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Investment Banking

Investment Banking


Investment Banking



Investment Banks assist corporation in raising funds in the public markets both
equity and debt, as well as provide strategic advisory services for managers,
acquisition and types of transactions. Investment banks differ from Commercial
Banks which serve to directly take deposits and make loans.

Investment banks also differ from brokerages, which in general assist in the
purchase and sale of stocks, bonds and mutual funds. However some firms
operate as both brokerage and investment banks; this includes some of the best
known financial services firms in the world.

Investment banks help companies and government and their agencies to raise
money by issuing and selling securities in the primary market. Investment
Banking is dedicated to fulfill the needs trade and includes by acting as an
intermediary and a financer too.

Investment Banking I a result of oriented profession, commanding high degree

of skill and dexterity in finding business solutions, assisting in investment and
financial decision making assisting in laying corporate strategies, assessing
capital needs and helping in procuring the owned as well as owned funds for
achieving balanced capital structure of the corporate client.

Investment Banking

Investment bankers with the confidence of the investors of the General public,
command a high reputation for passing on accurate, adequate and timely
information which helps and facilitates in the functioning of capital markets,
money markets and international financial systems. Investment bankers
preserve their skills as personal possession for their competitive strength in their

As Investment banks offer a plethora of services to its clients. These services

includes providing valuable advice to the clients on the type of finance to be
raised, issue management process, corporate restructuring strategies,
underwriting services, project feasibility and planning, etc. They provide
various pre-isue and post-issue services to the clients.

An Investment bank is an organization, may be bank, corporate body, firm or

proprietary concern that underwrites, corporate securities and advices such
clients in issue like corporate mergers, etc. involved in the ownership of
commercial ventures.

Investment Banking is one of the most global industries, and is hence

continuously challenged to respond to new developments and innovation in the
global financial markets.

Investment Banking


SEBI – An Investment bank is defined as a financial institution or an

organization that underwrites corporate securities and advices such clients on
issue like mergers, etc. involved be a bank, corporate body, a firm or a
proprietary concern.

In the strictest definition, Investment banking helps in the raising of funds both
in debt and equity, and the division handing this in an investment bank is often
called the “Investment Banking Division”(IBD). However, any a few small
firms solely provide this services. Almost all investment banks are heavily
involved of fixed income, foreign exchange, commodity, and equity securities.

An Investment bankers acts as an intermediary between the issuers and the

ultimate purchasers of securities in the primary securities market. These
institutions provide guidance in raising capital, issue management services,
underwrites corporate securities and provides other advisory services.

Investment banks help companies and government (or their agencies) raise
money by issuing and selling securities in the capital markets (both equity and

Investment Banking

Almost all investment banks also offer strategies advisory services for mergers,
Acquisitions, divestiture or other financial services for clients, such as the
trading of derivatives, fixed income, foreign exchange, commodity. Trading
securities for cash or the promotion of securities or referred to as “sell side.”
The “buy side” constitutes the pension funds, mutual funds, hedge funds, and
investing public who consume the products and services of the sell-side in order
to maximize their return on investment. Many firms have both buy and sell side

Investment Banking


The term “ Investment bank ” does not have a precise definition, but is
generally applied to financial houses which, starting from trading as merchants,
expanded their role to financing the trading and commercial activities of others,
especially in the international market place. For many years, the British houses
were know as investment banks reflecting their origins, Investment banks have
retained this string international flavour and often have offices in many other
countries, particularly in the major financial centers.

Investment Banking in one of the most global industries, and hence

continuously challenged to respond to new development and innovation in the
global financial markets. Throughout the history of investment banking, many
have theorized that all investment banking products and services would be
commoditized. New products with higher margins are constantly invented
trading know-how in new markets. However, since these can usually not be
patented or copyrighted, they are very often copied quickly by competing
banks, pushing down trading margins.

For example, trading bonds and equities for customers is now a commodity
business, but structuring and trading derivatives is highly profitable. Each OTC
contract has to be uniquely and could involve complex pay-off and risk profiles.
Listed option contracts are traded through major exchanges, and are almost as
commoditized as general equity securities, products have been commoditized.

Investment Banking

In addition, while many products have been commoditized, an increasing

amount of profit within investment banks has come from proprietary trading,
where size a positive network benefit (since the more trades an investment bank
does, the more it knows about the market flow, allowing it to theoretically make
better trades and pass on better guidance to clients).

Vertical Integration

Another trend in Investment Banking at the dawn of the 21 st century

has been the vertical integration of debt securitization. Previously, investment
banks had assisted lenders in raising more lending funds and having the ability
to offer longer term fixed interest rates by converting the lenders’ outstanding
loans into bonds. For example, a mortgage lender would make a house loan, and
then use the investment bank to sell bonds to fund the debt. The money from the
sale of the bonds can be used to make new loans, while the lenders accepts loan
payments and passes the payments on to the bondholders. This process is called
securitization. However, lenders have begun to securitize loans themselves,
especially in the areas of mortgage loans. Because of this, and because of the
fear that this will continue, many Investment Banks have focused on becoming
lenders themselves, making loans with the goal of securitizing them. In fact, in
the areas of commercial mortgage, many Investment Banks lend at loss leader
interest rates in order to make money securitizing the loans, causing them to be
a very popular financing option for commercial property investors and
developers. This vertical integration was root cause of “SUB PRIME

Investment Banking


Investment banks will typically be concerned with several business units,

including Corporate Finance (concerned with managing the finances of
corporations, including mergers, acquisitions and disposals), often called the
Investment Banking Division of the firm; Research (concerned with
investigating, valuing and making recommendations to clients-both individual
investors and larger entities such as hedge funds and mutual funds-regarding
shares and corporate and government bonds); and Equities or sales and trading
(concerned with buying and selling shares both on behalf of the bank’s clients
and sometimes also for the bank itself).Management of the bank’s own capital,
or Proprietary Trading, is often one of the biggest sources of profit; for example
the banks may structure their books so the they profit form a fall of bond yields
(a rise of bonds prices).

An Investment bank provides its clients expert advice, innovative solutions,

outstanding execution and comprehensive access to the world’s capital markets.
Whether the clients require investment banking, equities, fixed income or
foreign exchange, investment banks have the intelligence, markets insight and
global coverage to help them to capture opportunities and manage risk.

Investment Banking


An Investment banks offers a plethora of services to its clients. These services

include providing valuable advice to the clients on the type of finance to be
raised, issue management process, corporate restructuring strategies,
underwriting services, project feasibility and planning, etc. They provide
various pre-issue services to the clients.


Corporate counselling denotes the advice provided by an investment

banker to a corporate unit to ensure better corporate performance in terms
of image building among investors, steady growth through good working
and appreciation in wide enough to include all activities related to
investment banking such as project counselling, capital restructuring,
portfolio management and the full range of financial engineering
including venture capital, public issue management, loan syndication,
working capital, fixed deposit, lease financing, acceptance credit,etc.
However, the counseling is limited to only opinions and suggestions and
any detailed analysis would from part of a specific service.

The scope of corporate counselling is restricted to the explanation of

concepts, procedures and laws to be observed by the client company.
Requirement of any action to be taken or compliance of statutory

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formalities to be made for implementation of those suggestions would

mean the demand for specific type of service.

An Investment banker provide valuable financial advisory to the client

company. It advises the company on the type of capital to be raised
owned or owed thus the company to take advantage of financial leverage
and achieve its ultimate aim of providing maximum return to the

It advises the company to raise fund through equity issue in the primary
market or issuing debentures or the public depending on the quantum of
capital required.


Project counselling is a very important and lucrative investment banking

service. It is provided by most of the investment bankers. However, only
a few having expertise available in technical, marketing financial area
have it to provide satisfactory services. Project counselling covers
development of an idea into a project, preparation of the project report,
estimation of the cost techno-economic appraisal of projects for capital
issue/financing, etc. The fee charged for project report preparation/
appraisal range from 0.25% to 2% of the total project cost. The fee
charged depends upon:

 Total size of the project.

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 The complexity of the project.


Loan syndication refers to the services rendered by an organization in

arranging and procuring credit from financial institutions, banks, other
lending and investment companies for financing the project or meeting
lending capital requirements. The loan syndication work involves
identification of sources where from funds could be arranged. Approaching
these sources with requisite application and supporting documents and
complying with all formalities involved in the sanction and disbursal of loan.
The fee charged by investment bankers for undertaking loan syndication
varies up to 1% of the loan amount.


