series XV practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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