Bank - New Investment Opportunities in Indian Banking Sector

8/10/2019 Bank - New Investment Opportunities in Indian Banking Sector

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RESEARCH PROJECT REPORTON

A STUDY OF NEW INVESTMENT OPPORTUNITIES

IN INDIANBANKING SECTOR

Submitted in Partial Fulfilment of the requirement for theAward of degree of

MASTER OF BUSINESS ADMINISTRATION

of

(Mahamaya Technical Univerity! Noida"

By( #$%$P S$N&' "

Roll No:101!000"

011#1

United $ntitute of Management&reater Noida


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DEC$ARATION

$!#ili) Singh! *oll No+,--.,,,/! tudent of M0A $1th Semeter! 2ear -,+-! hereby

declare that the *eearch Pro3ect *e)ort titled4

5A STU#2 OF N67 $N16STM6NT OPPO*TUN$T$6S $N $N#$AN 0AN8$N& S69TO*:!

being ubmitted in )artial fulfillment for the award of M0A degree by MTU! Noida i my

original wor; of *eearch and it ha not been ubmitted to any $ntitute


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ACKNOW$EDGEMENT

$ am than;ful to for their valuable guidance and u))ort at all time4

$ am than;ful to all thoe )eo)le who directly or indirectly )rovided me all the neceary information

throughout thi )ro3ect re)ort com)leted at time4

=


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TAB$E OF CONTENTS

S NO/ TOPICS PAGE NO/

1/

/

/

2/

3/

CHAPTER 1: INTRODUCTION OF TOPIC

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ASS6T MANA&6M6NT????????????????4444 &%ASS+ST6A&A% *6FO*M??????????????4444B 6C69UT$16 SUMM*2?????????????????

CHAPTER : $ITERATURE REVIEW

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CHAPTER :OBJECTIVE , SCOPE OF THE STUDY4 OTHER

ASPECTS OF INVESTMENT BANKING

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CHAPTER 2: RESEARCH METHODO$OGY

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CHAPTER 3:FINDING AND CONC$USION

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CHAPTER 5: SUGGESTIONS AND RECOMMENDATIONS

B4 SU&&6ST$ONS????????????????????44B4- *69OMM6N#AT$ONS?????????????????4

BIB$IOGRAPHY

ANNE6URE

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CHAPTER# 1

INTRODUCTION

OF

TOPIC

B


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1/1 WHAT IS INVESTMENT BANKING8

An -*7'9&+'*& %*;i a financial intitution that ait cor)oration and government in raiing ca)ital by

underwriting and acting a the agent in the iuance of ecuritie4 An invetment ban; alo ait com)anie

involved in merger and acquiition! divetiture! etc4 Further to )rovide ancillary ervice uch a mar;et

ma;ing and the trading of derivative! fiHed income intrument! foreign eHchange! commodity! and equityecuritie4

Unli;e commercial ban; and retail ban;! invetment ban; do not ta;e de)oit4

The ban;ing cenario in $ndia i itelf huge! covering the different facet of the economy4 0y and large!

invetment ban; in $ndia are itelf an intitution which generate fund in two different way4 The firt manner

in which it wor; i by drawing )ublic fund via the ca)ital mar;et by way of elling toc; in their com)any4

The other way in which it o)erate i to ee; for venture ca)ital or )rivate equity! a a ubtitute for a ta;e intheir com)any4

Traditionally! ban; either engaged in commercial ban;ing or invetment ban;ing4 $n commercial ban;ing! the

intitution collect de)oit from client and give direct loan to buinee and individual4 Through

invetment ban;ing! an intitution generate fund in two different way4 They may draw on )ublic fund

through the ca)ital mar;et by elling toc; in their com)any! and they may alo ee; out venture ca)ital or

)rivate equity in eHchange for a ta;e in their com)any4

The ma3or wor; of I*7'9&+'*& B%*;9include a lot of conulting4 For intance! they offer advice on merger

and acquiition to com)anie4 The other arena where they give advice are trac;ing the mar;et and determining

when hould a com)any come out with a )ublic offering and what i the bet )oible way to manage the )ublic

aet of buinee4 The role that an invetment ban; )lay ometime get overla))ed with that of a )rivate

bro;erage houe4 The uual advice of buying and elling i alo given by invetment ban;4

There i no demarcating line between the invetment ban;ing and other form of ban;ing in $ndia4 Thi ha

been oberved ma3orly of late4 All ban; nowaday want to )rovide their cutomer the bet of ervice and

create a niche for themelve and that i why a)art from invetment ban;! all other ban; too are aiming at

ma;ing it big4

At the macro level! invetment ban;ing i related with the )rimary function of aiting the ca)ital mar;et in it

function of ca)ital intermediation! i4e4! the movement of financial reource from thoe who have them (the

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invetor"! to thoe who need to ma;e ue of them for )roducing P (the iuer"4 Over the decade!

invetment ban; have alway uited the need of the finance community and thu become one of the mot

vibrant and eHciting egment of financial ervice4

&lobally invetment ban; handle ignificant fund+baed buine of their own in the ca)ital mar;et along with

their non+fund ervice )ortfolio which i offered to the client4 All thee activitie are broadly egmented acrothree )latform + equity mar;et activity! debt mar;et activity and merger and acquiition (MIA" activity4 $n

addition! given the tructure of the mar;et! there i alo a egmentation baed on whether a )articular

invetment ban; belong to a ban;ing )arent or i a tand+alone )ure invetment ban;4

A&-7-&-'9


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1/ EVO$UTION OF INVESTMENT BANKING

The origin of invetment ban;ing in $ndia can be traced bac; to the Eth century when 6uro)ean merchant

ban; et+u) their agency houe in the country to ait in the etting of new )ro3ect4

$n the early -,th century! large buine houe followed uit by etablihing managing agencie which acted a

iue houe for ecuritie! )romoter for new )ro3ect and alo )rovided finance to &reenfield venture4

A few mall bro;er alo tarted rendering Merchant ban;ing ervice! but their wa limited due to their mall

ca)ital bae4

$t wa oon followed by 9itiban;! which tarted rendering thee ervice4

The ban;ing committee! in it re)ort in E.-! too; note of thi with concern and recommended etting u) of

merchant ban;ing intitution by commercial ban; and financial intuition4

State ban; of $ndia ventured into thi buine by tarting a merchant ban;ing bureau in E.-4

$n EB.! AN &rindlay ban; et + u) a e)arate merchant ban;ing diviion to handle new ca)ital iue4

0y E/,! the number of merchant ban; roe to == and wa et+u) by commercial ban;! financial intitution

and )rivate ector4

GM finance wa et+u) by Mr4 Nimeh 8am)ani a an eHcluive merchant ban; in E.=4

$n E.-! $9$9$ became the firt financial intitution to offer merchant ban;ing ervice4

1/ RESEARCH FINDINGS

&enerally! the brea;down of an invetment ban; include the following areaJ

Corporate Finance (equity)

Corporate Finance (debt)

Mergers & Acquisitions (M&A)

Equity Sales

Fixed Income Sales

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Equity Trading

Fixed Income Trading

Equity esearc!

Fixed Income esearc!

The function of all of thee area will be dicued in much more detail later in the boo;4 $n thi overviewection! we will cover the nut and bolt of the buine! )roviding an overview of the toc; and bond mar;et!

and how an $+ban; o)erate within them4

Co=>o=%&'


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?1@ P=o7-)-*. l-(-)-&yJ Trader )rovide liquidity to the firmL client (that i! )roviding client with the abilityto buy or ell a ecurity on demand"4 Trader do thi by tanding ready to immediately buy the clientL ecuritie(for ell ecuritie to the client" if the client need to )lace a trade quic;ly4 Thi i alo called ma;ing a mar;et!or acting a a mar;et ma;er4 Trader )erforming thi function ma;e money for the firm by elling ecuritie at alightly higher )rice than they )ay for them4 Thi )rice differential i ;nown a the bid+a; )read4 (The bid)rice at any given time i the )rice at which cutomer can ell a ecurity! which i uually lightly lower thanthe a; )rice! which i the )rice at which cutomer can buy the ame ecurity4"

?@ P=o>=-'&%=y &=%)-*.J $n addition to )roviding liquidity and eHecuting trader for the firmL cutomer!

trader alo may ta;e their own trading )oition on behalf of the firm! uing the firmL ca)ital ho)ing to benefit

from the rie or fall in the )rice of ecuritie4 Thi i called )ro)rietary trading4 Ty)ically! the mar;eting+ma;ing

function and the )ro)rietary trading function i )erformed by the ame trader for any given ecurity4

For eHam)le! Morgan StanleyL Five 2ear Treaury Note trader will ty)ically both ma;e a mar;et in the +2ear

Note a well a ta;e trading )oition in the +2ear Note for Morgan StanleyL own account4