The capital issues are managed by category- I investment bankers and

Constitute the most important aspect of their services. The public issue of
corporate securities involves marketing of capital issue of new and existing
companies, additional issue of existing companies including rights issues and
dilution of shares by letter of offer. The public issues are managed by
involvement of various agencies, i.e. underwriters, broker’s bankers,
advertising agencies, printers, auditors, legal advisors, registrar to the issue
and investment bankers providing specialized services to make the issue a
success. However, investment bankers is the agency at the apex level who
plan, co-ordinate and control the entire issue activity and direct different

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agencies to contribute to the successful marketing of securities. The

procedure of managing a public issue by investment bankers is divided into
two phases.

(A) Pre-issue Management

Steps required to be taken to mange pre-activity is as follows:

(1) Obtaining stock exchange approvals to memorandum and articles of

(2) Taking action a as per Exchange Regulatory guidelines.
(3) Finalizing the appointments of the following agencies:
(a) Co-managers/Advisers to the issue.
(b) Underwriters to the issue.
(c) Brokers to the issue.
(d) Bankers to the issue and refund Banker.
(e) Advertising agency.
(f) Printers and Registrar to the issue.
(4) Advise the company to appoint auditors, legal advisers and broad
base Board of Directors.
(5) Drafting of prospectus.
(6) Obtaining approvals of draft prospectus from the company’s legal
advisers, underwriting financial institutions/banks.
(7) Obtaining consent from parties and agencies acting for the issue to be
enclosed with the prospectus.
(8) Approval of prospectus from Exchange regulatory.
(9) Filing of the prospectus with Registrar of Companies (ROC).
(10) Making an application for enlistment with Stock Exchange along
with copy of the prospectus.

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(11) Publicity of the issue with advertisement and conferences.

(12) Open subscription list.

(B) Post-issue Management

Steps involved in post-management are :

(1) To verify and confirm that the issue is subscribed to the extent of
including development from underwriters in case of under subscription.
(2) To supervise and co-ordinate the allotment procedure of registrar to the
issue as per prescribed Stock Exchange guidelines.
(3) To ensure issue of refund order, allotment letters/ certificates within the
prescribed time limit of 10 weeks after the closure of subscription list.
(4) To report periodically to exchange regulatory about the progress in the
matters related to allotment and refunds.
(5) To ensure the listing of securities at Stock Exchange.
(6) To attend the investors grievances regarding the public issue.

The investment bankers for managing public issue can negotiate a fee subject to
a ceiling. This fee is to be shared by all lead managers, advisers, etc.

(a) 0.5% of the amount of public issues up to Rs.25 crores and

(b) investment bankers are managing the issue.

Cities are done by all categories of investment bankers except category-IV. This
activity is a good business option if due care is taken in selecting and marketing
the issue so that likely development is generated. The investment bankers are
authorized to take a maximum underwriting of 5 times its net wroth at any point
of time.

Investment Banking


Portfolio management involves selection of securities and constant shifting

of the portfolio in the light of varying attractiveness of the constituents of the
spectrum of securities to the portfolio based on the characteristics of an
investor. Investors normally expect high returns but they wish to avoid risk.
Therefore a scientific portfolio management is required. The objective of
portfolio management is to maximize the yield and minimize the risk along
with other objectives like stability of income, capital growth, liquidity,
safety, tax incentives, etc.

The portfolio management service can be rendered by category-I and II

investment bankers. The portfolio manger pursuant to a contract or
agreement with a client advices or director or undertakes on behalf of the
client the management of investment of different types of marketable
securities or investment papers ‘like shares, debentures, bonds, etc. with a
view to ensure maximum return, by such investments by minimum risk of
loss of return. Portfolio management should aim at investing in different
securities and financial instruments so as to earn best possible returns
besides safety and security of invested funds. There are certain guidelines
laid down by the exchange regulatory. These guidelines pertain to the duties
and responsibilities of the portfolio manager for reprisal of grievances and

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penalties for non compliances. With more and more companies tapping the
capital markets, the investor is more likely then non-equipped to handle the
complexities of stock-trading. Portfolio management as a concept is catching
up in India.


The financial services of equipment leasing and hire-purchase are offered by

most of the investment bankers. Leasing and hire-purchase income constitute
a major portion of total income generation of present day investment
banking organizations. The rental/installments provide returns of about 20%
and in addition provide a tax shield.



The lending investment bankers also deal in sale/purchase of securities in

secondary market on their own. This activity is followed on account of
availability of expertise in finance, in general and capital markets and equity
research in particular company.

Investment Banking


For investment bankers mergers and acquisitions is promising to be new

business. New entrants view mergers and acquisitions more seriously.
Mergers and acquisitions is an important additional business. M&A was not
in focus till recently but now all investment bankers are planning to the
largest investment bank are in the low thousands. Success in the Investment
banking business depends on the ability to provide whatever financial
services a client may require, and people employed need particular qualities
of flexibility, innovativeness and client handling skills.


Investment bankers assist the management of the client company to successfully

restructure various activities, which include mergers and acquisitions,
divestitures, management buyouts, joint venture among others.

To help companies achieve the objectives of these restructuring strategies, the

investment bankers participates in different activities at various states which

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include understanding the objectives behind the strategy (objective could be

either to obtain financial, marketing or production benefits), and help in
searching for the right partner in the strategic decision and financial valuation of
the proposal.


In providing financial assistance, investment banks offer a full understanding

of all facets of the capital markets. This includes all types of debt and equity
financing available from both the domestic and international markets. An
investment bankers, cognizant of capital costs, looks for the best sources of

It should be understood that interest rates are not only definition of capital
costs. Restrictions on availability, prepayment terms, and operating
effectiveness can often outweigh what might appear to be inexpensive
capital with low interest rates. Too often, capital includes costs, which force
an entrepreneur or a business to undertake undesirable actions. In short- run,
some actions might be necessary, but often in the long run are detrimental.

The traditional investment banker understands these capital limitations and

can structure a transaction, which is beneficial to all sides of the table-not
just the capital source.

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He also know how to substitute one type of capital for another, sometimes
utilizing internal sources from asset repositioning or cash creation from
improvements in working capital. He understands fully the risk versus return
elements necessary to complete the capital procurement process.


Investment banker’s offer customized solutions to solve the financial

problems of their clients. Advice is sought in areas off financial structuring.
Merchant bankers study the working capital practices that exist within the
company and suggest alternative policies. They also advise the company on
rehabilitation and turnaround strategies, which would help companies to
recover from their current position. They also provide advice to appropriate
risk management strategies like hedging strategies.


Factoring involves the outright sale of account receivable. By such sale a

client (the exporter or manufacturer) transfers his/her ownership of the
accounts to a factor (an organization, firm). It is short – term debt financing.
Here three parties are involved.

1. The factoring organization/ firms

2. The manufacturer/ exporter / seller
3. The importer / customer / buyer

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The investment bankers may act as factor organization with a view to

earning a great amount of commission.

The factor provide the following services :

1) Financing
2) Advisory services if necessary
3) Collection of bills / Account Receivable against sales produced.
4) Maintenance of sales ledger
5) Provide further if necessary
6) Covering losses if there are any.


It is a process through which some inactive assets (mortgage assets) are

converted into cash / active assets. It is long – term debt financing. Here
assets are converted into long – term bonds. In this approach, the investment
banker for issuance of security bonds against the assets with a matching of
time and terms between mortgage property and security bonds. Here the
selection of assets is generally considered on the basis of the following :

1) Quality of assets

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2) Certainty of repayment
3) Good ranking from the credit rating agency.

The process of assets securitization takes place in the following firms :

1) Originating Institutions / Firm

2) Special Purpose Vehicle (SPV)

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With the continued developmental activities in the country as well as

liberalization of the economy the industry and trade requires funds for its
expansion which are in excess of that, which is available from institutions.
Thus there is a need to collect the funds from capital market and investment
bankers are needed to help in mobilizing the funds. This factor has
contributed to the steady growth of investment banking in the country. In
order to regulate the market and check unfair trade practices on the stock
Exchange, the Government of India in 1992 passed the Securities and
Exchange Board of India (SEBI) Act. SEBI for the first time formally
defined investment banking and framed rules and regulations for investment

SEBI classified investment bankers into four categories on the basis

of capital adequacy :

(1) Category – I :

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The capital adequacy requirement for category-I investment bankers in that

net wroth should not be less than Rs. 1-crore. The bankers should be allowed
to :

a) Carry on any activity of the issue management which will in turn consists of
preparation of prospectus and other information relating to the issue,
determining financial structure, tie up of financial, financiers and final
allotment and refund of the subscription.
b) Act as adviser, Consultant, manger, underwriter, portfolio manger.

(2) Category – II :

The minimum capital adequacy requirement is a net wroth of Rs.50 lakhs.

The category-II investment banker is allowed to act only as an adviser,
consultant, Co-manger, underwriter and portfolio manager.

(3) Category – III :

The Investment banker should have a minimum net wroth of Rs.20 lakhs to
meet the capital adequacy requirement. The permissible activities are to act
as underwriter, adviser and consultant to an issue.

