Technical Analysts in a Fix Over Sebi Registration

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MUMBAI: Technical analysts are in a bind over the test module for research analysts’ registration as it focuses more on fundamental analysis than technical analysis of the stock market. Sources said that a few of the large brokerage firms have raised this issue with the market regulator Sebi and have also suggested introducing a separate test module for technical analysts, wishing to register under the new Research Analyst regulations.

“Many feel that the test is unfair to technical analysts because the test curriculum contains quantitative aspects like balance sheet analysis, something which they do not focus on, on a day-to-day basis. This is to some extent delaying their registration process” said Dharmesh Kant, vice president-strategies and fund manager (PMS), IndiaNivesh Securities.

The Securities and Exchange Board of India (Sebi) had recently mandated research analysts to be certified by the National Institute of Securities Market (NISM).

“An individual registered as research analyst under these regulations, individuals employed as research analyst and partners of a research analyst, if any, shall have, at all times, a NISM certification for research analysts as specified by the Board or other certification recognized by the Board from time to time” states the Sebi research analysts regulations.

The curriculum available on the NISM website shows a clear skew towards fundamental analysis. “Understanding technical analysis” is sub-set within one of the chapters in the curriculum. There are 13 chapters in all in the test module.

Technical analysts believe it is an unfair representation of the research analysis done in the industry.

“The curriculum at present is even silent on derivative analysis which has gained popularity in the past few years. It is unfair to test a technical guy based on his knowledge of fundamental aspects which does not even come under his purview” said a senior technical analyst with a domestic brokerage firm who did not wish to be named.

Another senior analyst in the industry said that the issue was also because of the lack of depth in technical analysis in India. “In India we do not even have a standard definition of what is a bull market or a bear market. Technical analysis in India looks at the series of higher highs or higher lows or a correction or upswing of 20 per cent or more to determine a bull or bear market. Having a well-defined test module will also help address this issue,” said the analyst.

Analysts said that regulator could look at the curriculum given in the Chartered Market Technician (CMT) or the CFTe which is widely accepted as the standard for technical analysts in the US and the UK, respectively.

Typically, fundamental analysis of the stock market differs from the technical analysis of it. Fundamental analysis observes data-points like those present in the financial statements of companies and is more long-term in nature. Fundamental analysis is mainly used by investors looking at long-term returns from the market.

Technical analysis is more short-term in nature. It observes stock movement patterns over a period of weeks, days and in some cases, even minutes. Technical analysis is used more by traders who are looking at short-term strategies and returns.

Industry experts said that the demand for technical analysis in the market had increased with the rise in the number of traders in the market. The recent volatility in the market has made investors create positions in the derivatives segment to hedge their risks. Understanding this risk requires technical analysis, experts said.

“To take advantage of the volatility in the market, traders create positions in the F&O segment. But along with risk-management strategies should also be in place. That would only come through technical analysis” said Sahaj Agrawal, deputy vice president – derivatives research, Kotak Securities.

Industry officials said that the number of technical analysts in broking firms has increased as had the number of independent technical analysis.

(This Article first appeared with Business Standard)

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