R'9'%=

*eearch analyt follow toc; and bond and ma;e recommendation on whether to buy! ell! or hold thoe

ecuritie4 They alo forecat com)anieL future earning4 Stoc; analyt (;nown a equity analyt" ty)ically

focu on one indutry and will cover u) to -, com)anieL toc; at any given time4 Some reearch analyt wor;

on the fiHed income ide and will cover a )articular egment! uch a a )articular indutryL high yield bond4

Sale)eo)le within the $+ban; utiliKe reearch )ublihed by analyt to convince their client to buy or ell

ecuritie through their firm4 9or)orate finance ban;er rely on reearch analyt to be eH)ert in the indutry in

which they are wor;ing4 *e)utable reearch analyt can generate ubtantial cor)orate finance buine for

their firm a well a ubtantial trading activity! and thu are an integral )art of any invetment ban;4

Sy*)-%&'

The hub of the invetment ban;ing wheel! the yndicate grou) )rovide a vital lin; between ale)eo)le and

cor)orate finance4 Syndicate eHit to facilitate the )lacing of ecuritie in a )ublic offering! a ;noc;+down

dragout affair between and among buyer of offering and the invetment ban; managing the )roce4 $n a

cor)orate or munici)al debt deal! yndicate alo determine the allocation of bond4

1/2 COMMERCIA$ BANKING4 INVESTMENT BANKING

AND ASSET MANAGEMENT

0efore decribing how an invetment ban; o)erate! letL bac; u) and tart by decribing traditional commercial

ban;ing4 9ommercial and invetment ban;ing hare many a)ect! but alo have many fundamental difference

After a quic; overview of commercial ban;ing! we will build u) to a full dicuion of what $+ban;ing entail4


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Although the barrier between invetment and commercial ban; have eentially been removed by the )aage

of the &ramm+%each+0liley Financial Service ModerniKation Act of EEE! we will for now eHamine the

traditional model of the commercial ban;ing indutry and com)are it to invetment ban;ing4 7e will then

invetigate how the new legilation affect commercial and invetment ban;ing organiKation4

Co++'=-%l B%*;-*. 79/ I*7'9&+'*& B%*;-*.

7hile regulation ha changed the buinee in which commercial and invetment ban; may now )artici)ate

the core a)ect of thee different buinee remain intact4 $n other word! the difference between how a ty)ical

invetment ban; and a ty)ical commercial o)erate ban; can be im)lifiedJ A commercial ban; ta;e de)oit for

chec;ing and aving account from conumer while an invetment ban; doe not4 7eLll begin by eHamining

what thi mean by ta;ing a loo; at what commercial ban; do4

Co++'=-%l %*;9A o++'=-%l %*; may legally ta;e de)oit for chec;ing and )roviding Saving

Account facility to conumer4 The ty)ical commercial ban;ing )roce i fairly traightforward4 2ou de)oit

money into your ban;! and the ban; loan that money to conumer and com)anie in need of ca)ital (cah"

2ou borrow to buy a houe! finance a car! or finance an addition to your home4 9om)anie borrow to finance

the growth of their com)any or meet immediate cah need4 9om)anie that borrow from commercial ban; can

range in iKe from the dry cleaner on the corner to a multinational conglomerate4 The commercial ban;

generate a )rofit by )aying de)oitor a lower interet rate than the ban; charge on loan4

P=-7%&' o*&=%&9

$m)ortantly! loan from commercial ban; are tructured a )rivate legally binding contract between two

)artie the ban; and you (or the ban; and a com)any"4 0an; wor; with their client to individually determine

the term of the loan! including the time to maturity and the interet rate charged4 2our individual credit hitory

(or credit ri; )rofile" determine the amount you can borrow and how much interet you are charged4

Perha) your com)any need to borrow * -,!,,, 9r4 over year to finance

the )urchae of equi)ment! or maybe your firm need *4 = 9r4 over five year to finance the )urchae of truc;

Maybe for the firt loan! you and the ban; will agree that you )ay an interet rate of .4 )ercent )erha) for the

truc; loan! the interet rate will be )ercent4 The rate are determined through a negotiation between the ban;

and the com)any4

I*7'9&+'*& %*;9

An invetment ban; o)erate differently4 A* -*7'9&+'*& %*; doe not have an inventory of cah de)oit to

lend a a commercial ban; doe4 $n eence! an invetment ban; act a an intermediary! and matche eller of

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toc; and bond with buyer of toc; and bond4 Note! however! that com)anie ue invetment ban; toward

the ame end a they ue commercial ban;4 $f a com)any need ca)ital! it may get a loan from a ban;! or it may

a; an invetment ban; to ell equity or debt (toc; or bond"4 0ecaue commercial ban; already have fund

available from their de)oitor and an invetment ban; ty)ically doe not! an $+ban; mut )end coniderable

time finding invetor in order to obtain ca)ital for it client4 (Note that a invetment ban; are increaingly

ee;ing to become 5one+to): financing ource! many $+ban; have et aide billion of ru)ee of their ownca)ital that they can ue to loan to client directly4"

P=-7%&' D'& 79/ Bo*)9 A* E%+>l'

%etL loo; at an eHam)le to illutrate the difference between >=-7%&' )'& and o*)94

Su))oe Acme 9leaning 9om)any need ca)ital! andetimate it need to be *4 -,,9r44

Acme could obtain a commercialban; loan from 0an; of 0aroda for the entire *4-,,

9r! and )ayinteret on that loan 3ut li;e you would )ay on a * - %ac )eronalfinance

loan from 0an; of 0aroda4 Alternately! it could ell bond)ublicly uing an invetment

ban; uch a %ehman 0rother4 The *4 -,,9r4 bond iue raied by %ehman 0rother

would be bro;en into many mallerbond and then old to the )ublic4 (For eHam)le! the

iue could bebro;en into -!,,,!,,, bond! each worth *4!,,,4" Once old! the

com)any receive it *4 -,, 9r4 (le %ehmanL fee" and invetor receive bond worth

a total of the ame amount4Over time! the invetor in the bond offering receive cou)on

)ayment(the interet"! and ultimately the )rinci)al (the original *!,,," at the

end of the life of the loan! when Acme 9or) buy bac; the bond (retire the bond"4

Thu! we ee that in a bond offering! while the money i till loaned to Acme! it i

actually loaned by numerou invetor! rather than from a ingle ban;4 0ecaue the

invetment ban; involved in the offering doe not own the bond but merely )laced them

with invetor at the outet! it earn no interet the bondholder earn thi interet in the

form of regular cou)on )ayment4 The invetment ban; ma;e money by charging the

client (in thi cae! Acme" a mall )ercentage of the tranaction u)on it com)letion4

$nvetment ban; call thi u)front fee the 5underwriting dicount4: $n contrat! acommercial ban; ma;ing a loan actually receive the interet and imultaneouly own

the debt4 %ater! we will cover the te) involved in underwriting a )ublic bond deal4

%egally! mot bond mut firt be a))roved by the Securitie and 6Hchange 9ommiion

(S69"4 (The S69 i a government entity that regulate the ale of all )ublic ecuritie4"

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1/3 G$ASS#STEAGA$$ REFORM

Previouly! we briefly dicued that much ha recently changed in the invetment ban;ing indutry! driven

)rimarily by the brea;down of the &la+Steagall Act4 Thi ection will cover why the Act wa originally )ut

into )lace! why it wa criticiKed! and how recent legilation will continue to im)act the ecuritie indutry4

T' -9&o=y o< Gl%99#S&'%.%ll

The famou Gl%99#S&'%.%ll A&! enacted in E=@! erected barrier between commercial ban;ing and the

ecuritie indutry4 A )iece of #e)reion+6ra legilation! &la+Steagall wa created in the aftermath of the

toc; mar;et crah of E-E and the ubequent colla)e of many commercial ban;4 At the time! many blamed

the ecuritie activitie of commercial ban; for their intability4 #ealing in ecuritie! critic claimed! u)et the

oundne of the ban;ing community! caued ban; to fail! and cri))led the economy4

Therefore! e)arating ecuritie buinee and commercial ban;ing eemed the bet olution to )rovide olidity

to the U4S4 ban;ing and ecuritieL ytem4$n later year! a different truth eemed evident4 The framer of &la+

Steagall argued that a conflict of interet eHited between commercial and invetment ban;4 The conflict of

interet argument ran omething li;e thiJ

" A ban; that made a bad loan to a cor)oration might try to reduce it ri; of the com)any defaulting by

underwriting a )ublic offering and elling toc; in that com)any

-" The )roceed from the $PO would be ued to )ay off the bad loan and

=" 6entially! the ban; would hift ri; from it own balance heet to new invetor via the initial )ublic

offering4 Academic reearch and common ene! however! ha convinced many that thi conflict of interet inLt

valid4 A ban; that conitently ell ill+fated toc; would quic;ly loe it re)utation and ability to ell $PO to

new invetor4

Gl%99#S&'%.%ll9


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tand a the bet eHam)le of a commercial ban; that entered the $+ban;ing world through internal growth!