(4) Category – IV :

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No capital adequacy requirement has been specified for category-IV

investment banker. The Investment banker is only allowed to act as an
advisor or consultant to an issue.

Category Minimum Amount

I Rs.1 Crore
II Rs.50 Lakhs
III Rs.20 Lakhs

It is evident from the above that according to central Government, the

role of investment banker is restricted to activities related to capital market.

However investment banking cannot be restricted to the above descriptions

and cover a wide range of activities which are fund based non-fund based
financial and investment services encompassing both capital as well as
money market activities in domestic as well as international financial

Fund based and Non Fund based Sources of Financial :

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Fund based source of finance refers to those sources of finance which

actually gets funds or money in the organization e.g. secured loan, equity
shares, etc.

The fund based activities undertaken by investment bankers encompass the


(1) Dealing in money market instruments like placement of commercial

papers, fixed deposits, treasury bills, etc.

(2) Equipment leasing / Hire Purchase.

(3) Dealing in secondary market operations.

(4) Inter-corporate placement of funds.

(5) Venture capital/fund.

Non – fund based source of finance refers to those sources of finance which
only assure the supply of fund but does not get the fund in real terms.

E.g. letter of credit.

The non- fund based activities consist of the following:

(1) Capital issue related activities and private placement of equity.

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(2) Consultancy and advisory services including corporate and project


(3) Loan / credit / Fund syndication.

(4) Portfolio management

(5) Management of mergers and amalgamations.

(6) Management of Buy-ins and Buy-outs.

(7) Financial engineering or capital restructuring.

(8) Liaison and Braking.

(9) Underwriting of equity, bonds and debentures in new issues.

(10) Mergers and acquisitions.

(11) Arranging international finances.

Investment Banking


An investment bank is split into the so-called Front office, Middle Office
and Back Office. The individual activities are described below :

Front Office

Investment Banking is the traditional aspect of investment banks which

involves helping customers raise fund in the Capital markets and advising on
mergers and acquisitions. Investment bankers prepare idea pitches that they
bring to meetings with their clients, with the expectation that their effort will
be rewarded with mandate when the client is ready to undertake a
transaction. Once mandate, an investment bank is responsible for preparing
all materials necessary for the transaction as well as the execution of the
deal, which may bidders, or negotiating with a merger target. Others terms
for the investment banking division includes merger & acquisition (M&A)
and corporate Finance.

Financial Markets is split into four key divisions: Sales, Trading, Research
and Structuring.

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Sales and Trading is often the most profitable area of an investment bank,
responsible for the majority of revenue of most investment banks. In the
process of market making, traders will buy and sell financial products with
the goal of marketing an incremental amount of money on each trade.

Sales is the term for the investment banks sales force, whose primary job is
to call on institutional and high-net-worth investors to suggest trading ideas
(on caveat emptor basis) and take orders. Sales desks then communicate their
clients’ orders to the appropriate trading desks, which can price and execute
trades, or structure new products new that fit a specific need.

Research is the division which reviews companies and writes reports about
their prospects, often with “buy” or “sell” ratings. While the research
division generates no revenue, its resources are used to assist trades in
trading, the sales force in suggesting ideas to customers, and investment
bankers by covering their clients. In recent years the relationship between
investment banking and research has become highly regulated, reducing its
importance to the investment bank.

Structuring has been a relatively recent division as derivatives have come

into play, with highly technical and numerate employees working on
creating complex structured products which typically offer much greater
margins and returns than underlying cash securities.

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Risk management involves analyzing the market and credit risk that traders
are taking onto the balance sheet in conducting their daily trades, and setting
limits on the amount of capital that they are able to trade in order to prevent
‘bed’ trades having a detrimental effort to desk overall. Another key Middle
Office role is to ensure that the above mentioned economic risks are captured
accurately (as per agreement of commercial terms with the counterparty)
correctly ( as per standardized booking models in the most appropriate
systems) and on time (typically within 30 minutes of trade execution). In
recent years the risk of errors has become known as “optional risk” and the
assurance Middle Office provide now include measures to address this risk.
When this assurance is not place, market and credit risk analysis can
unreliable and open to deliberate manipulation.


Operations involves data-checking trades that have been conducted, ensuring

that they are not erroneous, and transacting the required transfers. Whilst it

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provides the greatest job security of the divisions within an investment bank,
it is a critical part of the bank that involves managing the financial
information of the bank and ensures efficient capital markets through the
financial reporting function. The staff in these are often highly qualified and
need to understand in depth the deals and transaction that occur across all the
division of the bank.


(1) Research :
An Investment bank must have quality data available as per the
needs of Client Company in order to provide advisory services. It must
have update information about market on-goings. The data collected
should be authentic and from reliable sources.
(2)Analysis :

The data available should be analyzed to make decisions. Data

analysis is an important tool in decision making. Accurate data analysis will
help provide advisory service to the client to take advantage of the current
market situation.

(3) Pro-active approach :

It is important to analyze and interpret market trends in order take

advantage of a particular situation.

(4) Aggressive action :

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Investment bankers are always looking for new business

opportunities. On locating a business opportunity and after obtaining the
assignment from the clients, an investment banker has to be prompt in
grasping from the client’s problems and to provide a better choice amongst
alternative solutions. A good investment banker in one who does not allow
his clients to think anything outside except what has been advised and thus
holding the client’s interest for the present as well as for the future.

(5) Co-operation and Friendliness :

Co-operation and friendliness coupled with persuasiveness must

flow as natural traits in the investment banker in order to win over the trust
of their clients just like a doctor or a lawyer who retains their clients
permanently. A good investment banker has to share the thoughts of his
clients with sympathetic gestures and offer suggestions without any greed or

(6) Contacts :

An Investment banking business mainly depends upon the sociable nature

and wider contacts. The scope of contract of an investment banker

a) His own organization,

b) Central and state Government Offices,
c) Banks,
d) Financial Institutions,
e) Promoters/Directors/Owners/Chief Executive of the public and
private enterprises,
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f) Printers,
g) Advertising Agencies,
h) Broker and Stock Exchange Dealers,
i) Advocates and Solicitors,
j) Members of the press, etc.

Investment bankers have to widen the contacts and continue to maintain

them by meeting people in person, in special gatherings and through
writing to them.

(7)Attitude towards problem solving:

A good quality of an investment banker is to be skilled in human

relations particularly in the interpersonal and intra-personal behavior. An
investment banker should have a positive approach to understand the
difficulties, adverse circumstances and the viewpoints of others. Effective
communication and proper feedback are the pre-requisites for creating a
positive attitude towards problems solving which could be gained partly
through the learning process and partly as an inborn personality trait.

(8) Inquisitiveness for acquiring new skills, information and

knowledge :

Investment bankers survive by providing the information

required by their needy client. Therefore they must keep themselves updated
with the latest information in the area of the service product ehich they

Investment Banking


Investment banking in the country has come to be primarily associated with

the capital markets. With the de-regulation of the Indian economy since
1991, there are several new sectors open to private investment which have
consequently created an opportunity for private financing.

The need for this banking was not met, by either commercial banks or the
financial institutions and hence there was a huge gap which needed to be
filled. This gap could be met through capital markets or a range of finance
products and hence a good scope existed for the various services offered by
an investment 1992 heralded an era free market pricing of equity shares.
Investment bankers in particular have been assigned a greater responsibility
in the fixation of issue price and premium, if any. In the CCI regime
investment bankers had restricted role to play in that regard. Their role was

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confined mainly to getting clearances from the CCI and ensuring the success
of capital issues through their marketing efforts.

There were also no disclosure norms. Investment bankers were seldom held
accountable for the correctness of the information disclosed in the prospectus
and letter of offer. But with the issuance of comprehensive guidelines for
free market pricing, code of conduct for investment Bankers, etc. by SEBI
the role of investment bankers has considerably increased.

An outstanding development in history of Indian capital market was opening up

in 1992 by allowing financial institutions to invest in the primary and secondary
markets and also permitting Indian companies to directly tap foreign capital
markets through foreign currency issues. This resulted in increased total inflow
of foreign capital through these routes. Though, at the initial stage, the Indian
investment bankers have played only supportive role as almost all of the foreign
currency issue have been lead managed by foreign investment bankers, but in
future they may play a major role by their increasing participation as
managers/lead managers.

Foreign Direct Investment (FDI) as also investment by NRIs have risen

considerable due to number of incentive offered to them. They need the services
of investment bankers to advise them for their investment in India. Further,
increasing investments in joint Ventures abroad by Indian Corporations also
require expert services of investment bankers. For the first time in India the
concept of debt market has set to work through NSE and OTCEL. Experts feel
that of the estimated capital issue a good portion may be raised through debt

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instruments. The development of debt market will offer tremendous opportunity

to investment bankers.

