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NCCMP PROJECT

ROLE OF INVESTMENT BANKERS IN INDIAN STOCK MARKET


An empirical study
By: Abhinav Aggarwal

Contents
Acknowledgement ........................................................................................................................................ 2 Introduction .................................................................................................................................................. 3 Evolution of investment banking in India ..................................................................................................... 5 Registration of investment bank ................................................................................................................... 6 Grant of certificate ........................................................................................................................................ 7 What is Investment Banking? ....................................................................................................................... 8 Provision of financial advice ..................................................................................................................... 8 Mergers and Acquisitions (or "M&A") .................................................................................................. 9 General financial advice .......................................................................................................................... 10 Capital raising.......................................................................................................................................... 10 Ways of Raising Capital ....................................................................................................................... 11 The Initial Public Offering and the Regulatory Framework ........................................................................ 12 The IPO Process....................................................................................................................................... 12 The Regulatory Framework for IPOs ....................................................................................................... 14 The Role of the Investment Banker in the IPO Process .......................................................................... 15 Competition in the Indian Investment Banking Industry ............................................................................ 19 Drivers of Competition............................................................................................................................ 19 Capabilities of an Ideal Investment Banker ............................................................................................ 20 List of some investment banks in India....................................................................................................... 21 Current and Expected Future Trends.......................................................................................................... 26 Bibliography ................................................................................................................................................ 27

Acknowledgement
A project report or a research cannot be completed without the assistance, guidance and inspiration of knowledgeable people.

I therefore will like to pay my special thanks to my institute and my faculty who gave me this great opportunity to complete this project.

I am thankful to my project guide Mr. Kumar Bijoy who advised me the area for project. His excellent guidance, helpful advices played a vital role in completion of this project.

I am also thankful to my Parents and Friends who showed me the right path and supported me all through the development of the project.

This project has been proved rewarding in more than one way and I am thankful for this to all above mention and to all those who remained unmentioned here.

Abhinav Aggarwal

Introduction
Investment banking is a specific division of banking related to the creation of capital for other companies. Investment banks underwrite new debt and equity securities for all types of corporations. Investment banks also provide guidance to issuers regarding the issue and placement of stock. In addition to the services listed above, investment banks also aid in the sale of securities in some instances, they also help to facilitate mergers and acquisitions, reorganizations and broker trades for both institutions and private investors. They can also trade securities for their own accounts. Investment banking is the process of raising capital for businesses through public floatation and private placement of securities. The investment banking industry plays an important intermediation function in all market economies. The regulatory framework for initial public offering, competition within the India. An investment banking industry and capabilities of an ideal Investment Banker are also discussed. Investment banking in India is a relatively new phenomenon exhibiting low level of competition. There are presently few registered Licensed Dealing Members (LDMs) engaged in investment banking activities. Most of the capabilities of an ideal investment banker are also lacking. Recommendations are thus made for Indian investment banks to improve on these capabilities in order increase the competition within the investment banking industry and subsequently attract more firms to go public. Investment banking is the process of raising capital for businesses through public floatation and private placement of securities. Investment banks work with companies, governments, institutional investors and wealthy individuals to raise capital and provide investment advice. Originally, investment banking meant the underwriting and distribution of securities. Today investment bankers also invest a lot of effort into helping companies design deals and the securities to finance them, and then use their brokerage arms to sell the securities to the investing public, both retail and institutional. The investment banking industry is central to the market-based economy. By bringing together entities in search of new capital and investors, usually institutional investors, the investment banking industry play an important intermediation function in all market economies. Just like most developing
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countries, investment banking in India is a relatively new phenomenon. However, if the experience of other counties is indicative of what is likely to happen, then it is likely that in the future, companies will increasingly migrate from bank finance to capital market financing for their long term capital needs. The India Stock Exchange (GSE) for instance started with 3 Licensed Dealing Members (LDMs) in 1990. Currently, it has 14 LDMs. By any standard, this has been a growing industry. Unfortunately, the growth has been uneven. Only a handful of firms have had a significant impact on the market. The Exchange has 26 listings of equities, 4 corporate bonds and 14 LDMs. This implies that there are approximately 1.9 listed companies per LDM. In many cases such as Ashanti Goldfields Company, India Commercial Bank and SSB Bank, the Initial Public Offerings (IPOs) involved offloading of shares held by the government with relatively little capital going to the companys involved for real investment. With a less efficient financial market like Indias, plagued with various problems in accessing long-term funds, any company intending to raise capital find itself in a precarious position. It is very crucial then for such a company to select an ideal Investment Bank to guide its efforts in raising long-term capital. Financing of a companys investments is seen as part of its financial planning process. Financial planners need to evaluate every aspect of this decision process in order to come up with the best source and approach to raising longterm funds. An important consideration in taking this decision includes the selection of an Investment Banker to help the business in raising the needed funds. The decision variables in this direction will depend on established standards the company can rely on in order to identify the most qualified Investment Banker (Manaster and Carter, 1990).