although it recently 3oined force with 9hae Manhattan to form G4P4 Morgan 9hae4 $nteretingly! G4P4 Morgan

actually ued to be both a ecuritie firm and a commercial ban; until federal regulator forced the com)any to

e)arate the diviion4 The )lit reulted in G4P4 Morgan! the commercial ban;! and Morgan Stanley! the

invetment ban;4 Today! G4P4 Morgan ha lowly and teadily clawed it way bac; into the ecuritie buine!

and Morgan Stanley ha merged with #ean 7itter to create one of the bigget $+ban; on the Street4

W%& &oo; 9o lo*.8

So why did it ta;e o long to enact a re)eal of &la+Steagall> There were everal logitical and )olitical iue

to addre in undoing &la+Steagall4 For eHam)le! the F#$9 and the Federal *eerve regulate commercial

ban;! while the S69 regulate ecuritie firm4 A debate emerged a to who would regulate the new 5univeral:

financial ervice firm4 The Fed eventually won with Fed 9hairman Alan &reen)an defining hi officeL role

a that of an 5umbrella u)ervior4: A econd talling factor involved the 9ommunity *einvetment Act of E..

an act that require commercial ban; to re+invet a )ortion of their earning bac; into their community

Senator Phil &ramm (*+TC"! 9hairman of the Senate 0an;ing 9ommittee! wa a trong o))onent of thi

legilation while then+Preident 9linton wa in favor of ;ee)ing and even eH)anding 9*A4 The two ided

agreed on a com)romie in which 9*A requirement were leened for mall ban;4 $n November EEE!

9linton igned the &ramm+%each 0liley Act! which re)ealed retriction contained in &la+Steagall that

)revent ban; from affiliating with ecuritie firm4 The new law allow ban;! ecuritie firm! and inurance

com)anie to affiliate within a financial holding com)any (5F'9:" tructure4 Under the new ytem! inurance!

ban;ing! and ecuritie activitie are 5functionally regulated4:

1/5#: E6ECUTIVE SUMMARY $nvetment ban;ing i a financial intitution that raie ca)ital! trade ecuritie and manage cor)orate

merger and acquiition4 Another term for invetment ban;ing i cor)orate finance4

Unli;e commercial ban; and retail ban;! invetment ban; do not ta;e de)oit4

&lobal invetment ban;ing revenue increaed for the fifth year running in -,,.! to /@4= billion4 Thi

wa u) --Q on the )reviou year and more than double the level in -,,=4

The United State wa the )rimary ource of invetment ban;ing income in -,,.! with =Q of the total!

a )ro)ortion which ha fallen omewhat during the )at decade4 6uro)e (with Middle 6at and Africa"

generated =-Q of the total! lightly u) on it =,Q hare a decade ago4 Aian countrie generated the

remaining Q4


16/88

$nvetment ban;ing i one of the mot global indutrie and i hence continuouly challenged to re)ond

to new develo)ment and innovation in the global financial mar;et4

$n the U4S4! the &laSteagall Act! initially created in the wa;e of the Stoc; Mar;et 9rah of E-E!

)rohibited ban; from both acce)ting de)oit and underwriting ecuritie! and led to egregation of

invetment ban; from commercial ban;4

The financial crii of -,,/ aw the lat of the larget bulge+brac;et US invetment ban; which hadnRt

gone ban;ru)t or been acquired in a ban;ru)t+li;e tate convert over to Rban; holding com)anieR which

are eligible for emergency government aitance4

$n $ndia )reent cenario invetment ban; are )laying more role in financial mar;et on behalf of their

client4 $n the form of raiing fund! trading ecuritie! adviory ervice4 0ut invetment ban; have

more com)etition from foreign ban;4$f they concentrate more on advertiement and effective ervice

to the client they will get more ucce4

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CHAPTER#

$ITERATURE REVIEW

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18/88

/1#: REVIEW OF $ITERATURE

W%& -9 I*7'9&+'*&8

$nvetment i referred to a the conce)t of deferred conum)tion! which might com)rie of )urchaing an

aet! rendering a loan! ;ee)ing the aved fund in a ban; account uch that it might generate lucrative

return in the future4 The o)tion of invetment are huge all of them having different ri;+reward trade

off4 Thi conclude that the invetment indutry i really broad and that i why undertanding the core

conce)t of invetment and accordingly analyKing them i eential4 After thorough undertanding of the

invetment indutry! can an invetor create and manage hi own invetment )ortfolio uch that the return

are maHimiKed with the leat ri; eH)oure4

Ty>'9 o< S'=7-'9 -* &' -*7'9&+'*& -*)(9&=y

A tated earlier! the invetment indutry i huge therefore the ty)e of invetment are alo varied4 #ifferent

ty)e of invetment areJ C%9 -*7'9&+'*&9:9ah invetment com)rie of aving ban; account! certificate

of de)oit (9#" and treaury bill (T0"4 All thee ty)e of invetment render a low interet rate and )rove to

be quite ri;y during time of inflation4

D'& 9'(=-&-'9:Thi ty)e of invetment give return in the form of fiHed )eriodic )ayment and the fiHed

ca)ital a))reciate at maturity4 Thi i afe bait for the invetor in the invetment indutry and ha alway

)roved to be the ri; free invetment tool4 Though! it i generally low in ri;! the return are alo lower than the

other )eer ecuritie4

S&o;9: $nvetor can alo buy toc; (equitie" from the econdary mar;et and be a )art of any buine

cor)orate that are lited in the boure4 0y thi way! one can become the )art of the )rofit that the com)any

generate4 0ut one hould remember that toc; are generally more volatile and carrie more ri; than bond4

M(&(%l


19/88

li;e equitie! commoditie and bond4 They can ta;e the form of future! o)tion and wa)4 $nvetor chooe

derivative a they are ued to minimiKe the ri; of lo that reult from variation in the underlying aet

value4

Co++o)-&-'9:The item that are traded on the commoditie mar;et are agricultural and indutrial commoditie

and they need to be tandardiKed4 9ommoditie trading have alway been giving high return and thu they arethe ri;iet of all invetment o)tion4 One! who trade in commoditie! require )ecialiKed ;nowledge and

analytical ca)abilitie4

R'%l '9&%&':$nveting in real etate ha to be a long term affair4 Fund get hoo;ed into the real etate ector for

a coniderable time )eriod4

M'=.'=9 %*) A(-9-&-o*: A+'=.'=occur when two com)anie! often roughly of the ame iKe! combine to

create a new com)any4

7hen a larger com)any ta;e over another (maller firm" and clearly become the new owner! the )urchae i

ty)ically called an %(-9-&-o*

Co=>o=%&' F-*%*': The indutry of raiing debt and equity ca)ital for cor)oration4

IPO ?I*-&-%l P(l- O


20/88

Do+'9&- Pl%y'=9

S0$ ca)ital mar;et

8ota; Mahindra 9a)ital 9om)any

The $ndutrial #evelo)ment 0an; of $ndia ($#0$"

$9$9$ ecuritie ltd

Avendu 0a3a3 ca)ital

Fo='-.* >l%y'=9

GP Morgan chae ban;

#SP Merrill %ynch

#eutche 0an;

9iti grou)

/ INDUSTRY PROFI$E

The bigget invetment ban; include &oldman Sach! Merrill %ynch! Morgan Stanley! 9redit Suie Firt

0oton! 9itigrou)L &lobal 9or)orate $nvetment 0an;! GPMorgan 9hae and %ehman 0rother! among other4

Of coure! the com)lete lit of $+ban; i more eHtenive! but the firm lited above com)ete for the bigget

deal both in the U4S4 and worldwide4

'owever! the origin of -*7'9&+'*& %*;-*. in I*)-%can be traced bac; to the Ethcentury when 6uro)ean

merchant ban; et+u) their agency houe in the country to ait in the etting of new )ro3ect4 $n the early -, t

century! large buine houe followed uit by etablihing managing agencie which acted a iue houe for

ecuritie! )romoter for new )ro3ect and alo )rovided finance to &reenfield venture4 The )eculiar feature of

thee agencie wa that their ervice were retricted only to the com)anie of the grou) to which they

belonged4 A few mall bro;er alo tarted rendering Merchant ban;ing ervice! but their wa limited due to

their mall ca)ital bae4

$n EB.! AN &rindlay ban; et + u) a e)arate merchant ban;ing diviion to handle new ca)ital iue4 $t wa

oon followed by 9itiban;! which tarted rendering thee ervice4 The foreign ban; mono)oliKed merchant

ban;ing ervice in the country4 The ban;ing committee! in it re)ort in E.-! too; note of thi with concern andrecommended etting u) of merchant ban;ing intitution by commercial ban; and financial intuition4 State

ban; of $ndia ventured into thi buine by tarting a merchant ban;ing bureau in E.-4 $n E.-! $9$9$ became

the firt financial intitution to offer merchant ban;ing ervice4 GM finance wa et+u) by Mr4 Nimeh 8am)ani

a an eHcluive merchant ban; in E.=4 The growth of the indutry wa very low during thi )eriod4 0y E/,!