Recently, Indian capital market has also witnessed innovations in the financial
instruments such as non-convertible debenture with detachable warrants,
cumulative convertible preference shares, zero coupon bonds deep discount
bonds, triple option bonds, floating rate bonds, secured premium notes, auction
rates bonds, etc. This has further” extended the role of investment bankers as
market markers for these instruments. Securities and Exchange Board Of India
(SEBI) has laid certain guidelines to ensure fair business practices in the Indian

The following are the SEBI guidelines for investment bankers –

(1) Authorization :

Any person or body proposing to engage in the business of investment banking

would need authorized by the Securities and Exchange Board of India (SEBI) in
their prescribed format. This will also apply to those presently engaged in
investment banking activity, including as mangers, consultants, or advisers to
issue of management, which inter-alias will consist of preparation of prospectus.

(2) Authorized activities :

a) Issue & other information relating to the issues, determining final
other information relating to the issue, determining financing
structure, tie-up of financiers & final allotment & for refund of
b) Corporate advisory services relating to the issue
c) Underwriting
d) Portfolio management services
e) Managers, consultant or adviser in the issue

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(3)Authorization Criteria :

All investment bankers are expected to perfume with high standards of integrity
& fairness in all their dealings. A code of conduct for investment bankers will
be prescribed by SEBI . Within this context, SEBI’s authorization criteria would
take into account mainly the following –

a) Professional competence
b) Personnel, their adequacy & quality, & other infrastructure
c) Capital adequacy
d) Past track record, experience, general reputation & fairness in all their

(4) Terms of authorization :

a) All investment bankers, including the existing ones, must obtained
the authorization from SEBI within three months from the issue of
these guidelines. SEBI may extend this period at its discretion by a
maximum of three more months.
b) All investment bankers must have a minimum net wroth of RS 1
c) The authorization will be for a initial period of 3 years
d) SEBI may collect from the investment bankers an initial
authorization fee, an annual fee & a renewal fee
e) All issue must be managed by at least one authorized banker
functioning as the sole or lead manager. Ordinarily not more than
two investment bankers should be associated as lead managers,
advisers or consultant to a public issue

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f) The specific responsibilities of each lead manager must be submitted

to SEBI prior to the issue
g) While directors, promoters & every person who authorizes the issue
of prospectus shall bear full responsibility for the contents of the
prospectus, investment the contents of prospectus & reasonableness
of the views expressed therein
h) Lead mangers/investment bankers would be responsible for ensuring
timely refunds and allotment of securities to the investors.
i) The investment banker shall make available to SEBI such
information, documents, returns as may be prescribed & called for.
j) SEBI shall prepare & prescribed a code of conduct for investment
bankers which they should adhere to.
k) The involvement of this investment bankers in an issue should
continue at least till the completion of essential follow-up steps,
which must include the listing of the instrument, dispatch of
l) SEBI may suspend/cancel the authorization of investment bankers
for a suitable duration in case of violations of the guidelines.

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An Investment banker will be deemed to be guilty of misconduct or

unprofessional conduct if he violates intentionally or otherwise any of the
following provisions of the Code of Conduct: -

(1) An Investment banker in the conduct of his business shall observe high
standards of integrity and fairness in all his dealing with his client and
other investment bankers.
(2) An Investment banker shall render at all times high standards of service,
exercise due diligence, ensure proper care and exercise independent
professional judgments.
(3) He shall wherever necessary, disclose to the client possible sources of
conflict of duties and interests , while providing unbiased services.
(4) A investment banker shall not make any statement or become privy to
any act, practice unfair competition, which is likely to be harmful.
a. To the interests of other investment bankers or

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b. Is likely to place such other investment bankers in a

disadvantageous position in relation to the investment banker,
while competing for or executing any assignment.
(5) An Investment banker shall not make any exaggerated statement,
whether oral or written, to the client either about the qualification or the
capability to render certain services or his achievements in regard to
services rendered to other clients.

(6) An Investment banker shall always endeavor to:

a. Render the best possible advice to the client having regards to the
clients needs and the environment and his own professional skills;
b. Ensure that all professional dealings are effective in a prompt,
efficient and cost effective manner.

(7) An Investment banker shall not:

a. Divulge to other clients, press or any other party any confidential
information about his client, which has come to his knowledge; and
b. Deal in securities of any client company without making disclosure
to the Board as required under the regulations and also to the Board
of Directors of the company.

(8) An investment banker shall endeavor to ensure that:

a. The investors are provide with true and adequate information
without making any misguiding or exaggerated claims and are
made aware of attendant risks before any investment decision is
taken by them

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b. Copies of prospectus, memorandum and related literature are made

available to the investors;
c. Adequate steps are taken for fair allotment of securities and refund
of application money without delay; and
d. Complaints from investors are adequately dealt with.

(9) An Investment banker shall not generally and particularly in respect of

issue of any securities be party to:
a. Creation of false market;
b. Price rigging or manipulation;
c. Passing of price sensitive information to brokers, members of the
stock exchanges and other players in the capital market or take any
other action which is unethical or unfair to the investors.

(10) An Investment banker shall abide by provisions of the Act, Rules

and Regulations, Notifications, Guidelines, etc. which may be applicable
and relevant to the activates carried on by the investment banker.

Investment Banking


Investment banking activates in India originated in 1969 with the

investment banking division set up by the Grind lay’s Bank, the largest
foreign bank in the country, at that time. The main service offered to the
corporate enterprises by the investment bank included management of public
issues and financial consultancy. Other foreign banks like Citibank,
Chartered Bank also assumed the investment banking activity in India. State
Bank of India started investment banking in 1973 followed by ICICI in
1974. Both emerged as leaders in investment banking with significant
business during the period of 1974-1985 in comparison to foreign banks.
Mid-seventies witnessed a growth of investment bank organizations in the
country with various commercial banks, financial institutions, broker firms
entering into the field of investment banking.

The growth in investment banking business during the early seventies

was due to Foreign Exchange Regulation Act, 1973 (FERA) where in a large
number of foreign companies operating in India were required to dilute their
foreign holding in order to continue business in the country. This resulted in

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expansion of capital markets providing enough in India economy opened

new doors for investment banking business to enter in the diversified area of
activities, but at the same time this has brought competition in the
investment banking sector. This sector has traditionally been dominated by
financial institution, banks and their subsidiaries.

Now, various private sector investment bankers have emerged and some
of them are having international reputations.


Important reasons for the growth of investment Banks in India has been
development activities throughout the country, exerting excess demand on the
sources of funds for ever expanding industries and trade, thus leaving a
widening gap un-bridged between the supply and demand of investible funds.
All India Financial Institution had experienced constraint of resources to meet
ever increasing demands for funds from the corporate sector enterprises. In such
circumstances corporate sectors had the only alternative to avail of the capital
market service for meeting their long term financial requirements through
capital issue of equity shares and debenture.

Growing demand for finds put pressure on capital market that enthused
commercial bank, share brokers and financial consultancy firms to enter into the
field of investment banking and share the growing capital market. As a result,
all the commercial banks in nationalized and public sector as well as in private
sector including foreign banks in India have opened their investment banking
and are competing in this field.

Investment Banking

Need for investment banking is felt in the wake of huge public savings
lying untapped. Investment bankers can play highly significant role in
mobilizing funds of savers to investible channels assuring promising returns on
investment and thus can assist in meeting the widening demand for investible
funds for economic activity. With growth private and public sectors would be
able to raise required amount of funds annually from the capital market to meet
the growing requirement for funds for establishment for funds for establishing
new enterprises undertaking expansion, modernization, diversification of the
existing enterprises. This reinforces the need for a vigorous role to be played by
investment banking.

In view of multitude of enactments rules and regulations, guidelines and

offshoot press release instructions brought out by the government from time to
time imposing statutory obligations upon the corporate sectors to comply with
all those requirements prescribed therein the need of a skilled agency existed
which could provide counseling in these matters in a package from. Investment
bankers with their skills updated units and advise them on such requirements to
be enactments viz. Companies Act, Income tax Act, Foreign Exchange
Management Act, and Securities Contracts (Regulation) Act, SEBI Act and
various corporate laws and regulations.

Investment Bank advise the investors of the incentives available in the

from of tax relief’s, other statutory relaxations, good return on investment and
capital appreciation in such investment to motivation them to invest their
savings in securities of the corporate sector. Thus investment banks help
industries and trade to raise funds and the investors to invest their saved money
in sound and healthy concerns with confidence, safety and expectations for
higher yields. Finance is the backbone of business activities._ Investment Banks
make available finance for business enterprises acting as intermediaries between

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them raising demand for funds and the supplies of funds besides rendering
various other services.