Evolution of investment banking in India


The origin of investment banking in India can be traced back to the 19th century when European merchant banks set-up their agency houses in the country to assist in the setting of new projects. In the early 20th century, large business houses followed suit by establishing managing agencies which acted as issue house for securities, promoters for new projects and also provided finance to Greenfield ventures. The peculiar feature of these agencies was that their services were restricted only to the companies of the group to which they belonged. A few small brokers also started rendering Merchant banking services, but theirs was limited due to their small capital base. In 1967, ANZ Grindlays bank set - up a separate merchant banking division to handle new capital issues. It was soon followed by Citibank, which started rendering these services. The foreign banks monopolized merchant banking services in the country. The banking committee, in its report in 1972, took note of this with concern and recommended setting up of merchant banking institutions by commercial banks and financial intuitions. State bank of India ventured into this business by starting a merchant banking bureau in 1972.In 1972, ICICI became the first financial institution to offer merchant banking services. JM finance was set-up by Mr. Nimesh Kampani as an exclusive merchant bank in 1973. The growth of the industry was very slow during this period. By 1980, the number of merchant banks rose to 33 and was set-up by commercial banks, financial institutions and private sector. The capital market witnessed some buoyancy in the late eighties. The advent of economic reforms in 1991 resulted in sudden spurt in both the primary and secondary market. Several new players entered into the field. The securities scam in May, 1992 was a major setback to the industry. Several leading merchant bankers, both in public and private sector were found to be involved in various irregularities. Some of the prominent public sector players involved in the scam were can bank financial services, SBI capital markets, Andhra bank financial services, etc. leading private sector players involved in the scam included Fair growth financial services and Champaklal investments and finance (CIFCO). The market turned bullish again in the end of 1993 after the tainted shares problem was substantially resolved. There was a phenomenal surge of activity in the primary market. The registration norms with the SEBI were quite liberal. The low entry barriers coupled with lucrative opportunities lured many new entrants
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into this industry. Most of the new entrants were undercapitalized with little or no expertise in merchant banking. These players could hardly afford to be discerning and started offering their services to all and sundry clients. The market was soon flooded with poor quality paper issued by companies of dubious credentials. The huge losses suffered by investors in these securities resulted in total loss of confidence in the market. Most of the subsequent issues started failing and companies started deferring their plans to access primary markets. Lack of business resulted in a major shake out in the industry. Most of the small firms exited from the business. Many foreign investment banks started entering Indian markets. These firms had a huge capital base, global distribution capacity and expertise. However, they were new to Indian markets and lacked local penetration. Many of the top rung Indian merchant banks, who had string domestic base, started entering into joint ventures with the foreign banks. This energy resulted in synergies as their individual strength complemented each other.

Registration of investment bank


Compulsory Registration: Investment bankers require compulsory registration with the SEBI to carry out their activities. They fall under four Registration categories 1. Category I - Investment bankers can carry on any activity related to issue management, that is, the preparation of prospectus and other information relating to the issue, determining the financial structure, tie up of financiers, final allotment of securities, refund of the subscription and also act as advisors, consultants, managers, underwriters or portfolio Managers. 2. Category II - Investment bankers can act as advisors, consultants, comanagers, underwriters and portfolio Managers. 3. Category III Investment bankers can act as underwriters, advisors and consultants to an issue. 4. Category IV - Investment bankers can act only as adviser or consultant to an issue. Thus, only category I Investment bankers could act as lead managers to an issue. With effect from December 9, 1997, however, only Category I Investment bankers are registered by the SEBI. To carry on
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activities as portfolio managers, they have to obtain separate certificate of registration from the SEBI.