the number of merchant ban; roe to == and wa et+u) by commercial ban;! financial intitution and )rivate

ector4 The ca)ital mar;et witneed ome buoyancy in the late eightie4 The advent of economic reform in

-,


21/88

EE reulted in udden )urt in both the )rimary and econdary mar;et4 Several new )layer entered into the

field4 The ecuritie cam in may! EE- wa a ma3or et bac; to the indutry4 Several leading merchant ban;er!

both in )ublic and )rivate ector were found to be involved in variou irregularitie4 Some of the )rominent

)ublic ector )layer involved in the cam were 9an ban; financial ervice! S0$ ca)ital mar;et! Andhra ban;

financial ervice! etc4 leading )rivate ector )layer involved in the cam included Fairgrowth financial

ervice and 9ham)a;lal invetment and finance (9$F9O"4

The mar;et turned bullih again in the end of EE= after the tainted hare )roblem wa ubtantially reolved

There wa a )henomenal urge of activity in the )rimary mar;et4 The regitration norm with the S60$ were

quite liberal4 The low entry barrier cou)led with lucrative o))ortunitie lured many new entrant into thi

indutry4 Mot of the new entrant were underca)italiKed with little or no eH)ertie in merchant ban;ing4 Thee

)layer could hardly afford to be dicerning and tarted offering their ervice to all and undry client4 The

mar;et wa oon flooded with )oor quality )a)er iued by com)anie of dubiou credential4 The huge loe

uffered by invetor in thee ecuritie reulted in total lo of confidence in the mar;et4 Mot of the

ubequent iue tarted failing and com)anie tarted deferring their )lan to acce )rimary mar;et4 %ac; of

buine reulted in a ma3or ha;e out in the indutry4 Mot of the mall firm eHited from the buine4 Many

foreign invetment ban; tarted entering $ndian mar;et4 Thee firm had a huge ca)ital bae! global

ditribution ca)acity and eH)ertie4 'owever! they were new to $ndian mar;et and lac;ed local )enetration

Many of the to) rung $ndian merchant ban;! who had tring dometic bae! tarted entering into 3oint venture

with the foreign ban;4 Thi energy reulted in ynergie a their individual trength com)lemented each other4

I*7'9&+'*& %*;'=9

$nvetment ban;er )lay an im)ortant role in the iue management )roce4 %ead manager (category $

merchant ban;er" have to enure correctne of the information furnihed in the offer document4 They have to

enure com)liance with S60$ rule and regulation a alo guideline for dicloure and invetor )rotection4 To

thi effect! they are required to ubmit to S60$ a due diligence certificate conforming that the dicloure made

in the draft )ro)ectu or letter of offer are true! fair and adequate to enable the )ro)ective invetor to ma;e a

well informed invetment deciion4 The role of merchant ban;er in )erforming their due diligence functionha become even more im)ortant with the trengthening of the dicloure requirement and with the S60$

giving u) the vetting u) of )ro)ectu4 S60$ variou o)erational guideline iued during the year to merchant

ban;er )rimarily addreed the need to enhance the tandard of dicloure4

$t wa felt that a further trengthening of the criteria for regitration of merchant ban;er wa neceary!

)rimarily through an increae in the net worth requirement! o that the ca)ital would be commenurate with the

level of activitie underta;en by them4 7ith thi in view! the net worth requirement or category $ merchant

-


22/88

ban;er wa raied in EE+EB to *4 crore4 $n EEB+EB! the S60$ (merchant ban;er" regulation! EE- were

amended to require the )ayment of fee for each letter of offer or draft )ro)ectu that i filed with S60$4

U*)'==-&'=9

Underwriter are required to regiter with S60$ in term of the 60$ (Underwriter" *ule and *egulation!

EE=4 $n addition to underwriter regitered with S60$ in term of thee regulation! all regitered merchant

ban;er in categorie $! $$ and $$$ and toc; bro;er and mutual fund regitered with S60$ can function aunderwriter4

CORE INVESTMENT ACTIVITIES

/ PRIVATE P$ACEMENTSA >=-7%&' >l%'+'*&! which involve the elling of debt or equity to )rivate invetor! reemble both a )ublic

offering and a merger4 A )rivate )lacement differ little from a )ublic offering aide from the fact that a )rivate

)lacement involve a firm elling toc; or equity to )rivate invetor rather than to )ublic invetor4 Alo! a

ty)ical )rivate )lacement deal i maller than a )ublic tranaction4 #e)ite thee difference! the )rimary reaon

for a )rivate )lacement to raie ca)ital i fundamentally the ame a a )ublic offering4

Wy >=-7%&' >l%'+'*&98

A mentioned )reviouly! firm wihing to raie ca)ital often dicover that they are unable to go )ublic for a

number of reaon4 The com)any may not be big enough the mar;et may not have an a))etite for $PO! the

com)any may be too young or not ready to be a )ublic com)any! or the com)any may im)ly )refer not to haveit toc; be )ublicly traded4 Such firm with olidly growing buinee ma;e eHcellent )rivate )lacement

candidate4 Often! firm wihing to go )ublic may be advied by invetment ban;er to firt do a )rivate

)lacement! a they need to gain critical ma or iKe to 3utify an $PO4 Private )lacement! then! are uually the

)rovince of maller com)anie aiming ultimately to go )ublic4 The )roce of raiing )rivate equity or debt

change only lightly from a )ublic deal4 One difference i that )rivate )lacement do not require any ecuritie

to be regitered with the S69! nor do they involve a road how4 $n )lace of the )ro)ectu! $+ban; draft a

detailed P=-7%&' Pl%'+'*& M'+o=%*)(+ (PPM for hort" which divulge information imilar to a

)ro)ectu4 $ntead of a road how! com)anie loo;ing to ell )rivate toc; or debt will hot )otential invetor

a interet arie! and give )reentation detailing how they will be the greatet thing ince liced bread4

Often! one firm will be the ole or lead invetor in a )rivate )lacement4 $n other word! if a com)any ell toc;

through a )rivate )lacement! often only one venture ca)ital firm or intitution will buy mot or all of the toc;

offered4 9onverely! in an $PO! hare of toc; fall into the hand of literally thouand of buyer immediately

after the deal i com)leted4

--


23/88

I#BANKS RO$E

The invetment ban;erL wor; involved in a )rivate )lacement i quite imilar to ell+ide MIA re)reentation

The ban;er attem)t to find a buyer by writing the PPM and then contacting )otential trategic or financial

buyer of the client4 $n the cae of )rivate )lacement! however! financial buyer are ty)ically venture ca)italit

rather than buyout firm! which i an im)ortant ditinction4 A VC '='*& o< %

o+>%*y9 '(-&y4 '='%9 % (yo(& (=%9'9 .='%&'= &%* 30 >'='*& %*) o'='*&

o< % o+>%*y9 '(-&y! thereby gaining control of the firm4 Note that the ame difference a))lie to )rivate

)lacement on the ellide4 A ale occur when a firm ell greater than , )ercent of it equity (giving u)

control"! but a )rivate )lacement occur uually when le than , )ercent of it equity i old4 Note that in

)rivate )lacement! the com)any ty)ically offer convertible )referred toc;! rather than common toc;

0ecaue )rivate )lacement involve elling equity and debt to a ingle

buyer! the invetor and the eller (the com)any" ty)ically negotiate the term of the deal4 $nvetment ban;er

function a negotiator for the com)any! hel)ing to convince the invetor of the value of the firm/ F''9 -*7ol7')-* >=-7%&' >l%'+'*&9 o=; l-;' &o9' -* >(l- ol%'+'*&


24/88

D-9&='99') or S>'-%l S-&(%&-o*9i a broad category referring to invetment in equity or debt ecuritie of

financially treed com)anie4 The ditreed category encom)ae two broad ub+trategie includingJ

#itreed+to+9ontrol or %oan+to+Own trategie where the invetor acquire debt ecuritie in the

ho)e of emerging from a cor)orate retructuring in control of the com)anyR equity4

S)ecial Situation or Turnaround trategie where an invetor will )rovide debt and equity

invetment! often recue financing to com)anie undergoing o)erational or financial challenge4

M'%*-*' %>-&%l refer to ubordinated debt or )referred equity ecuritie that often re)reent the mo

3unior )ortion of a com)anyR ca)ital tructure that i enior to the com)anyR common equity4