The following are some of the reasons why specialist investment banks have a
crucial role to play in India :

(a) Growing industrial and increase of technologically advanced industries.

(b) Need for encouragement of small and medium industrialists, who
require specialist services.
(c) Growing complexity in rules and procedures of the government.
(d) Need to develop backward areas and states which require different
(e) Exploring the possibility of joint venture abroad and foreign markets.
(f) Promoting the role of new issue marketing mobilizing savings from the

Steps for Setting up Investment Banks :

(1) Formation of the business organization.

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(2) Adoption of a viable business plan.

(3) Seeking SEBI registration as an investment banker.
(4) Essentials for commencement of business.



In India, a common organizational st up of investment bankers to operate is in

the from of division of India foreign banks and financial institution, subsidiary
companies established by bankers like SBI, Canara Bank, Punjab National
Bank, Bank of India, etc. Some firms are also organized by financial and
technical consultants and professionals. Securities and Exchange Board of India
has dividend the investment bankers into four categories based on their capital
adequacy. Each category is authorized to perform certain functions. From the
point of organizational set up, India’s Investment banking organizations can be
categorized into four groups on the basis of their linkage with parent activity.
They are :

(a) Institutional Base :

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Here Investment banks function as an independent wing or as subsidiary of

various private, Central Governments, and State Government financial
institutions. Most of the financial institutions in India are in public sector and
therefore such set up plays a role on the lines of governmental priorities and

(b) Banker Base :

These investment bankers function as division/subsidiary of banking

organization. The parent banks are either nationalized commercial banks,
private sector banks or the foreign banks operating in India.

These organization have brought professionalism in investment banking sector

and they help their parent organization to make a presence in capital market.

(c) Broker Base :

In the recent past, there has been an inflow of qualified and professionally
skilled brokers in various Stock Exchange of India. These brokers undertake
investment banking related operations also like providing investment and
portfolio management services.

(d) Private Base :

These investment banking firms are originated in private sector. These

organization are the outcome of opportunities and scope in investment banking
business and they are providing skill oriented specialized services to their
independently or through some collaboration with their Indian counterparts.
Private sector investment banking firms have come up either as sole
proprietorship, partnership, private limited or public limited companies. Many
of these firms were in existence for quite some times before they added a new

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activity in the from of investment banking services by opening few division on

lines of commercial banks and All India Financial Institutions.


An Investment bank through its various services provided, help customers

reap benefits of hiring their services. An investment bank provides apt and
services to the clients.

The services provided by these organization range from raising capital

from the market, corporate restructuring to instrument designing or pricing
(debt or equity). Financial engineering issue management, designing and
publishing the issue prospectus, marketing & advertising, Loan syndication, etc.
are other specialized service provided by the institutions.

It is different for a company to manage these activities independently

without the advice of such specialized organizations. At the same time it mat
not prove to be cost effective to carry out such services by the company itself.

Specialized Services :

Investment Banking

Investment banks provide specialized services to their client. It is the

professional approach in decision making that help their client to reap benefits
of hiring the services of such companies.

Advisory Services :

Investment banks provide valuable advisory services to their clients on

various areas. They have the expertise to advise client in decision making and
make profits thereof.

To understand the importance of Investment banks, it is necessary to have a

look at the services provided by them to the Corporates. These services as of
now of Investment bankers in India are primarily restricted to Finance

Therefore in this section we propose to throw light on the following most

important activities undertaken by an Investment Banker.

1. IPO Process

2. Debt Syndication

3. Buy Back Of Share

4. Mergers & Acquisition

5. Venture Capital Funding

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Before we move on the activities undertaken, it is essential to understand a few

basic terminologies, which make understanding the above cases easier:

SEBI : Securities & Exchange Board Of India

MANDATE LETTER : This is a document issued by the client company to an

investment banker. This letter contains a confirmation from the client company
to the Investment Bank as regards their appointment and also the details of the
Services, terms and conditions, etc. required to be fulfilled by investment hint
Banks are contained.


In Modern times IPO is considered as a major source for raising equity

finance by the companies. The Public Offerings are of 2 types. The process of
an IPO is in one way or the other similar to the process of an FTO.

The process of IPO.

Fixed Price Issue : A fixed price issue is where the issuing price of the share id
fixed in advance before the opening date of the issue.

Book Build Issue : In this type of issue, the issue of the share is stated in terms
of a range / price band. The final issuing price can be anything in between this
range. E.g. A Price Band of Rs.100 to 110.


Investment Banking

The first step includes all activities prior to the IPO. The process followed
in this step are as follows:

Offer : An Investment Bank is approached by a company, offering it to become

the Lead Manger to the Issue.

Acceptance : After the offer by the Client Company, the Investment Bank
before accepting the offer conducts a Due Diligence of the client. They look at
the past record of this company and decide whether to take up the IPO or not.

Mandate Letter : Once the Investment Bank agrees to act as the Lead Manger
to the Issue, they are issued a Mandate Letter by the Client. This is the official
permission by the company to the merchant bank to act as the Lead Manager.

IPO Team & Various Appointments : In this case the Investment Banker and
the Client Company constitutes a dedicated IPO Team. This team works
together towards the execution is made of the company. This presentation
contains a past performance of the company.

Now various agencies such as Banks, Registrars, PR agency, Syndicate

members, Legal Advisory team, etc. are invited for a meeting and shown the
presentation. Here also an offer is made to various agencies to partner in the
IPO for the completion of different activities. It is also possible that all the
agencies may be directly appointed by the company or the Investment Banker,
as the case may be.

Preparation of DRHP : Draft red herring prospectus has to be filed with the
SEBI, before the official announcement of the IPO. This is the most important
document of the entire IPO process, as the permission for an IPO depends on

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this document. It is very lengthy process and has to be drafted very carefully. It
has different sections. The various agencies appointed above are asked to
prepare their relevant sections of DRHP, which is then compiled.

Here apt attention should be paid to the financials of the company. Every
bit of information mentioned in the DRHP should be true to the fullest extent;
otherwise it may attract heavy penalty. The contents of DRHP should be signed
by the relevant agencies.

The Investment Banker has to not only assisted in compiling information,

but also has to prepare the sections of the DRHP falling under his scope of
activity such as the financial, the valuation of shares, etc.

Completion of Preliminary Formalities: This is the crucial aspects of an IPO.

Here the Investment Banks assume of an advisory role. They advise the
company as regards the capital structure to be met for the listing requirements
of the stock exchanges, modify and amend articles through proper resolution to
meet the legal requirement of the company law board, etc.

Other advisory services provided by the Investment banks are as under :

a) Conduct and service on legal and financial due – diligence advised by the
legal council.
b) Discussion with the auditor for the final reporting requirement to SEBI.
c) Drafting and finalization of the DRHP for filling with SEBI.
d) Initiate the process of connectivity with depositories in co-ordination with
Registrations. NSDL, CSDL.

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e) Finalize communication strategy, corporate advertisement strategy and

issue advertisement strategy.

The last step in this section is filing the DRHP with SEBI, application for listing
of shares with the stock exchange.


Before we move on to the step of pre- issue marketing, it is necessary to

understand the types of investors. Shown above are the different categories of
investors targeted by the company for subscription of the issue.

Pre-issue Marketing Comprises the Following activities :

(a) Preparation of a detailed research report on the company and the industry.
This report is always based n the past performance of the company and
does not include future projection.
(b) Circulation of this report to the Institutional Investors.
(c) Hold a meeting with the institutional investors. In this meeting they are
spoken to and convinced to buy the shares of the company. Also their
advise is taken on various issues such as the valuation of shares, etc.


Investment Banking

In this step the company primarily targets the Qffi’s. This is due to the
following reasons :

(a) They purchase shares in bulk.

(b) In a book building issue, they are the ones who buy at the highest price.
(c) Also there is stability and lesser speculation if shares are purchased by
Qffi’s as they do not speculate with the market changes.


Prior to the commencement of this step the following activities have been

(a) DRHP field with SEBI and comments and feedback have been received.
(b) Reply to the comments provided through the red herring prospectus.
(c) Permission obtained from SEBI for commencement with the Issue.


This is relatively the most important step, which might ensure the success
or failure of the issue. In this step the entire issue is marketed to the various
investors. The following are the major activities :

a) Statutory Advertisements are given in the news papers.

b) Marketing done through TV Commercial and hoardings.
c) Meeting with the Brokers, analysts and the press. This is by far
one of the most important meeting in this stage. It is a confidence
building move by the company, in which the above 3 parties are
made presentation about the company.
d) The Investment Bankers also organize Road Shows. Under them
the Promoters of the company and the company and the

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representatives go to meet various agencies, institutional bidders,

appear on TV and speak about the issue.