Net worth requirement for Registration is as follow: 1. 2. 3. 4. Category I : Rs. 5,00,00,000 Category II : Rs. 50, 00, 000 Category III :Rs. 20, 00, 000 Category IV : Nil

Grant of certificate
The SEBI grants a certificate of registration on consideration of all matters that are relevant to the activities related to the Investment banker: (a) Investment bankers should also be a body corporate other than a nonbanking financial company. However, an Investment banker who has been granted registration by the RBI to act as Primary Dealer may carry on such activity subject to the condition that it would not accept / hold public deposit, (b) They are expected to have the necessary infrastructure like adequate office space, equipment and manpower to effectively discharge their activities (c) They should have employed at least two persons with experience to conduct Investment banking business (d) Any person directly or indirectly connected with the applicant, (e) They fulfill the capital adequacy requirement of a minimum net worth of Rs. 5Crore (f) Partners, directors and principal offices should not be involved in any litigation connected with the securities market, which has an adverse effect on their business

(g) Have recognized professional qualification in finance, law or business management and or their registration is in the interest of the investors and (h) The applicant is a fit and proper person. The provisions of the SEBI criteria for Fit and proper person regulations discussed below would be applicable to the applicants.

What is Investment Banking?


Investment Banking falls under two broad headings: The provision of financial advice. Capital raising.

Principal clients are companies, particularly publicly listed companies, and governments. For companies, these services are primarily directed towards raising shareholder value (that is, ensuring that the share price fully reflects the value of the business); and the actions prescribed are corporate actions (taking over another company, selling a division, returning cash to shareholders by paying them a special dividend, etc.). For governments, these services are usually directed at executing government policy, for example by selling off, or privatizing, government-held businesses or industries.

Provision of financial advice


As noted above, investment banking advice relates to corporate actions rather than product or organizational matters, such as product improvement, market analysis or management of organization. Nonetheless, an investment banker needs to have an understanding of all these things because they, too, will have an impact on shareholder value.

Mergers and Acquisitions (or "M&A")


The majority of financial advice relates to M&A. The client company seeks to expand by acquiring another business. There are many possible commercial reasons for this, such as: increasing the range of products increasing the business' geographical footprint complementing existing products integrating vertically (i.e. acquire suppliers, further up the chain, or customers, further down the chain) Protecting a position (for example by preventing a competitor from acquiring the business in question).

In practice therefore, Investment Banking divisions tend to be divided into industry sector teams, who can then familiarize themselves with the principal players, economics and dynamics of the sector. There are also many possible financial reasons for making an acquisition, such as: raising profitability, and therefore the share price increasing in size followed and more widely invested in; again, likely to have a positive effect on the share price financing growth improving quality of profits - the market likes predictable profit streams, and will value these more highly Shifting the business towards sectors more favorably viewed by the market.

The Investment Bankers' roles in these transactions involve: using their knowledge of the industry sector, to help with the identification of potential targets which meet commercial criteria such as those referred to above using their knowledge of the investment market, to advise on valuation, form of consideration (should the sellers be paid in cash - which is likely to involve the buyer borrowing the money - or in the buyer's shares - so that

the seller ends up with a stake in the buyer, or a blend of the two?), timing, tactics and structure coordinating the work of the other advisers involved in the transaction lawyers, who prepare the documentation for the acquisition and help with the "due diligence" to be performed on the business being acquired; accountants, who advise on the financial reporting aspects of the transaction, and tax consequences; brokers, who advise on shareholder aspects (how are the buyer's shareholders likely to view the acquisition?) and how the market as a whole is likely to receive the transaction; and public relations consultants, who ensure that the transaction has a favorable press.

General financial advice


Investment Banking also involves providing general financial advice on a range of issues, such as funding structure (perhaps the company is too indebted, and should issue shares to raise more money; or does it have too much cash on its balance sheet, just sitting there not earning interest, so that it should consider paying a large dividend to its shareholders or buying back some of its own shares?).

Capital raising
If a company is to grow, it has to invest and, often, that capital comes from external sources. This can be in the form of either "equity", when the company issues more shares to investors, who buy them for cash; or debt, either from banks or - more usually nowadays - directly from investors. Investors may be either institutional (pension funds and the like) or retail (individuals).Investment Banks advise on the raising of capital - in what form, how much, from whom, timing - and may also charge a fee for arranging the financing or for "underwriting" (guaranteeing to take up any securities that are unsold in the market, so that the issuer knows for sure how much cash it is going to raise and can plan accordingly).