Rol' o< I#%*; -* >=-7%&' '(-&y

The )rivate equity team arrange equity )lacement through the off+mar;et route uing it )rivileged

relationhi) with variou dometic and international venture ca)ital! trategic and )ortfolio invetor4

The team ait com)anie ee;ing ca)ital infuion in the form of eed ca)ital < venture ca)ital < angel

invetment < trategic invetment < meKKanine financing from )rivate equity mar;et )lace4

The )rivate equity team identifie tart+u)! later tage )ro3ect for inveting in well managed com)anie! which

are )laced to grow ra)idly and to ta;e advantage of favorable economic condition eHiting within )ace with a

clearly defined buine model4

0an; facilitate com)anie in each te) of their equity raiing )lan and it ervice includeJ

Aitance in )re)aration of an information Memorandum for )otential invetor4

$nitiate dicuion with )otential invetor and )reent to them the invetment o))ortunity on behalf of

the com)any4

Ait the management in negotiation and dicuion with trategic < financial invetor4

Ait in tructuring the invetment which could be in the form of equity! quai+equity or uch other

convertible intrument4

Ait the com)any in )re)aring for the )re+invetment due diligence by the )otential invetor4

Ait in tructuring the tranaction and the guiding the management through the entire )roce leading

to financial cloure4

/3 FINANCIA$ RESTRUCTURING

-@


25/88

7hen a com)any cannot )ay it cah obligation for eHam)le!when it cannot meet it bond )ayment or it )ayment to other creditor (uch a vendor" it uually mut file

for ban;ru)tcy court )rotection from creditor4 $n thi ituation! a com)any can! of coure! chooe to im)ly

hut down o)eration and wal; away4 On the other hand! it can alo ='9&=(&(='and remain in buine4 7hat

doe it mean to retructure> The )roce can be thought of a twofoldJ

F-*%*-%l and O=.%*-%&-o*%l R'9&=(&(='4

*etructuring from a financial view)oint involve renegotiating )ayment term on debt obligation! iuing new

debt! and retructuring )ayable to vendor4 0an;er )rovide guidance to the retructuring firm by

recommending the ale of aet! the iuing of )ecial ecuritie uch a convertible toc; and bond! or even

wor;ing with MIA ban;er to ell the com)any entirely4

From an organiKational view)oint! a retructuring can involve a change in management! trategy and focu4 $+

ban;er with eH)ertie in 5reorg: can facilitate and eae the tranition from ban;ru)tcy to viability4

F''9 -* ='9&=(&(=-*. o=;

Ty)ical invetment ban;ing fee in a retructuring de)end on what new ecuritie are iued )ot+ban;ru)tcy

and whether the com)any i old! but uually include a retainer fee )aid u)front to the invetment ban;4 7hen

a ban; re)reent a ban;ru)t com)any! the brunt of the wor; i focued on analyKing and recommending

financing alternative4 Thu! the fee tructure reemble that of a )rivate )lacement4 'ow doe the wor; differ

from that of a )rivate )lacement> $+ban;er not only wor; in ecuring financing! but may ait in building

)ro3ection for the client (which erve to illutrate to )otential financier what the firmL )ro)ect may be"! in

renegotiating credit term with lender wor;ing with the com)anyL lawyer to navigate through the ban;ru)tcy

court )roce! and in hel)ing to re+etablih the buine a a going concern4 B'%(9' % &y

%l='%)y %9 9(9&%*&-%l %9 =ol'+94 -*7'9&+'*& %*;9 o-*. &o %9 -* o* &' 9>='%)


26/88

The dici)line can be divided into long+term and hort+term deciion and technique4 9a)ital invetment

deciion are long+term choice about which )ro3ect receive invetment! whether to finance that invetment

with equity or debt! and when or whether to )ay dividend to hareholder4 On the other hand! the hort term

deciion can be grou)ed under the heading 7or;ing ca)ital management4 Thi ub3ect deal with the hort+

term balance of current aet and current liabilitie the focu here i on managing cah! inventorie! and hort+

term borrowing and lending (uch a the term on credit eHtended to cutomer"4

The term cor)orate finance and o=>o=%&' -%l =ol' o< %* I*7'9&+'*& B%*; -9 &o '7%l(%&' &' o+>%*y9 >=o>=-%&'

&y>' o< %>-&%l &%& '9&


27/88

U)on attaining the )oition of vice )reident (at mot firm! after four or five year a aociate"! thoe in

cor)orate finance enter the realm of real ban;er4 The lifetyle become more manageable once the aociate

move u) to 1P4 On the )lu ide! wee;end ometime free u)! all+nighter dro) off! and the general level of

re)onibility increae 1P are the one telling aociate and analyt to tay late on Friday night4 $n the

office! 1P manage the financial modeling


28/88

S'l'&-*. &' +%*%.'=9After a com)any ha een all of the )itche in a beauty contet! it elect one firm a the lead manager! while

ome of the other firm are choen a the co+manager4 The number of firm choen to manage a deal run the

gamut4 Sometime a firm will ole manage a deal! and ometime! e)ecially on large global deal! four to iH

firm might be elected a manager4 An average+iKed offering will generally have three to four manager

underwriting the offering one lead manager and two or three co+manager4

D(' )-l-.'*' %*) )=% Ty>-%l P%=&-->%*&9

The com)any Management! namely the 96O and 9FO!

diviion head! and head of ma3or

de)artment or line of buine4

The 9om)anyL lawyer Partner )lu one aociate4

The com)anyL accountant Partner! )lu one or two aociate4

The lead manager $+ban;ing team! with u) to four cor)orate

finance )rofeional4 A reearch analyt

may come for due diligence meeting4

The co+manager("! or $+ban;(" elected

behind the lead

$+ban;ing team with ty)ically two or three

member intead of four4

UnderwriterL counel! or the lawyerre)reenting the manager

Partner )lu one aociate4

At the initial organiKational meeting! the M# from the lead manager guide and moderate the meeting4 #etail

dicued at the meeting include the eHact iKe of the offering! the timetable for com)leting the deal! and other

concern the grou) may have4 Uually a two+ or three+month chedule i etablihed a a beacon toward the

-/


29/88

com)letion of the offering4 A heet i ditributed o all )artie can lit home! office! and cell )hone number

Often! the organiKational meeting wra) u) in an hour or two and lead directly to due diligence4

Due diligence

D(' )-l-.'*' involve tudying the com)any going )ublic in a much detail a )oible4 Much of thi )roce

involve interviewing enior management at the firm4 #ue diligence uually entail a )lant tour (if relevant"! andeH)lanation of the com)anyL buine! how the com)any o)erate! how management )lan to grow the

com)any! and how the com)any will )erform over the neHt few quarter4 A with the organiKational meeting!

the moderator and lead quetioner throughout the due diligence eion i the enior ban;er in attendance from

the lead manager4 *eearch analyt from the $+ban; attend the due diligence meeting during the $PO )roce

in order to )robe the buine! a; tough quetion and generally better undertand how to )ro3ect the

com)anyL financial4 7hile ban;er tend to focu on the relevant o)erational! financial! and trategic iue at

the firm! lawyer involved in the deal eH)lore motly legal iue! uch a )ending litigation4

Drafting the prospectus

Once due diligence wra) u)! the $PO )roce move quic;ly into the drafting tage4 #rafting refer to the

)roce by which the wor;ing grou) write the S+ regitration tatement! or )ro)ectu4 Thi >=o9>'&(9 i the

legal document ued to ho) the offering to )otential invetor4 &enerally! the client com)anyL lawyer

(5iuerL counel:" com)ile the firt draft of the )ro)ectu! but thereafter the drafting )roce include the

entire wor;ing grou)4 Unfortunately! writing by committee mean a multitude of tyle clahe! diagreement!

and tangential dicuion! but the end reult uually i a )ro)ectu that mot team member can live with4 On

average! the drafting tage ta;e anywhere from four to even drafting eion! )read over a iH+ to ,+wee;

)eriod4 $nitially! all of the to) cor)orate finance re)reentative from each of the manager attend! but thee

meeting thin out to fewer and fewer member a they continue4 The lead manager will alway have at leat a

1P to re)reent the firm! but co+manager often ettle on 1P! aociate! and ometime even analyt to

re)reent their firm4 #rafting eion are initially eHciting to attend a an analyt or aociate! a they offer

client eH)oure! learning about a buine! and getting out of the office4 'owever! thee eion can quic;ly

grow tiring and annoying4 Final drafting eion at the )rinter can mean more all+nighter! a the grou)cramble to finih the )ro)ectu in order to file on time with the S694

-E


30/88

M%=;'&-*.