STEP 4 :

Before the start of this step, the Issue has been opened, subscribed to and
also closed. During the issue, the Investment Banks have no major work. The
only activity that they undertake during that period is supervision as to the
collection of subscription money and make sure everything is being carried out

They oversee the accounting aspects of the issue. In case the issue is
subscribed or over subscribed, they proceed with the following steps. However
in case the issue is undersubscribed, then underwriting agreements are enforced
and shares are allotted to underwriters, and after that the following activities are
carried out :


(a) Issue –price advertisement: Under this the merchant bankers announce
the final issue price. This is the price at which the shares allotted to the
(b) Prepare a consolidated report applications received, publicize the
performance of the issue and decided the basis of allotment depending
upon the response from the formalities.
(c) Updating the prospectus for the prices, issue size, the basis of allotment
and other statutory formalities.
(d) File the updated prospectus and the underwriting agreement with SEBI.
(e) Submit the 3 day report to SEBI.

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(f) Announce dates of allotment of shares, transfer of money from the

Escrow account to the public issue account.
(g) Allotment of shares to the general public in co-ordination with the
registrar, Stock Exchange and the public Representatives.
(h) Announcement of Allotment o shares, basis of allotment of shares and the
expected date of delivery of shares in the DEMAT A/c. and transfer of
money or dispatch of refund order as the case may be to the public.
(i) Obtain listing permission and Listing of shares on the stock Exchanges.
(j) Transfer of shares in the DEMAT A/c. Passing of ECS for refund in co-
ordination with bankers and dispatch of refund orders if any.
(k) Filing of the VS day report with SEBI.
(l) Obtain trading permission from SEBI and the Stock Exchange.
(m)During the entire IPO process, investment Banks have to comply with
many Rules and Regulations.


Before we move on understanding the process of debt syndication let us

understand what debt syndication is all about?

In modern time business many companies require financial resources to

carry out their expansion / development activity, etc. there can be 2 ways of
finance, Debt & Equity. Above we saw one of the methods of raising equity
capital. Now we shall have a look at a method of raising borrowed funds / Debt

Investment Banking

Debt in company’s capital structure has its advantages as well as

disadvantages. The main reason for the companies to prefer to use debt as a
source of finance is due to its easy availability and low procurement cost.

When the requirement of funds is small / the amount to be raised via debt
is small, than it is possible to take the entire amount form one bank. However
when the requirement of loan is huge. Which cannot be financed by one bank,
than there is need for one or more banks join together and collectively provide
the required loan. The second phenomenon is called debt syndication and this
will be the crux of discussion in this case study.

Debt syndication in not an easy activity. It is very lengthy and a time

consuming activity. The entire activity from the start to end takes 2 months of
time. The compliance of the legal formalities is what makes the entire procedure



Under this step, the business opportunity is identified. This business

opportunity may arise when the Investment Bank approaches the client
company or the client company approaches the Investment Bank. In majority of
the cases, latter happens. The Client company approaches the Investment Bank
with an offer letter / proposal to raise a loan for them.

Investment Banking


After the receipt of the letter, before confirmation the Investment bank
carries out internal due diligence from its end. Here the task of the Investment
Bank becomes relatively simple if the client is an Already existing one.
However in the case of a new client, proper credit rating needs to be done. For
this purpose various credit rating agencies are approached, information is found
out from other sources. After the analysis of this information, if the company is
found be worthy, then the offer is accepted.

The entire due diligence process is carried out by the credit rating
committee of JM Financial, which is a Board Level Committee.


This is a confirmation letter by the company as regard the appointment of

the Investment Bank. In this letter the company also mention the amount of
loan required, the desirable interest rate, fees of the Merchant Banks, etc. the
entire procedure up to the receipt of Mandate Letter Takes 2-3 Working days.

Please take note that it is not necessary that Investment Banks has to be a
soul Investment banks to the syndication. There can also be co- Investment
Bank to the syndication process. However this does not make any different to
the process of syndication

Investment Banking


After the receipt of the appointment Letter / Mandate, the following are
the activities undertaken by the Merchant Bank:

(a) The bank based on the requirement of the company decide the kind of
loan to be raised. In India there are 2 loan Markets. Rated and non
rated Markets. Rated markets is the bond market, whereas the non-
rated market is the Banks Loan Market.

The former is not very popular in the country. Bank loan market is the
one which is widely used the various companies. One of the biggest
reasons as to why companies prefer non- rated market, is due to the case
of availability of loan at lower rate of interest compared to the rated
market. Also the rules and regulations in the non-rated market are far less
compared to the rated market. This is the reasons why the client company
as well as the Investment Banks, both prefer the non- rated market.

(b) After deciding the type of market, the investment bank now proceeds
to find out whether the Balance sheet and the financial statements can
support the amount of loan required by the company. Here the
investment bank undertakes a detailed study of the past performance
of the company and compares it with the present performance. The
financial statements of the company are the most important tool used
to find out this information.
(c) After determining the quantum of loan that can be supported by the
company as per its statement of accounts, the Merchant banks proceed

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to find out the possible banks that would be interested in funding the

For this purpose they may approach the banks which the client companies
may specify in case of no specification, they approach the banks that have
a direct dealing with them. The banks are given various details about the
nature of company, amount of loan, expected rate of interest, etc.

(d) After the banks have been approached, the work of investment banks
is more or less complete. Now onwards they would merely act as
communicating links between the lending bank and the client
I. The books take approximately 40-45 days to give their acceptance of the
loan. During this time in co-ordination with the Merchant bank, the lending
bank words out the Credit worthiness of the company. Various statistics of
the financial performance of the company. This gathered about financial
performance of the company. This information is deeply studied and various
ratios are found out, sensitivity testes are conducted, etc. also one of the
most important aspect is the valuation of the borrowing company,
assessment of the repayment capacity based on the revenues, etc.

II. All this while the Investment Bank is in constant co-ordination with the
lending bank and the borrowing company. They make available to the
lender all the information required by it and try their best make sure that the
loan is granted.

III. After the bank is satisfied that the company is worthy of the loan, the bank
proceeds with the legal formalities. It is made sure that the entire loan is
secured by collaterals, guaranteed and everything company through the
merchant bank.
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IV. The company gets the documents scrutinized form its end, with the help of
solicitors, etc. if the terms and conditions of the banks such as interest rates,
repayment period are acceptable, than the company givers its conformation.

V. Thereafter forms are filled, papers are signed and the loan is finally

VI. After the completion of all the formalities, the Investment bank is paid the
fees. This is a percentage of the total loan disbursed.

Investment generally undertakes debt syndication for Tier II companies,

because these are the companies who are not blessed with the procedures,
formalities and contacts to get loans raised.

Generally the tier I companies prefer to undertake debt syndication or

raising of borrowed capital by the internal departments which consists of
personnel specializing in this field.


Before we move on to see the buy back process and services of

Investment banks in the buy back process, let first understand what buy back of
shares means?

Investment Banking

Buy back is a phenomenon under which the company’s purchase back the
shares it has previously sold to the public. In order to fund this activity the
company makes use of the free- serves and the surplus with itself.

There are a lot of rules and regulation enacted by SEBI to make sure that
there are no manipulation in the buy back process and investor’s rights are
protected. Therefore a lot of responsibility is assigned to an investment bank in
initiating the entire buy back process.

Let us move on to see the role of a Merchant Bank in the Buy Back process:


This step is the same as in the previous case study where the capital client
company approaches the Investment bank asking for assistance and advice in
completing the buy back process.


Here the Investment bank after receipt of the Mandate starts its work. It
determines the exact amount of shares the company can buy back from the
public. Decides the rates at which they can bought back and check whether the
financial statements of the company and various SEBI rules regarding the buy
Back permit Buy Back, otherwise the company is likely to attract heavy penalty.


Once all the financial are worked out and the buy back price decided, The
Investment bank proceed with drafting the letter of offer. Before the drafting
can be started, the company and the investment Bankers have to get a resolution

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passed by the Board and Shareholders in an EGM. Thereafter decided the buy
back date buy back period. After completing all these formalities, they can start
with the drafting of LOF.


Once the LOF is drafted, it has to be field with the SEBI within the
prescribed time period after the passing of the resolution in the EGM and the
Board Meeting.


Once the LOF is filed with the SEBI, it gives its comments and
modification on the same. Within twenty-one days from the date of submission
of the draft letter of offer, SEBI specifies modifications, if any, in the draft letter
of offer. The investment banker and the company shall carry out such
modifications before the letter of offer is dispatched to the shareholders.


After the official nod is received from SEBI, the company and Merchant
Banks proceed to dispatch the OLF to the shareholders.


Investment Banking

After dispatching the LOF to the shareholders, the company and the
Merchant Banks do to the statutory advertisement to provide information to the
shareholder about the buy back.