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Ways of Raising Capital


There are several ways of raising equity capital: These are discussed below: 1. Rights Offerings: Most company regulations or charters allow shareholders to have a pre-emptive right in additional stock issues. Thus, anytime the company wants to raise additional equity capital, it must make a formal offer to existing shareholders before it can seek the interest of potential outside investors. Where it sells additional stock issues to existing shareholders, it is called a rights offering. This offer may be renounceable or non-renounceable. A renounceable rights offering gives the shareholder the option to exercise his right to purchase the new shares at the issue price. A non-renounceable rights offering obligates the shareholder to exercise his rights at the issue price. 2. Public Offerings: Where the corporate charter or regulations are silent on pre-emptive rights of existing shareholders, it may decide to sell new shares or stock through a rights offering or a public offering. 3. Private Placements: This method of selling securities is generally used by companies who are interested in reducing their floatation costs and are interested in a specific group of investors. Under private placements, new stocks are sold to one or a few investors, generally institutional investors who invest in large blocks of shares. 4. Employees Purchase Plans and Employee Share/Stock Ownership Plan: In most organizations, the regulations or charter allows employees to purchase the shares of the company usually at predetermined prices based on the financial performance of the entity. This usually affects managerial staff in order to reduce the prevalence of the principalagency problem.

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The Initial Public Offering and the Regulatory Framework


At this stage we will focus on the Initial Public Offering (IPO) process, the regulatory framework within which the activity is organized and the role of the investment banker.

The IPO Process


Many writers in corporate finance have given different descriptions of the initial public offering process. A combination of the approaches used will yield the best description of this process. Brigham et al (1999), divides the process into two distinct stages: Stage-one decisions are internal to the company while stagetwo involves the company and an investment bank or investment banks. Some writers (Weston and Copeland, 1989; Brealey and Myers, 1994; Grinblatt and Titman, 2002) give a summary of the process by focusing on decisions concerning pre-registration statements to the trading of the securities on stock exchanges. This study describes the process under sections Phase-I and Phase-II IPO decisions. Phase-I IPO Decisions: At Phase-I, IPO decisions usually start with the company making decisions in the following areas: 1. Amount to be raised: The decision variable here is the amount of new capital needed by the firm. 2. Type of Securities to use: This stage of the process will consider the best security to use; the firm would have to choose from basic forms such as shares, bonds or other innovative types, which may include various combinations of securities usually called exotic securities. The choice of security and the method of selling will normally fall within the regulatory framework of the securities industry. 3. Competitive bids versus a Negotiated deal: Should the company offer a block of securities for sale to the highest bidder? Or should it negotiate a deal with an investment banker? Competitive bids normally are used by large well-known firms whiles negotiated deals
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are used by small firms not known to the investment banking community. 4. Selection of an Investment Banker: the firm must decide on the investment banker to use in raising the needed capital. This stage is very important to the firm, as it tends to have other implications on the success of the IPO process. The intensity of the problem faced by the issuing firm may stem from the fact that there is no model to rely on in selecting an investment banker to make the IPO successful (Manaster and Carter, 1990). Reputable investment banks target more established firms whiles other investment banks are good at speculative issues or new firms going public. Phase-II IPO Decisions: At Phase-II, decisions include the input of the firms selected investment banker. Components of Phase-II decisions generally include the following: 1. Re-evaluating the initial decisions: At this stage, the firm and its investment banker will have to re-evaluate regarding issues such as size of the issue and type of securities to use etc. These decision processes are organized under pre-underwriting conferences as espoused by Weston and Copeland (1989). The main aim of the reevaluation processes is to fine-tune the internal decisions of the company under Phase-I. This is to ensure the success of the issue. 2. Filing of Registration: The investment banker, after taking an inventory of all the relevant information, it has to file an application with the Securities and Exchange Commission (SEC) and the stock exchange if it wants the shares to be publicly traded. In India, the securities industry laws (SIL) however allow applications to be filed with the GSE before it is filed with the SEC. Without the examination and approval by these regulatory bodies, public sale of the security can never begin. 3. Pricing of the Security: Another important decision at this phase is the pricing of the security. This depends on a plethora of issues, usually resolved through the research or experience of the investment banker. The important issues considered here include, the risk profile of the issuer, the capacity of the market to accommodate the issue, the reputation of the investment banker etc. The pricing of the issue has been identified as one of the
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sources of controversy between the issuer and the investment banker (Weston and Copeland, 1989; Brigham et al, 1999; Grinblatt and Titman, 2002). 4. Forming the Underwriting Syndicate: In underwriting of security issues, the managing/selected investment banker may or may not be in the position to underwrite the whole issue. Where it is unable to underwrite the issue, it may have to form an underwriting syndicate. This will ensure the diversification of underwriting risk to the managing investment banker and permits economy of selling effort and expense and encourages nationwide distribution. 5. Forming of the Selling Group: The selling group is formed to facilitate the distribution of the issue for a commission. The managing investment bank through the selling group agreement, which usually covers the description of the issue, concession, handling of purchased securities and duration of the selling group, is able to control the selling group. 6. Offering and Sale: The last important step in this process is the formal sale of the securities after the approval by the regulatory authorities. This is usually preceded by a series of publicity campaigns. The date on which the selling of the issue will begin is made public before or during the publicity campaign in order to avoid unfavorable events or circumstances. The process in India is very much the same as what pertains in other economies. Differences may be found in the regulatory framework within which it is organised. Important requirement in India for a company going public is the appointment of an investment banker to guide it through the process.