Designing marketing material

Once a deal i filed with the S69! the )ro)ectu (or S+" become )ublic domain4 The information and detail

of the u)coming $PO are )ublicly ;nown4 After the S69 a))rove the )ro)ectu! the )rinter )it out thouand

of co)ie! which are mailed to literally the entire univere of )otential intitutional invetor4 $n the meantime!

the M# and 1P of the lead manager wor; cloely with the 96O and 9FO of the com)any to develo) a road

how )reentation! which conit of eentially -, to @, lide for ue during meeting with invetor4 Gunior

team member in cor)orate finance hel) edit the road how lide and begin wor;ing on other mar;eting

document4 For eHam)le! aociate and analyt develo) a ummary rehah of the )ro)ectu in a brief 5elling

memo!: which i ditributed to the ban;L ale force and contain ;ey elling )oint for

ale)eo)le to ue in )itching the offering to client4

The road show (baby sitting)

The actual =o%) 9obegin oon after the red are )rinted4 The )reliminary )ro)ectu! called a =') '==-*.

or red! hel) ale)eo)le and invetor ali;e undertand the $PO candidateL buine! hitorical financial

)erformance! growth o))ortunitie and ri; factor4 Uing the )ro)ectu and the elling memo a reference

the ale)eo)le of the invetment ban; managing the deal contact the intitutional invetor they cover and et

u) road how meeting4 The yndicate de)artment! the facilitator between the ale)eron and cor)orate

finance! finaliKe the mora of meeting and communicate the agenda to cor)orate finance and ale4 And! on

the road how itelf! 1P or aociate generally ecort the com)any4 #e)ite the eemingly glamorou nature of

a road how (traveling all over the country in limo and chartered 3et with your client! the 96O"! the cor)orate

finance )rofeional act a little more than a babyitter on the road how4 The mot im)ortant dutie of the

3unior cor)orate finance )rofeional often include ma;ing ure luggage get from )oint A to )oint 0! enuring

that hotel room are boo;ed! and finding the limouine driver at the air)ort terminal4

After a grueling two to three wee; and hundred of )reentation! the road how end and the grou) flie home

for much needed ret4 #uring the road how! ale and yndicate de)artment com)ile order for the com)anyL

toc; and develo) what i called 5the boo;4: The boo; detail how invetor have re)onded! how much toc;they want (if any"! and at what )rice they are willing to buy into the offering4

T' '*) -* 9-.& >=--*. &' )'%l

$PO )ro)ectue lit a range of toc; )rice on the cover (for eHam)le! between *=,, to * =, )er hare"

Thi range i )reet by the underwriting team before the road how and meant to tell invetor what the

=,


31/88

com)any i worth and hence where it will )rice4 'ighly ought+after offering will )rice at or even above the

to) of the range and thoe in le demand will )rice at the bottom of the range4

'ot $PO with tremendou demand end u) above the range and often trade u) ignificantly on the firt day in

the mar;et4 The hottet offering have cloed two to three time higher than the initial offering )rice

Memorable eHam)le include A))le 9om)uter in the E/,! 0oton 9hic;en in the mid+E,! and Netca)e

9ommunication and a lew of $nternet toc; in late EE/ through early -,,,4 The )roce of going )ublic iummariKed gra)hically on )age B@+B4 More recently! though! hot offering have een more modet firt+day

rie4 &oogleL toc;! offered to the )ublic in Augut -,,@! only increaed / )ercent on it initial day of

trading4

Follo#o* >(l- o(l- o


32/88

equity (ownerhi)" to the inveting )ublic4 Thee hare ubequently trade on a )ublic toc; eHchange li;e the

National Stoc; 6Hchange (NS6" or 0ombay Stoc; 6Hchange (0S6"4

T'


33/88

the com)any wihing to go )ublic what they believe the firm i worth! and therefore how much toc; it can

realitically ell4 Perha) undertandably! com)anie often chooe the ban; that )redict the highet valuation

during thi beauty contet )hae intead of the bet+qualified manager4 Almot all $PO candidate elect two or

more invetment ban; to manage the $PO )roce4 The )rimary manager i ;nown a the 5%ead Manager!:

while additional ban; are ;nown a 5co+manager4:

D(' )-l-.'*' %*) )=%


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webite! toc; eHchange webite or conult an eH)ert for mot current information about $PO life cycle in $ndian

Stoc; mar;et4

4 I99('= Co+>%*y # IPO P=o'99 I*-&-%l-%&-o*

4 A))oint lead manager a boo; runner4

-4 A))oint regitrar of the iue4

=4 A))oint yndicate member4-4 $'%) M%*%.'=9 # P=' I99(' Rol' # P%=& 1

4 Pre)are draft offer )ro)ectu document for $PO4

-4 File draft offer )ro)ectu with S60$4

=4 *oad how for the $PO4

=4 SEBI P=o9>'&(9 R'7-'

4 S60$ review draft offer )ro)ectu4

-4 *evert it bac; to %ead Manager if need clarification or change (Ste) -"4

=4 S60$ a))rove the draft offer )ro)ectu! the draft offer )ro)ectu i now become Offer

Pro)ectu4

@4 $'%) M%*%.'= # P=' I99(' Rol' # P%=&

4 Submit the Offer Pro)ectu to Stoc; 6Hchange! regitrar of the iue and get it a))roved4

-4 #ecide the iue date I iue )rice band with the hel) of $uer 9om)any4

=4 Modify Offer Pro)ectu with date and )rice band4 #ocument i now called *ed 'erring

Pro)ectu4

@4 *ed 'erring Pro)ectu I $PO A))lication Form are )rinted and )oted to yndicate member

through which they are ditributed to invetor4

4 I*7'9&o= B-))-*.


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4 0aed on the bid received! lead manager evaluate the final iue )rice4

-4 %ead manager u)date the R*ed 'erring Pro)ectuR with the final iue )rice and end it to S60$ and

Stoc; 6Hchange4

*egitrar# P=o'99-*. IPO A>>l-%&-o*94 *egitrar receive all a))lication form I cheque from Syndicate member4

-4 They feed a))licant data I additional bidding information on com)uter ytem4

=4 Send the cheque for clearance4

@4 Find all bogu a))lication4

4 FinaliKe the )attern for hare allotment baed on all valid bid received4

B4 Pre)are R0ai of AllotmentR4

.4 Tranfer hare in the demat account of invetor4

/4 *efund the remaining money though 69S or 9heque4

%ead+%*%.'= S&o; $-9&-*.4 Once all allocated hare are tranferred in invetor d) account! %ead Manager with the hel) of Stoc;

6Hchange decide $ue %iting #ate4

-4 Finally hare of the iuer com)any get lited in Stoc; Mar;et4 $nvetor fill the a))lication form and

)lace order to the yndicate member (yndicate member lit i )ublihed on the a))lication form"4

=4 Syndicate member )rovide the bidding information to 0S6< NS6 electronically and bidding tatu get

u)dated on 0S6>l-%&-o*94 *egitrar receive all a))lication form I cheque from Syndicate member4

-4 They feed a))licant data I additional bidding information on com)uter ytem4

=4 Send the cheque for clearance4

@4 Find all bogu a))lication4

=


36/88

4 FinaliKe the )attern for hare allotment baed on all valid bid received4

B4 Pre)are R0ai of AllotmentR4

.4 Tranfer hare in the demat account of invetor4

/4 *efund the remaining money though 69S or 9heque4

%ead+%*%.'= S&o; $-9&-*.

4 Once all allocated hare are tranferred in invetor d) account! %ead Manager with the hel) of Stoc;

6Hchange decide $ue %iting #ate4

-4 Finally hare of the iuer com)any get lited in Stoc; Mar;et4

W%& -9 Boo; B(-l)-*.8

0oo; 0uilding i baically a ca)ital iuance )roce ued in $nitial Public Offer ($PO" which aid )rice and

demand dicovery4 $t i a )roce ued for mar;eting a )ublic offer of equity hare of a com)any4 $t i a

mechanim where! during the )eriod for which the boo; for the $PO i o)en! bid are collected from invetor atvariou )rice! which are above or equal to the floor )rice4 The )roce aim at ta))ing both wholeale and retail

invetor4 The offer


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&enerally! the number of hare i fiHed the iue iKe get froKen baed on the )rice )er hare dicovered

through the boo; building )roce4

Allocation of ecuritie i made to the ucceful bidder4

0oo; 0uilding i a good conce)t and re)reent a ca)ital mar;et which i in the )roce of maturing4

INITIA$ PUB$IC OFFERING#IPO

9or)orate may raie ca)ital in the )rimary mar;et by way of an initial )ublic offer! right iue or )rivate

)lacement4 An $nitial Public Offer ($PO" i the elling of ecuritie to the )ublic in the )rimary mar;et4 Thi

$nitial Public Offering can be made through the fiHed )rice method! boo; building method or a combination of

both4

$n cae the iuer chooe to iue ecuritie through the boo; building route then a )er S60$ guideline! an

iuer com)any can iue ecuritie in the following mannerJ

4 100L o< &' *'& o=-'