The offer for buy back shall remain open to the members for a period not
less than fifteen days and not exceeding thirty days. The date of the opening of
the offer shall not be earlier than seven days or letter than thirty days after the
specified date. The letter of offer shall be sent to shareholders so as to reach
them before the opening of the offer.

In case the number of shares offered by the share holders is more than the
total number of shares to be bought back by the company, the acceptances per
share holder shall be equal to the acceptances tendered by the share holders
dividend by the total acceptances received and multiplied by the total number of
shares to be bought back.

The company shall complete the verifications of the offers received

within fifteen days of the closure of the offer and the shares lodged shall be
deemed to be accepted unless a communication of rejection is made within
fifteen days from the closure of the offer.


An Escrow account is the mechanism put in by SEBI to protect the

shareholders and hive them security. The company shall by way of security for
performance of its obligations, on or before the opening of the offer, deposit in
an escrow account a sum equivalent to the total buy back amount.

The escrow account shall consist of :

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(a) Cash deposited with a scheduled commercial bank or;

(b) Bank guarantee in favor of the merchant banker; or
(c) Deposit of acceptable securities with appropriate margin, with the
merchant banker, or
(d) A combination of above mentioned three points.

The SEBI in the interest of the shareholders may in case of non-fulfillment

of obligations under the regulations by the company, forfeit the escrow account
either in full or in part. The amount forfeited may be distributed pro rata
amongst the share holders who accepted the offer and balance, if any shall be
utilized for investor protection.


The company shall immediately after the date of closure of the offer open
a special account with a bankers and deposit therein, such sum as would,
together with the amount lying in the escrow account make-up the entire sum
due and payable as consideration for buyback and for this purpose, may transfer
the funds from the escrow account.

The company shall within seven days of time make payment of

consideration in cash those shareholders whose offer has been accepted or
return the share certificates to the security holders.


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The company shall extinguish and physically destroy the security

certificates so bought back in the presence of a Registrar or the investment
banker, and the statutory auditor within seven days from the date of acceptance
of the securities.

The securities offered for buyback if already dematerialized shall be

extinguished and destroyed in the manner specified under securities and
exchange board of India (Depositories and Participants) Regulations, 1996 and
the bye laws framed three under.

The company shall furnish a certificate to the SEBI duly verified by

a) The registrar and whenever there is no registrar through the merchant

b) Two whole-time Directors including the Managing Director and;
c) The statutory auditor of the company, and compliance within seven days
of extinguishment and destruction of the certificates.

The particulars of the share certificates extinguished and destroyed shall be

furnished to the stock exchange where the shares of the company are listed,
within seven days of extinguishments and destruction of the certificates.

The company shall maintain a record of the share certificates, which have
been can celled and destroyed.


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Mergers and Acquisitions, commonly referred to as M & A, are 2

separate and distinct activities. Many people confuse them to be synonymous,
however they are distinct from 1 another.

Merger happens when 2 companies come join together and from a

separate entity. This could be a company with a new brand name, new business,

Acquisition happen when one company has been taken over by another
company. This means that the acquiring company after the takeover controls the
management of the acquired company, whereas this is not the case in mergers.

In case of mergers and acquisition, investment bankers may act from the
sell side or the buy side. The investment bankers collect data on various
companies, which are looking for mergers. They also identify potential targets
of takeover / acquisition, which could benefit their client.

The main role of an investment banker in an M & A is to make sure that

his client is not cheated. The investment banker through various analyses finds
out the minimum amount that his client should get. Thus an investment banker
tries to protect the interest of his client from the other party.

In brief the M & A process can be as follows:

Step 1: Business Opportunity Identification

Step 2: Receipt of Appointment Mandate.

Step 3: identify the potential targets for merger or acquisition as the case may

Step 4: Due Diligence of the 2nd party.

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Step 5: Proposal on behalf of the client for merger or acquisition as the case
may be.

Step 6: Receipt of confirmation from the 2nd party for regards merger or

Step 7: Valuation of the client company as well as the 2nd company.

Step 8: Drafting the agreement

Step 9: meeting of the client with the second company.

Step 10: Negotiation between both the parties and try to reach a conclusion.

Step 11: Make changes in the agreement, prepare final agreement and get it

Step 12: Assist in the formation of a new entry in case of merger and assist in
the process of investment in the case of acquisition.

This is how an investment banker helps in the M & A process. Due to

shortage of time, only the above mentioned information could be gathered for
M & A.


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It is popularly believed that venture capitalists fund only established

players and proven products. There is a lot of cynicism amongst many about all
type that private equity and venture capital is getting in India of late.

The national venture capital association defines venture capital as:

“Money provided by professionals who invest alongside management in young,
rapidly growing companies that have the potential to develop into significant
economic contributors.”

Investment bankers provide not only financial, but also, managerial

(technical, marketing and HR), support to achieve success. This support is lent
in many forms by private funding and incubation organizations such as venture

Clients looking for setting up a venture capital fund take help and advice
of the investment banker on the various issue from selecting a business proposal
to legal framework, rule and regulations.

What investment bankers look for while funding a business

The following paragraphs broadly the various steps of the evaluation


Initial Screening

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Investment bankers are in the business of making more the then average
returns for their clients interested in venture capital funding and only the
proposals which can match or exceed the VCs expectation will get an attention
from them. Thus initial screening is a step in which the venture capitalist
reaches an initial decision to investigate the investment (or not)

The initial screen is a cursory glance at the business plan determine

whether or not the proposal fits within the client’s areas of expertise. Investment
bankers carry out initial screening of all projects on the basis of some broad

For example, the screening process may limit projects to areas with which
the venture capitalist is familiar in terms of product, technology or market
scope. The size of investment, stage of financing and geographical location
could be as the broad screening criteria.

Detailed Business Plan

If the plan manages to clear the initial screening round then the
investment bankers call for the detailed business plan from the entrepreneur.
This business plan is the main tool with the help of which client would make up
his mind. Thus the entrepreneur should present clarity of thinking about the
business in the plan as the “Surprises can be great for parties, but potentially
could be fatal for businesses.”

Due Diligence

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In the next and the help most important phase, due diligence is conducted
by the client with help from investment bankers to verify the accuracy of the
statements made by the entrepreneur. The two main types of due diligence
conducted are business and legal.

The legal due diligence involves verification of the documents by the

lawyers of the VC. These documents include Memorandum and Articles of the
Association, important contracts, patents, copyrights, et cetera.

Business due diligence involves looking at the quality of people, quality

of business and the quality of investment. Quality of people is one of the most
important criteria. There is unanimity among theorists that venture capitalists
prefer a grade A team with a grade B idea to a grade B team with a grade A
idea. However, how the quality of team is evaluated is a source of controversy.

Many feel that the integrity of the team members is the most important
criterion. Past research shows that trustworthiness, enthusiasm and expertise of
the entrepreneur are the most important factors considered by the VCs. It has
also been that about 50-60 per cent of the projects which are seriously
considered for financing but are ultimately rejected is due to the factors related
to the entrepreneur.

The other major consideration is quality of business. Some investment

bankers, specially the early stage ones, may not give a lot of importance to
details; however, the idea must necessarily and clearly signify a distinct and
unique competitive advantage. Generally, market potential and attractiveness
are an integral part of a marketing plan.

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Though visibility and transparency in a business may not necessarily inverse its
attractiveness, it is more of a necessity. One of the most important
considerations for investment bankers while judging an investment proposal is
clarity of the exit mode and the expected return from the project, which is
quality of the investment. This is because the VC is ultimately a fund and they
(like mutual fund mangers) need to manage their portfolio to get maximum

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Finally, if the investment banker is positive after the due diligence, he

will issue a term sheet which is an indication that he seriously looking at the
proposal. It is pertinent to note that the term sheet is not the final document, but
only a basis for further negotiations.

So, behind those mind boggling returns lies serious evaluation. Apart
from luck and being in the right business at the right time, venture capitalists
must also be given due credit for the detailed evaluation that they carry out
before deciding to invest.

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Exploratory research design is used to perform the study. The random

sampling method used to collect the primary data from the customers in
Mumbai city. The sample of 100 respondents was collected. Both primary and
secondary data is used to perform the study. A questionnaire was prepared for
customer’s survey.

Introductory question included all multiple choice / multiple response

type of questions. Main body of customer questionnaire included objective of
the research study which was drafted in English containing Likert-scaled items
scoring from 1 (strongly disagree) to 5 (strongly agree) to measure various mall
shopping factors.

The main purpose of the research was to confirm whether items loaded
correctly to the corresponding factors as identify by previous research. Through
objectives, hypothesis is tested to find out the relationship between factors
affecting towards malls shopping.