The Regulatory Framework for IPOs


The securities industry is under the watchful eyes of the SEC. This regulatory body derives its powers from the Securities Industry Law (PNDCL 333, as amended by Act590). This piece of legislation empowers the SEC to oversee all matters relating to the issue securities within the broad framework of existing laws. Its authority also extends to the supervision of the activities of major players in the industry including investment banks.
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Another recognized authority in this market is the GSE through its regulations aimed atsafeguarding the interest of investors. It is also considered as a selfregulatoryorganisation since its rules and regulations guide its members with regards to transactions conducted on and off the exchange. It however derives its source of existence from the provisions in the Stock Exchange Act and PNDC Law 333. The GSE also relies heavily on other legislative instruments such as LI 1509 (Regulations Membership) and Listing Regulations (LI 1510) to effectively regulate transactions on the exchange. The memberships regulations are clear the basic requirements to satisfy if an individual or corporate body desires to become a member of the exchange. However, the listing regulations provide the fundamental requirements a corporate entity must satisfy if it desires to list its securities on the exchange. Further to the above, the Companies Code, 1963 (Act 179), is another important source of regulation that affects the market for equity and debt capital. It contains various provisions, which guide numerous activities of registered corporate entities.

The Role of the Investment Banker in the IPO Process


It is clear from the above discussion that, the activities or roles of the investment banker in the IPO process cannot be discounted. The success of the IPO will to a large extent depend on the capabilities of the investment banker selected (Ellis, 1989). However, in the absence of a model to guide issuers of securities in selecting investment banks, how does a company come up with the right investment banker to manage its IPO? Despite the numerous efforts made by academics to investigate into issues concerning the market for IPOs, not much has been done on the capabilities of investment banks. However by examining critically the roles and responsibilities of investment banks in the IPO process, we can glean some qualities or capabilities an investment banker must possess in order to survive in its market. Weston and Copeland (1989) identified three main functions or roles investment banks play in the IPO process and these include: Underwriting, Distribution and, Advice and Counsel

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Underwriting: This is the insurance function of bearing the risk of adverse price fluctuations during the period in which a new issue of securities is being distributed. There are two fundamental ways of doing this, and they are the firm commitment and best efforts underwriting agreements. The firm commitment agreement obligates the investment banker to assume all the risks inherent in the issue. On the other hand, the best efforts agreement absolves the investment banker from any risks in the issue. Under this underwriting agreement, the investment banker undertakes to help sell at least a minimum amount of the issue with any unsold amounts returned to the issuing firm. Where the investment banker is not able to sell the minimum quantity agreed upon, the whole issue is cancelled and reissued when the market is ready to accommodate the issue.

Distribution: Another related function to the one described above is the ability of the issuing firm to reach as many investors as possible with its security. According to Weston and Copeland (1989), investment banks play a very crucial role here, because of their expertise in doing this relative to the issuing firm assuming this responsibility when issuing securities.

