Investment Banking in India

Investment banking

An investment

banking is a financial

institution that assists

individuals,

corporations and

governments in

raising financial

capital by

underwriting or acting

as the client’s agent in

the issuance of

securities or both.

Top 10 investment banking firms in India

ABN-AMRO BANK

AUSTRALIA – NEW ZEALAND BANKING GROUP LTD

CITI BANK

DEUTSCHE BANK

J.P.MORGAN PRIVATE LTD

GOLDMAN SACHS SERVICES PRIVATE LTD

HSBC SECURITIES & CAPITAL MARKETS PRIVATE LTD

LEHMAN BROTHERS FINANCIAL SERVICES (INDIA) PRIVATE LTD

D.S.P.MERRILL LYNCH LIMITED

MORGAN STANLEY INDIA COMPANY PRIVATE LTD

Who are an investment bank's main clients?

Corporates: operating companies in sectors including energy,

retail, construction, technology, etc. and other financial services

organisations.

Funds: investment vehicles which pool investors' assets and

follow a particular investment strategy

Sovereigns: governments, but also quasi-governmental

institutions

High net worth individuals: Usually defined as per terms of an

organization.

The bank itself: some of a bank's trading and investment

activities are conducted not for an external client but to make

profits for itself, or to protect the bank against risks.

What do investment banks do for their clients?

( Role of Investment Bank)

• Giving advice: advising clients on buying and selling companies,

raising money, economic risk management

• Investment management: advising on and managing the

investment of assets.

• Providing financing: making loans to and purchasing the shares

of corporates.

• Trading: buying and selling shares, debt products, commodities,

derivatives and related products on behalf of clients and to make

money for the bank.

• Research: Monitoring industry trends and economic

developments for the bank's own purposes and for clients.

Activities of a Typical Investment Bank

• Raise equity capital (e.g., helping launch an IPO or creating a

special class of preferred stock)

• Raise debt capital (e.g., issuing bonds to help raise money for

a factory expansion)

• Insure bonds or launching new products (e.g., such as credit

default swaps)

• Engage in proprietary trading where teams of in-house

money managers invests or trades the company's own money

for its private account.

How do investment banks make money from

offering these services to their clients?

• Fees: charged for advice, providing finance, keeping money

available for clients, arranging financing for clients from other

parties, trading services, investment services, and research.

• Dividends: income from investments made in shares.

• Interest: income from loans made.

• Investments: profits from investments made.

• Trading: profit made from buying and selling securities.

The Buy Side vs. Sell Side of an Investment Bank

• The sell side typically refers to selling shares of newly issued

IPOs, placing new bond issues, engaging in market making

services, or helping clients facilitate transactions.

• The buy side, in contrast, worked with pension funds, mutual

funds, hedge funds, and the investing public to help them

maximize their returns when trading or investing in securities

such as stocks and bonds.

Investment banks are divided into three categories

• Front Office Investment Bank Services - helping companies

in mergers and acquisitions , corporate finance , professional

investment management.

• Middle Office Investment Bank Services - include

compliance with government regulations and restrictions.

• Back Office Investment Bank Services - handles things

such as trade confirmations, ensuring that the correct

securities are bought, sold, and settled for the correct

amounts etc.

Need for Investment Banking

• Provision of finance: IB provide money and access to other

sources of money. Without this money, these businesses

couldn't function.

• Advice: IB advise corporates, on the best ways to use their

money and to conduct transactions, which helps to foster

economic growth and stability.

• Risk management: Allow companies and governments to

effectively manage risks, ensuring that the effect of these

issues on the real economy is minimized.

• Information: IB provide analysis of corporate activity and

economic trends which assists the financial sector, government

policy makers, businesses and ordinary people.

How are their activities regulated?

• Capital adequacy

• Activities undertaken

• Trading on their own behalf

• Insider dealing

• Money laundering

• Transparency

• Pay

Activities in Mergers & Acquisitions?

Vital market intelligence

Preparing a list of prospective targets

Assessment of the current valuation is done to know the price expectations

Documentation

Management meetings

Negotiation terms and closing documents

Principal tasks of the investment bank in

IPO

• Assess the company's suitability for listing.

• Participate in drafting the prospectus and coordinating due

diligence.

• Determine the price and underwrite the offering.

• Liaise with regulatory authorities.

• Oversee settlement, including underwriting and the exercise of

any over-allotment option and price-stabilization mechanisms,

as required.

• Market the offering and book building (if required).