By:-byb

By:Namrata Chaudhary M.B.A. (Finance) Third semester

What are Investment banks ?

Investment banks, rightly termed as the entrepreneur of entrepreneurs are the financial institutions which assist business corporations or government bodies to raise funds for long term capital requirement through the sale of shares, stocks and bonds

 Investment

banking is basically an American concept and its origin can be traced to the end of World War I. was in1916, when for the first time the New City Bank of New York acquired Halsey Stuart and Company and diversified its business portfolio from its existing commercial banking operations to investment banking.

It

 By

1935 Investment banks became one of the most heavily regulated industries in U.S.A

The operative technique of investment banker is described as : The investment banker (as originator) enters into all the preliminary negotiations with the issuing corporation. For this he ordinarily requires detailed reports regarding the origin and history of the issuing corporation, its corporate powers, the nature of its products, the condition of its

plant and machinery and the other assets, its capital structure, the intention of the new issue, etc. On finding these details satisfactory, the originator enters into an agreement with an issuing authority undertaking to bring out the new issue. If the issue is a large one, the originator calls upon other investment bankers to join him in forming an Underwriting Syndicate.

The next step is to invite the small Retailers to join with the Underwriting Syndicate to form a Selling Group. Finally the securities are offered for Public Subscription.

The Investment banking industry on a global scale is oligopolistic in nature & can be classified into 3 main categories of investment banks :1. 2. 3.

Bulge Bracket Pure Investment Banks Boutique Investment Banks

 Bulge

bracket or Global Bulge Group Consists of major investment banks which are global leaders of the industry & have global presence.
Pure Investment Banks :These do not have any connections with commercial banking operations. Boutique Investment banks- Small investment banks i.e. work on small deals and usually assist on the sell-side in M&A transactions.

According to Thomson Reuters League Tables, the following banks are part of the bulge bracket: Bank of America Merrill Lynch Barclays Capital Citigroup Credit Suisse Deutsche Bank Goldman Sachs JPMorgan Chase Morgan Stanley UBS

ORIGIN :

In India, the investment banking was largely confined to merchant banking services.
The Indian merchant banking industry saw a prominent growth till 1992.

However post-1992, the merchant banking industry was largely driven by issue management which fluctuated trends in the primary market. Due to over-dependence on issue management activity in the initial years, most of the merchant banks perished in the primary market downturn that followed later.

In order to stabilize their business, most of the Indian merchant banks diversified their service portfolio and transformed themselves into full-service investment banks.

REGULATORY FRAMEWORK:

SEBI (Securities and Exchange of India) is the major agency which regulates Investment Banking functions in India. At the constitutional level, all investment banking companies incorporated under the Companies Act 1956 are governed by the provisions of that Act.

BANKRUPTCY REMOTENESS

On the regulatory front ,the Indian regulatory regime does not allow all investment banking functions to be performed under one entity so as to prevent excessive exposure to business risk under one entity. Thus Bankruptcy remoteness is a key feature in structuring the business lines of an Indian investment bank.

The Indian Investment banking industry comprises mainly of Boutique Investment Banks (or medium-sized investment banks) The average transaction size in India is not too big. In October 2011 the average deal size was $17.40 million for M&A and $14.29 million for private equity. For qualified institutional placement, it stood at $8.67, as per data collated by Grant Thornton.

There were no deals with value over half a billion and only four which were valued at over $100 million. It is this small deal size that is making new players enter the country.

NO GlOBAL INDIAN INVESTMENT BANKS

There are no global Indian Investment banks

MAJOR INDIAN INVESTMENT BANKING COMPANIES

ICICI Securities Ltd. (I-Sec) SBI Capital Markets Ltd. (SBI Caps) Kotak Mahindra Capital Company (KMCC) Avendus Yes Bank

PRIMARY SERVICES
Merchant banking, Underwriting and Book Running Mergers and Acquisitions Advisory Corporate Advisory

SUPPORT SERVICES
Secondary

Market Activities Asset Management Services Wealth Management Services

The global investment banks, such as Bank of America Merrill Lynch, UBS, Nomura and HSBC are downsizing their operations in India, and a clutch of niche and medium sized I-Banks are entering here. Nearly half a dozen new I Banks, such as Chicago based Lincoln International Japan's Mizuho, UK-based Investec and Espirito Santo of Portugal, are setting up operations in India either as a wholly-owned subsidiary or in partnership with Indian entities.

SEBIS PLANNING TO MAKE RESPONSE DEADLINE FOR INVESTMENT BANKSThe Securities and Exchange Board of India (Sebi) is going for an overhaul of the initial public offering (IPO) process. The securities market regulator is planning to put this process in place, where bankers to IPOs will have to respond to its queries within a stipulated period

1.

Threat of New Competitors-Low

High capital requirement Strong brand names are important Customers r loyal to existing brand High Switching costs for customers High learning curve

2.Threat of Substitutes-Low
High

cost of switching to substitutes: As the number of substitutes available are limited, the customers cannot easily switch to other products or services of similar price and still receive the same benefits.

3.Bargaining power of customers-low

Lower buyer price sensitivity Product is important to customer Large no of customers Limited buyer information availability

4. Bargaining Power of Suppliers- low

Human

Capital is the major supplierSince Human Capital is the major supplier, thus there is no scope for bargaining.

5. Intensity of Existing Rivalry-low

Exit barriers are low Large industry size Relatively few competitors Government limits competition

STRENGTHS:

Offers myriad of Financial Services Investment banking provides various types of services such as merchant banking, underwriting , book running, M&A Advisory, Corporate advisory, Wealth Management etc.

Technological Advancement: Due to technological advancement, working efficiency has been increased and work is done quickly and easily. Advanced Infrastructure: India is equipped with all the latest and advanced amenities such as well equipped telecommunication, transportation, internet facility etc.

WEAKNESSES: Unawareness

of Investors: The major weakness is the unawareness of its services among investors, due to which till now, it could not reach to the level where it should have been. Excessive Dependence on Trading Sectors: It has been found that investors are more dependent on the trading sector for their investments rather than any other field.

OPPORTUNITIES:

Small and Medium size dealsThe average transaction size in India is not too big. It is this small deal size that is making new players enter the country. Medium and small size Indian companies offer tremendous opportunities for I-Banks as they are looking for inward and outward investments

Growing demand for Investment Banking: The knowledge of investment banking is increasing among investors and now they are diversifying their investment into many sectors. Attractive Country: India is a financially attractive country. The recent experience of Recession showed

Financially

that, India is among the few countries (China, Brazil and India) who not only survived in this difficult era but also showed the path to developed countries to overcome this calamity.

THREATS:

The upcoming RecessionSome of the large players have reduced their Indian operations as their overseas clients, which are large players, are fighting recession in their home country, be it the US or Europe. Therefore, it is unlikely that these corporations will look at any investment in India.

 Increasing

competition: Competition in investment banking is increasing day by day. New players are foraying to the market and due to this the market share as well as profit of existing companies is getting affected .

 Decentralized

management: Every branch manager in a company is given the authority of taking decisions in their respective branches. The decisions made by different managers are diverse and any wrong decision may lead to heavy loss to the company.

THANK-YOU