Advice and Counsel: This involves the investment banker making valuable inputs into decisions concerning its client ability to succeed in the capital market with an IPO. Its ability to make valuable inputs in this direction may largely depend on its experience in origination and selling of securities. In addition, Ellis (1989) identified two categories of factors critical to evaluating and choosing an investment bank. In his assessment, the most important factors include. 1. Understand our company 2. Earn credibility with our senior management 3. Make useful recommendations to our company

The least important are:


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1. Expertise in Eurobond market 2. Expertise in equity underwriting

Ellis (1989) again identified six (6) reasons why investment banks gain importance with their corporate clients. These are: 1. Credibility with the client corporations senior management-earned over several years. 2. Understanding the client companys needs for service and its financial goals and policies. 3. Making useful recommendations to the company over a period of time. 4. Innovating with new financing techniques. 5. Having special expertise in a specific service. 6. Recommending a specific transaction.

Credibility with Senior Management His postulation on the role of an investment banker goes beyond the IPO process to include other activities or capabilities of the investment banker, which tends to impact on choice of an investment banker by senior management who are interested in strategic issues of the organizations they are responsible for. Thus if an investment bankers capabilities fit well with financial strategies of the organization, it is made an integral part of implementing the financial strategy. Understand Client Company Another reason he finds important to corporate executives is the investment bankers knowledge of their companies and their operations. More conservative corporate executives rated this as a critical success factor in dealing with investment banks, especially when the investment banking industry in US has over the years survived, by maintaining a relationship with their clients. In his study, 3 of the 4 different industries he studied ranked this variable as the most important of all in dealing with an investment banker.
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Making Useful Recommendations A more IPO related factor is the ability of the investment banker to make valuable recommendations to the issuing firm over time. This is because it reinforces the reliability and consistency of the investment banks capabilities to its corporate clients. In this lighten investment banker that is able to consistently make valuable inputs into the financial decisions of a client strengthens the relationship between itself and its client. Expertise in Equity Underwriting Another important IPO related capability is the ability of the investment banker to underwrite securities. In the absence of any model to determine the overall capabilities of an investment banker, this has been one of the criteria for ranking the performance of investment banks. Having Expertise in a Specific Service The competitive wave sweeping the US investment banking industry has caused most investment banks to concentrate on their capabilities where they can gain a competitive advantage. The era where one investment banker was at the center of a corporate entitys financial strategy is over. Corporate entities are shopping for specific capital market capabilities of investment banks. This has eventually changed the structure of the investment banking industry where size used to be a competitive factor. Supplementing Capabilities Other capabilities such as Euro market capabilities, recommending specific transactions and innovating with new financing techniques are all additives to the more generic functions described above. These capabilities, though not really taken to be very important then are now making very important inputs into the choice of firms by corporate clients. Grinblatt and Titman (2002), point out that investment banks have been motivated in various ways to develop capabilities in these areas to expand their client- base beyond their domestic financial markets.

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Competition in the Indian Investment Banking Ind ustry


There are presently only 4 representing 29% active investment banks out of the 14 legally recognized investment banks in India. The four are NTHC, Databank Limited (DBL), Merbank Brokerage Limited (MBL) and Consolidated Discount House Securities (CDH). Although, there is fierce competition among these four investment banks, to a large extent the industry is not very competitive.

Drivers of Competition
Two main change factors have been identified to bring about competition within the industry in the not too distant future:

African Project Development Facility The African Project Development Facility (APDF) in collaboration with the India Stock Exchange is looking for ways to encourage small and medium scale enterprises (SMEs) to access equity capital by encouraging them to go public. Under this scheme, APDF will finance up to about 30% of cost of going public whiles the companyfinances the remainder. The arrangement also involves the GSE stream lining thelisting procedure to make provision for provisional listing of securities for 6 months. The GSE also gives a discount to the issuing firm depending on how long it takes for the firm to graduate to any of the official lists of the Exchange (APDF, 2002).

Reduced Cost of Floatation The implication of the above is that neither the issuing firm nor the investment banker will have to experience any cash drain in order to undertake an IPO exercise. The impact on competition is estimated to be positive because other
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inactive investment banks will be forced to build capabilities to be able to compete with the four active investment banks in the market. This move, all things being equal, will change the face of competition in the industry.