>o=&-o*/

=4 U*)'= &' 0L 9'+'4 &-9 >'='*&%.' o(l) ' 0 %*) 10 ='9>'&-7'ly/

Follo#o* O


38/88

Market reactionJ 7hat ha))en when a com)any announce a econdary offering indicate the mar;etL

tolerance for additional equity4 0ecaue more hare of toc; 5dilute: the old hareholder! and 5dum): hare

of toc; for ale on the mar;et! the toc; )rice uually dro) on the announcement of a follow+on offering4

D-l(&-o* occur becaue earning)er hare (6PS" in the future will decline! im)ly baed on the fact that more

hare will eHit after )ot+deal4 And ince 6PS drive toc; )rice! the hare )rice generally dro)4

The process: The follow+on offering )roce differ little from that of an $PO! and actually i far le

com)licated4 Since underwriter have already re)reented the com)any in an $PO! a com)any often chooe the

ame manager! thu ma;ing the hiring the manager or beauty contet )hae much im)ler4 Alo! no real

valuation wor; i required (the mar;et now value the firmL toc;"! a )ro)ectu ha already been written! and

a road how )reentation already )re)ared4 Modification to the )ro)ectu and the road how demand the mot

time in a follow+on offering! but till can uually be com)leted with a fraction of the effort required for an initial

offering4

=/


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A* E%+>l' o< % Follo#o* O


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BOND OFFERING

7hen a com)any require ca)ital! it ometime chooe to iue )ublic debt intead of equity4 Almot alway!

however! a firm undergoing a )ublic bond deal will already have toc; trading in the mar;et4 ($t i relatively

rare for a )rivate com)any to iue bond before it $PO4" The reaon for iuing bond rather than toc; are

variou4 Perha) the toc; )rice of the iuer i down! and thu a bond iue i a better alternative4 Or )erha)the firm doe not wih to dilute it eHiting hareholder by iuing more equity4 Or )erha) a com)any i quite

)rofitable and want the taH deduction from )aying bond interet! while iuing toc; offer no taH deduction

Thee are all valid reaon for iuing bond rather than equity4 Sometime in down mar;et! invetor a))etite

for )ublic offering dwindle to the )oint where an equity deal 3ut could not get done (invetor would not buy

the iue"4

The bond offering )roce reemble the $PO )roce4 The )rimary difference lie inJ (" the focu of the

)ro)ectu (a )ro)ectu for a bond offering will em)haiKe the com)anyL tability and teady cah flow

wherea a toc; )ro)ectu will uually )lay u) the com)anyL growth and eH)anion o))ortunitie"! and (-" the

im)ortance of the bondL credit rating (the com)any will want to obtain a favorable credit rating from a debt

rating agency li;e SIP or MoodyL! with the hel) of the 5credit de)artment: of the invetment ban; iuing the

bond the ban;L credit de)artment will negotiate with the rating agencie to obtain the bet )oible rating"4 A

the better the credit rating and therefore! the afer the bond the lower the interet rate the com)any mut

)ay on the bond to entice invetor to buy the iue4 9learly! a firm iuing debt will want to have the highet

)oible bond rating! and hence )ay a lower interet rate (or yield"4

A with toc; offering! invetment ban; earn underwriting fee on bond offering in the form of an

underwriting dicount on the )roceed of the offering4 The )ercentage fee for bond underwriting tend to be

lower than for toc; underwriting4

R'>='9'*&-*. &' A(-='=

$n adviing eller! the $+ban;L wor; i com)lete once another )arty )urchae the buine u) for ale! i4e4!

once another )arty buy your clientL com)any or diviion or aet4 0uy+ide wor; i an entirely different

animal4 The adviory wor; itelf i traightforwardJ the invetment ban; contact the firm their client wihe to

)urchae! attem)t to tructure a )alatable offer for all )artie! and ma;e the deal a reality4 (Again! the initial

contact may be from the acquiring com)any4 Or the invetment ban; may 5)itch: the idea of an acquiition of

9om)any C to the acquiring com)any4" 'owever! mot of thee )ro)oal do not wor; out few firm or owner

@,


41/88

are willing to readily ell their buine4 And becaue the $+ban; )rimarily collect fee baed on com)leted

tranaction! their wor; often goe un)aid4

9onequently! when adviing client loo;ing to buy a buine! an $+ban;L wor; often drag on for month4

Often a firm will )ay a nonrefundable retainer fee to hire a ban; and ay! 5Find u a target com)any to buy4:

Thee acquiition earche can lat for month and )roduce nothing eHce)t aociate and analyt fatigue a they

re)eatedly build merger model and )ull all+nighter4 #eal that do get done! though! are a boon for the $+ban;re)reenting the buyer becaue of their enormou )rofitability4 Ty)ical fee de)end on the iKe of the deal! but

generally fall in the )ercent range4 For a ,, million deal! an invetment ban; ta;e home million4 Not

bad for a few monthL wor;4

/" INSTITUTIONA$ SA$ES# THE BASICS

A ale i a core area of any invetment ban;! com)riing the vat ma3ority of )eo)le and the relationhi) that

account for a ubtantial )ortion of any invetment ban;L revenue4 Thi ection illutrate the diviion een in

ale today at mot invetment ban;4 Note! however! that many firm! uch a &oldman Sach of US! identify

themelve a intitutionally focued $+ban;! and do not even have a retail ale ditribution networ;4 &oldman

doe! however maintain a olid )reence in )roviding bro;erage ervice to the vatly rich in a diviion called

Private 9lient Service (P9S for hort"4

R'&%-l B=o;'=9

Some firm call them account eHecutive and ome call them financial advior or financial conultant

*egardle of thi official deignator! they are till referring to your claic ='&%-l =o;'=4 The bro;erL 3ob

involve managing the account )ortfolio for individual invetor uually called retail invetor4 0ro;er

charge a commiion on any toc; trade and alo give advice to their client regarding toc; to buy or ell! and

when to buy or ell them4 To get into the buine! retail bro;er mut have an undergraduate degree and

demontrated ale ;ill4 Paing the N9FM eHamination (dealer module" are alo required before elling

commence4 networ;ed to )eo)le with money offer a tremendou advantage for a tarting bro;er4

I*9&-&(&-o*%l S%l'9

0aically a retail bro;er with an M0A and more mar;et avvy! the -*9&-&(&-o*%l 9%l'9>'=9o* manage the

ban;L relationhi) with intitutional money manager uch a mutual fund or )enion fund4 An intitutiona

ale i often called reearch ale! a ale)eo)le focu on elling the firmL reearch to intitution4 A in other

area in ban;ing! the ty)ical hire hail from a to) buine chool and carrie a ti)to) rum

@


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(that uually involve )rior ale eH)erience"4

P=-7%&' Cl-'*& S'=7-'9 ?PCS@

A cro between intitutional ale and retail bro;erage! PCS focue on )roviding money management ervice

to eHtremely wealthy individual4 0ecaue P9S re)reentative become high+end relationhi) manager! a well

a money manager and advior! the 3ob require greater eH)ertie than the claic retail bro;er4 Alo! becaue

P9S client trade in larger volume! the fee and commiion are larger and the number of candidate lining u)

to become P9S re) i longer4

Institutional Sales The Players

T' >l%y'=9 -* 9%l'9

For many! intitutional ale offer the bet of all worldJ great )ay! fewer hour than in cor)orate finance or

reearch! le tre than in trading! and a nice blend of travel and office wor;4 %i;e trader! the hour ty)ically

follow the mar;et! with a few tac;ed on at the end of the day after the mar;et cloe4 Another )lu for talented

ale)eo)le i that

they develo) relationhi) with ;ey money manager4 On the downide! many intitutional ale)eo)le

com)lain that many buy+ider diregard their call! that com)enation can eHhibit volatile mood wing! that

they are overeducated for what they do! and that contantly entertaining client can )rove eHhauting4

S%l'9 %99-9&%*&9: Thi )oition i mot often a dead+end 3ob4 $t i eHtremely difficult to move into

intitutional ale without an M0A! o ale aitant ta;e on a )rimarily clerical role on the de;4 'andling the

)hone! adminitrative dutie! meage ta;ing! letter writing thereL nothing glamorou for the aitant4

A99o-%&'9:The newly hired M0A i called an aociate! or ale aociate4 %i;e analogou aociate in other

invetment ban;ing de)artment! a ale aociate )end a year or o in the role learning the ro)e and

etablihing himelf4 Aociate ty)ically )end one to two month rotating through variou de; and enuring

a olid fit between

the de; and the new aociate4 Once the rotation end! the aociate i )laced on a de; and the buine of

building client relationhi) begin4

@-


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S%l'9>'=9o*: The aociate move into a full+fledged ale)eron role eHtremely quic;ly4 7ithin a few

month on a de;! the aociate begin to handle 50: account and gradually manage them eHcluively4 A

ale)eronL ultimate goal i the account at a huge money manager! uch a Fidelity or Putnam that trade in

huge volume on a daily bai4

/ PRIVATIATION , MONETIATION

PRIVATIATION

PrivatiKation i the )roce of converting a )ublicly o)erated enter)rie into a )rivately owned and o)erated

entity4

PrivatiKing a com)any )rovide the o))ortunity to forge trategic alliance with other )artner by bringing in

