Imagine you have just finished a detailed DCF valuation model for a prominent mid-cap firm. As you prepare to hit ‘publish,’ your firm’s investment banking head stops by your desk. They mention that they are pitching to the same firm to manage an upcoming acquisition and suggest that your ‘Buy’ rating and positive outlook would significantly improve their chances of winning the mandate. While the pressure to cooperate may seem like standard corporate teamwork, participating in this pitch is a direct violation of your professional mandate.
SEBI regulations strictly prohibit research analysts from engaging in business solicitation activities. This restriction exists because the moment an analyst becomes part of a sales pitch or roadshow, their objectivity is compromised by the firm’s commercial interests. You are expected to be an independent voice for the retail and institutional investor, not an extension of the investment banking department. When you participate in soliciting business, you create a perception—and a practical reality—that your research is a tool to facilitate deals rather than a genuine analytical product.
Consider the practical implications on your work. If you were involved in a pitch, your valuation model would face immediate skepticism from institutional clients, who would rightly wonder if your growth assumptions were inflated to please a potential client. By maintaining an ‘arm’s length’ relationship, you protect the integrity of your research process. This separation ensures that your model’s WACC, revenue projections, and risk assessments are governed by fundamental data rather than the strategic requirements of a banking department.
Ultimately, your role is to provide an honest, unvarnished view of a security’s potential. If you cross the line into business development, you lose the credibility that is essential to your career. When a potential client asks for your ‘support’ during a mandate pitch, your refusal to participate is not merely an act of defiance; it is the fulfillment of a core regulatory obligation designed to preserve the trust of the Indian securities market.
Nuance
Check Your Understanding
A research analyst is asked by their firm’s investment banking department to participate in a client meeting to provide an ‘independent’ perspective on a prospective client’s sector. Under SEBI (Research Analyst) Regulations, what is the correct course of action?
Which of the following activities is a research analyst strictly forbidden from performing to maintain compliance with the SEBI (Research Analyst) Regulations regarding business solicitation?
This is a companion read for Section 14.4 — Management of Conflicts of Interest and Disclosure Requirements for Research Analysts from PASS Research Analyst Certification Examination by Akhilesh Gururani, available on Amazon Kindle.
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