Capabilities of an Ideal Investment Banker


These capabilities can be identified in the services mostly offered by the investment banks. They include the following:

Investment Management/Fund Management The ideal investment bank in India should possess strong skills in investmentmana gement. This generates income for it as well as help in the distribution of new issues. In depth Knowledge of Corporate Finance Issues It must have a team of professionals who are well versed in the issues of corporate finance to enable it make valuable inputs into the financial decisions of their clients. It also gives it a competitive advantage when the investment banker is bidding for IPO projects.

Pricing of Services The ideal investment banker should be able to deliver its services at a lower cost in order to woo capable businesses interested in going public. One peculiar problem preventing SMEs in India from going public is the cost involved in going public.

Pre-Financing of IPOs In India, IPOs have been identified as very costly for the issuing firms. In order for an investment banker to woo clients, it should be capable of pre-financing the IPO in order to gain a competitive advantage in its market. This has been one of
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the strategies adopted by NTHC Ltd. over the years in order to gain dominance in the IPO market.

Performing Ancillary Services Other augmenting capabilities include the ability to support the trading of these curities floated. This primarily involves supporting transactions in the security on the secondary market. Registrar and Custodial services are the key to the competitive strategies of an investment banker. Out of four active investment banks, only NTHC and MBL have built capabilities over the years to perform this function. An advantage of these supplementary services is the future cash streams in fees charged to the issuing firms. This is bundled together with other services when investment banks are pricing their fees. Thus it is cheaper for the issuing firm to outsource the registrar services to the investment banker rather than employ another investment banker to undertake this function. These activities, although may not seem necessary to the performance of the investment banking function, could create competitive advantage for the investment banker possessing them.

List of some investment banks in India


1. Avendus Capital An investment bank providing mergers and acquisitions, fixed returns, controlled finance, calculated advisory facilities and Private Equity Syndication to its customers ranging from investors to corporates. The bank has a powerful research competence which it utilizes to close business deals in hostile circumstances. It presently concentrates on sectors where Indian firms have strategic expansion advantage namely Healthcare, Pharmaceuticals, IT Services, Consumer goods, manufacturing, etc.

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2. Bajaj Capital The Bajaj Capital Group is one of the renowned Investment consultant and Financial Planning firms in India. It is certified under the Category I of Merchant Bankers by SEBI. Bajaj Capital provides custom-made Fiscal Planning facilities and investment consultation to the investors, organizational investors, corporates, high income patrons and NonResident Indians (NRIs).Being one of the biggest distributors of economic goods, Bajaj provides an extensive range of investment schemes such as general insurance, life insurance, mutual funds, etc. to both public and private institutions.

3. Cholamandalam Investment & Finance Company A combined fiscal service provider of three firms namely Cholamandalam DBS Finance Limited (CDFL), DBS Cholamandalam Distribution Limited and DBS Cholamandalam Securities Limited, Cholamandalam DBS operates in 16 international markets. DBS provides an extensive range of facilities to small and medium sized enterprise, corporates, customers and comprehensive banking activities across Middle East and Asia.

4. ICICI Securities Ltd India's biggest equity house, ICICI Securities Ltd provides back-to-back banking solutions through its extensive distribution network to cater to the varied needs of its retail and corporate clients. The firm is listed under the Monetary Authority of Singapore (MAS) and Financial Services Authority, UK and has an authoritative place in the core divisions of its functional areas such as consultant services, fiscal good distribution, Equity Capital Markets Advisory Services, etc. 5. IDFC Initiated in 1997 in Chennai, IDFC undertook the responsibility of providing financial support to 332projects accruing a profit of upto Rs 2, 20, 400

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million. The sectors under IDFC's financial assistance are infrastructure, agro related business, transportation, healthcare, tourism and others.

6. Kotak Mahindra Capital Company Initiator and leader in equity capital markets, Kotak Investment Banking has undertaken the developmental work of most ground breaking advances in the Indian capital markets comprising the launch of book building and Qualified Institutional Placements (QIPs) in India. The investment bank has an impressive track record of controlling various sectors and has played a major role in the governments milestone disinvestments.

7. SBI Capital Markets SBICAPS is India's foremost investment bank and project consultant, aiding local firms in capital enlistment endeavors for last many years. The firm started it operations in 1986 and is an entirely owned subordinate of the State Bank of India. Asian Development Bank (ADB) possesses 13.84%stakes in equity segment of SBICAPS

8. Tata Investment Corporation Limited (TICL) A non-banking financial company (NBFC), TICL is listed with the Reserve Bank of India under the group of 'Investment Company'. The firm's commercial activities constitute mainly of endowing in long-standing investments in equity of the firms in various sectors. The chief source of return for the firm entails income on investment trading and income accrued on dividend.