The study falls under the category of descriptive research and uses survey
method. Descriptive research includes survey and fact finding enquiries of
different kinds..it is description of state of affairs as exists at present.

To collect the necessary information, carious parameters were developed

with the help of literature. The responses to these parameters were gathered,
coded, tabulated and analyzed. To measure the intensity of parameters close
ended questionnaire was used. To measure the attributes were measured on a
point scale and the final score has calculated by using weighted ranking method.

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Primary data

Primary data are those which are collected for the first time and which
could be original in character. There are several methods of data collection, be
particularly in descriptive researches. This includes following methods.
Observation method, Interview method, Collection of data through
questionnaires, such as warranty cards, contract analysis, projective techniques,
depth interviews and systems audits etc. A structured questionnaire was built in
correlation with objective of research and hypotheses. Thus data using
questionnaire was collected from shoppers.

The total sample size decided by researcher was 100 across Mumbai city.
All clusters namely, students, service class, business class, professional and
others was considered for the same. Research had made an attempt that the
sample size was adequate, representative and estimator with sufficiently high

I had collected the primary data by survey and questionnaire method.

Secondary Date

Secondary data represents a very powerful tool for the researcher as

entire research work is carried out on the basis of secondary data. It is nothing
but the backbone of research work. Secondary data is the one which has already
been collected and analyzed by someone else. Usually this analyzed data is
available in the published from.

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The concept regarding consumer behavior and other literature were taken from
the different reference books and text books. The articles which were based on
the related topic were taken from newspapers & magazines which were
published. Literature from the research journals were taken on have an insight
of the research problems so that the gap in this research was identified and
hypotheses was formed. Last but not the least Literature from Websites was also

The data will be collected from shoppers responses were analyzed by

using appropriate statistical tools. Thus the research adopted for the study will
be Quantitative Descriptive Cross-sectional design to cover the various factors
of the study.

Sampling Unit : The sampling unit was identified by the researcher before
selection of a sample. A sampling Unit may a natural geographical unit such as
state, a district, a village. It may be a social entity such as a family or a school.
It may also be an individual.

I had collected the primary data by using 100 sampling units.

Investment Banking



1. Are you aware of the following investment avenues ?

A. Safe / Low risk investment avenues:

Operations Total Percentage

Saving account 18 18%
Bank fixed deposits 29 29%
Public provident fund 16 16%
National saving 15 15%
Post office saving 10 10%
Government securities 12 12%

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Safe/Low risk investment avenues

goverment securities

10% 12% saving accounts

18% bank fixed deposite

public provident fund


29% national saving certificate

post office


According to the above pie-chart the more number of investment is done in

fixed deposit i.e. 29%, while the less numbers of investment is done in saving
accounts i.e. 10%.

B. Moderate risk investment avenues

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Options Total Percentage

Mutual funds 31 31%
Life insurance 45 45%
Debentures 13 13%
Bonds 11 11%

Moderate risk investment avenues

Mutual funds


13% Life insurance




According to the above pie-chart the more numbers of investment is done in life
insurance i.e. 45%, while the less numbers of investment is done in bonds i.e.

C. High risk investment avenues:

Options Total Percentage

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Equity risk market 45 45%

Commodity market 35 35%
FOREX market 20 20%

High risk investment avenues

Equity risk market


Commodity market

FOREX market



According to the above pie-chart the more numbers of investment in traditional

avenues is done in real estate i.e. 63%, while the less numbers of investment is
done in chit funds i.e. 10%

D. Traditional investment avenues

Options Total Percentage

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Real estate 63 63%

Gold/Silver 27 27%
Chit funds 10 10%

Traditional investment avenues

Real estate


Chit funds


According to the above pie-chart the more number of investment is done in

private equity investment i.e. 41%, while the less numbers is in hedge funds i.e.

E. Emerging investment avenues:

Options Total Percentage

Virtual real estate 29 29%
Hedge funds 10 10%

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Private equity investment 41 41%

Art and passion 20 20%

Emerging investment avenues

Virtaual real estate

29% Hedge funds

Private equity investment

10% Art and passion



According to above pie-chart the more numbers of investment is done in private

equity investment i.e. 41%, while the less numbers is in hedge funds i.e. 10%

2. In which sector do you prefer to invest your money ?

Options Total Percentage

Private sector 23 23%
Government sector 57 57%
Public sector 17 17%
Foreign sector 3 3%

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Money prefered to investment

3% Private sector
14% 24%
Government sector

Public sector

Foreign sector


3. What are your saving objectives ?

Options Total Percentage

Children education 24 24%
Retirement 13 13%
Home purchase 29 29%
Children’s marriage 20 20%
Health care 14 14%

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Saving objectives

Children education

24% Retirement

20% Home purchase

Children's marriage

Health care


According to the above pie-chart the more numbers of saving objectives is in

home purchase i.e. 29%, while the less number is retirement i.e. 13%.

4. What is your investment objectives ?

Options Total Percentage

Income and capital preservation 15 15%
Long term growth 32 32%
Growth and income 43 43%
Short term growth 10 10%

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Investmet objectives

Income and Capital

10% 15%

Long term Growth

43% 32% Growth and Income

Short term Growth


According to the above pie-chart the more number of investment objectives is in

growth and income i.e. 43%, while the less number is in short-term growth i.e.

5. What is the purpose behind investment ?

Options Total Percentage

Wealth creations 32 32%
Tax saving 16 16%
Earn returns 30 30%
Future expense 22 22%

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Investment purpose

Wealth creation

32% Tax saving

Earn returns

30% Future expense



According to the above pie-chart the more numbers of investments purpose is in

wealth creation i.e. 32%, while the less numbers is is tax saving i.e. 16%.

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6. Do you have a formal budget for family expenditure ?

Options Total Percentage

Yes 79 79%
NO 21 21%

Budget for family expenditure






According to the above pie-chart the more numbers of people have budget for
family expenditure i.e. 96%, while the less numbers is 4%.

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7. At which rate do you want your investment to grow ?

Options Total Percentage

Steadily 45 45%
At an average rate 29 29%
Fast 26 26%

Growth of investment



Average rate

29% Fast


According to the above pie-chart the more numbers of people want their growth
of investment to be steadily i.e.45%, while the less numbers of peoples want
their growth of investment to be fast i.e. 26%.

8. Which factor do you consider before investing ?

Investment Banking

Options Total Percentage

Safety of principle 31 31%
Low risk 19 19%
High risk 29 29
Maturity period 21 21%

Fcator before investing

Safety of
Low risk

High risk
Maturity period


According to above pie-chart the more numbers of factors before investing is in

safety of principle i.e. 31%, while the less numbers of factors before investing is
in low risk i.e.19%.

9. Do you invest your money in share market ? (through a DEMAT A/C)

Options Total Percentage

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Yes 72 72%
No 28 28%

Invested in share market





According to above pie-chart the more number of peoples invested in share

market is 72%, while the peoples who does not invested in share market is 28%.

A) If yes: Imagine that stock market drops after you invest in it then what will
you do ?

Options Total Percentage

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Withdraw your money 31 31%

Wait to increase 24 24%
Invest more in it 18 18%

If yes

Withdraw your money


45% Wait to increase

Invest more in it


According to above pie-chart the more numbers of people said yes will
withdrawn their money i.e. 42%, while the less numbers is 25%.

10. What is your source of investment advice ?

Options Total Percentage

Newspaper 21 21%
News channels 26 26%
Family friends 06 06%
Internet 34 34%

Investment Banking

Advisors 13 13%
Magazines 00 00%

Source of investment advice

News paper

39% channels

Family and
7% 30%


According to above pie-chart the more numbers of peoples had sources of

Investment advice in internet i.e. 34%, while the less numbers is of magazines

11. Do you make investment yourself or take help of investment bankers ?

Options Total Percentage

By yourself 17 17%
Take help of an investment bankers 83 83%

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Decision in investment

By yourself

Take help of an investment



According to the above pie-chart the more numbers of peoples takes help of
investment bankers i.e. 83%, while the less numbers of peoples invest
themselves in market i.e. 17%.

12. How did you come to know about him/her (advisor) ?

Options Total Percentage

Internet 46 46%
Friends and Family 11 11%
Newspaper 28 28%
News channel 15 15%

Investment Banking

Knowing of advisor

Friends and Family


News cahnnel



According to above pie-chart the more numbers of peoples get to know about
the investments bankers by newspaper i.e.45%, while the less number is 13%.

13. Do you feel investments bankers are helpful in making good investments ?

Options Total Percentage

Yes 86 86%
No 14 14%

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Helpful in making good investment






According to above pie-chart the more numbers of peoples feel investments

bankers are helpful in making good investments is 86%, while the less numbers
of people does not feel investment bankers are helpful in making good
investments i.e. 14%

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