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9. UTI Securities Ltd Endorsed as a self-regulating professional body in 1994, UTI Securities Ltd. is one of the renowned investment banks of India. After the termination of Unit Trust of India (UTI) Act, the total share fund of UTISEL is now controlled by superintendent of particular enterprise of UTI. The firm has been offering all sorts of investment associated activities which incorporates investment banking and corporate consultation facilities. 10. JP Morgan J.P. Morgan is a path breaker in providing financial services and solution to its patrons in more than100 nations across the world assisted by one of the most wide-ranging international product proposals. The firm has been assisting its patrons in commercial and business ventures, besides administering their wealth for more than 2 centuries. It is a division of JPMorgan Chase & Co. (NYSE: JPM) with assets worth USD 2.5 trillion.

11. UBS AG UBS AG is an expanded international fiscal service provider with its main office in Zurich and Basel located in Switzerland. It is among the world's biggest individual wealth administrator besides being the second largest in Europe both in terms of market funding and productivity. The firm has its branches spread across 50 nations with around 40% staff performing business in American nations, 14% in Europe, 33% in Switzerland and 12% in Asia Pacific. UBS's international business institutes are assets and wealth management, and investment banking.

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12. Goldman Sach Responsible for providing fund ideas and fiscal help to its clients, shareholders, communities, etc., Goldman Sach facilitate industrial expansion of Indian firms by investing in people, companies and our communities present across the world. The banking firm administers business risks of the firms and gives helpful suggestion in buying and selling businesses. It also assists the state and national level government in sponsoring their functions through loans and equity shares

13. Deutsche Bank With its headquarters in Frankfurt in Germany, Deutsche Bank takes pride of being the international leader in commercial banking and securities, operational banking, wealth management, asset management and retail banking. It is world's foremost global fiscal service supplier with total assets worth Euro 2.2 trillion assisted by the workforce of 80,000 employees across the globe. The bank is registered in the renowned exchange markets namely New York stock exchanges (NYSE) and Frankfurt (FWB).

14. Morgan Stanley MSIM offers personalized wealth management facilities and goods to administration, institutions, non-profit firms, pension funds, high income individuals, retail investors, etc. In India the firm operates many local mutual fund schemes under Morgan Stanley Mutual Fund brand for retail investors. It subsidiary Morgan Stanley Advantage Services assists Morgan Stanley's Institutional Services operations ranging from fiscal structuring to research activity, portfolio assessment to IT expansion etc.

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15. Ambit Corp Finance Leaders in our investment banking, Ambit Corp provide excellent financial solutions to its clients. The firms specialty lies in offering holistic services to our Investment Banking customers in context of Equity Financial Markets, Mergers and Acquisitions, and Alternate Fund.

Current and Expected Future Trends


Investment Banking Revenue at present is just over 4 percent of corporate banking revenue pool which is expected to rise over ten-fold by 2020. In India, there are about 15 Multinational Investment Banks, 15-20 large homegrown Investment Banks, about 500 investment Banks with teams of 5-50 people and nearly 1000 mom and pop Investment Banks. Statistics estimate that every alternate day a new Investment Bank comes up in the country.

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Bibliography
http://www.scribd.com/doc/30106696/Introduction-to-Investment-Banking http://greenworldinvestor.com/2011/03/08/list-of-top-ten-banks-in-india-each-a-good-investment-fordifferent-reasons/ http://online.wsj.com/article/SB10001424052748703453804576191710691364984.html http://www.scribd.com/doc/36813414/Strategic-Analysis-of-Investment-Banking-In-india http://www.scribd.com/doc/56095757/An-analysis-of-increased-regulations-in-the-wake-of-thefinancial-crisis http://www.livemint.com/2010/07/15225023/Investment-banks-coming-up-in.html http://articles.economictimes.indiatimes.com/2010-12-02/news/28389708_1_investment-bankingrevenues-dealogic http://en.wikipedia.org/wiki/Developed_market http://www.vccircle.com/500/news/axis-bank-buys-enam-securities-biz-in-rs-2064cr-stock-deal http://www.themiddlemarket.com/news/i-banking-revs-up-214438-1.html

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