)rivate hareholder4 $t o)en the com)any to the world economy and encourage the develo)ment of the local

)rivate ector4

MONETIATION

Moneti"ing Spin#$%%

A monetiKing )in+off i a tructure which allow a Seller to )in off a ubidiary on a fully taH+free

bai while de+leveraging to a very ignificant eHtent

0aic S)in+Off ParadigmJ Ty)ically! a com)any )inning off a Subidiary can u)tream cah from the

ubidiary on a taH+free bai! or )uh down debt to the ubidiary! only to the eHtent of it taH bai in

the ubidiary4 Any incremental cah received


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4 9onventional MonetiKing S)in+OffJ $n a conventional monetiKing )in+off! an invetment ban;

facilitate the debt


45/88

9ontribution of S to New9o qualifie the tranaction a a reorganiKation under Section =B/(a"("(#"

uch a tructure increae fleHibility to retire hort+term debt in connection with the )in+off and

facilitate the retirement of P debt with the New9o Note4

STEP /

$nvetment ban; buy hort+term debt of P (e4g4 PR commercial )a)er" for cah on the econdarymar;et(-"

At the time of uch acquiition! the invetment ban; and P have a )rearranged )lan! but no binding

contract! to eHchange New9o hare (in a debt+for+equity eHchange" and New9o Note (in a debt+for+

debt eHchange" for P debt

The invetment ban; mut hold uch debt for a certain time )eriod (e4g4 @ day" )rior to contracting to

eHecute the #ebt


46/88

Through thee technique! P can monetiKe over ,Q of the enter)rie value of the ubidiary being )un

off

STEP 3/

P )in off remainder of New9o common hare (re)reenting at leat /,Q of the voting interet in New9o"

to the )ublic hareholder of P

A)7%*&%.'9 , D-9%)7%*&%.'9

Advantage MonetiKation i )ermanently taH+free and can be very ubtantial (ub3ect to mar;et ca)acity! over ,Q

of enter)rie value of New9o"

Allow taH+free monetiKation or retirement of P debt in eHce of PR bai

o Alternatively! conventional debt )uh+down i taH+free only to the eHtent of PR bai

9om)lete eHit from the buine

Se)arate )ure+)lay currency created (value enhancement to hareholder"

#iadvantage

6Hecution ri;J mar;et ca)acity for hare

$ncom)lete monetiKationJ ome value lea;age from the cor)oration

Morri Trut rule a))ly to ubequent acquiition cauing a change+in+control of either the )un+off or

ditributing com)any

Neceary to effect # reorganiKation (however! low threhold to qualify"

/10 RESEARCH

THE P$AYER AND PRODUCT

THE P$AYERS

RESEARCH ASSISTANTS

The bottom+level number cruncher in reearch! reearch aitant generally begin with no indutry or mar;et

eH)ertie4 *eearch aitant alo ta;e over the )readheet modeling function required by the analyt4 Travel

i limited for the budding reearch aitant! a it uually doe not ma;e ene financially to end more than the

reearch analyt to meeting with com)any official or money manager4

RESEARCH ASSOCIATES

@B


47/88

0urdened with number and deadline! the reearch aociate often feel li;e a cro between a tatitician and a

cor)orate finance analyt4 Mirroring the cor)orate finance analyt and aociate )oition! reearch aociate

can be bright! motivated ;id directly out of to) undergraduate univeritie or at firm dedicated to hiring M0A

in reearch! the reearch aociate role i the entry+level )oition once the M0A ha been earned4

RESEARCH ANA$YSTS

The reearch analyt! e)ecially in equity! i truly a guru4 Analyt follow )articular indutrie! recommend

toc; to buy and ell! and convince ale)eo)le and buy+ider why they or their client hould or hould not

invet in 9om)any C24 The road to becoming an analyt i either )aved with olid indutry eH)erience! or

through the reearch aitant


48/88

5conenu: etimate4" 9om)any+)ecific re)ort fall into three categorieJ initiation of coverage! u)date and

rating change4

I*-&-%&-o* o< o7'=%.': Thi i eHactly what it ound li;e4 Thee re)ort indicate that an analyt ha not

)reviouly written reearch or covered the )articular com)any4 Uually an initiation of coverage re)ort include

ubtantial information about the buine! a detailed forecat model and ri; factor inherent in the buine4

U>)%&': 7hen a toc; move! new


49/88

(ince the conflict+of+interet ettlement"! but the definition that ban; refer to do not accurately meaure what

the analyt believe4

CHAPTER #

OBJECTIVE , SCOPE OF

STUDY4

OTHER ASPECTS OFINVESTMENT IN BANKING

SECTOR

@E


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/1 OBJECTIVE OF THE STUDY

#etailed tudy of the evolution of $nvetment 0an;ing conce)t in $ndia4

To tudy about the im)ortance of $nvetment 0an;ing4

To tudy different )roduct of $nvetment 0an;ing! and the function of

$nvetment 0an;ing Study the reaon for moving toward from 0an;ing to $nvetment 0an;ing4

To find way for im)roving $nvetment 0an;ing4

To tudy about the conumerL )erce)tion toward $nvetment 0an;ing4

9onduct a reearch in order to ;now the awarene about the conce)t of $nvetment 0an;ing among the

mae4

/ SCOPE OF STUDY

Thi tudy will enable u to have a dee) learning of the invetment ban; and it all ervice )rovided4 The

)ro3ect eH)lain the im)ortance of $nvetment 0an;ing and how the ban;ing buine wa getting into

invetment buine4 The tudy have covered all the activitie in detail and alo it had covered the )ricecom)arion for the ervice )rovided by variou $nvetment 0an; which will enable u to ta;e the deciion

before ta;ing any ervice from any of thee ban;4 Thi tudy will hel) thoe mall and medium cale

com)anie which are till not fully aware of thi facility for their buinee4 Thi tudy will alo hel) the

a)irant who want to ma;e their career into $nvetment 0an;ing by having )rivilege to match their eHact

interet with the ;ind of ervice )rovided by the $nvetment 0an;4 So thi tudy will alo hel) them in 3ob

earch4

/ RO$E IN MERGERS , ACUISTIONS

$nvetment 0an; i alo involve in hel)ing cutomer raie fund in the ca)ital mar;et and giving advice on

M'=.'=9 and A(-9-&-o*94 $nvetment ban;ing may involve ubcribing invetor to a ecurity iuance

coordinating with bidder! or negotiating with a merger target4 Another term for the invetment ban;ing diviion

i cor)orate finance! and it adviory grou) i often termed +'=.'=9 %*) %(-9-&-o*9(MIA"4 A )itch boo; of

financial information i generated to mar;et the ban; to a )otential MIA client if the )itch i ucceful! the

,


51/88

ban; arrange the deal for the client4 The invetment ban;ing diviion ($0#" i generally divided into indutry

coverage and )roduct coverage grou)4 $ndutry coverage grou) focu on a )ecific indutry uch a

healthcare! indutrial! or technology! and maintain relationhi) with cor)oration within the indutry to bring

in buine for a ban;4 Product coverage grou) focu on financial )roduct! uch a merger and acquiition!

leveraged finance! )ro3ect finance! aet finance and leaing! tructured finance! retructuring! equity! and high+

grade debt and generally wor; and collaborate with indutry grou) in the more intricate and )ecialiKed needof a client4

$n the E/,! hotile ta;eover and %0O acquiition were all the rage4 9om)anie ought to acquire other

through aggreive toc; )urchae and cared little about the target com)anyL concern4 The EE, were the

decade of friendly merger! dominated by a few ector of the economy4 Merger in the telecommunication!

financial ervice! and technology indutrie were commanding headline! a thee ector went through

dramatic change! both regulatory and financial4 0ut giant merger were occurring in virtually every indutry

(witne one of the bigget of them all! the merger between 6HHon and Mobil"4 6Hce)t for hort )eriod of

mar;et volatility! MIA (merger and acquiition" buine wa bri; in the EE,! a demand to go global! to

;ee) )ace with the com)etition! and to eH)and earning by any )oible mean were foremot in the mind of

96O4

At the beginning of the millennium! however! the MIA lowed4 $n -,,-! the hit bottom! decreaing in total

volume by @, )ercent4 0ut in -,,= MIA made a comebac;! a worldwide volume climbed @ )ercent veru

-,,-4 7hen a )ublic com)any acquire another )ublic com)any! the target com)anyL toc; often rie while

the acquiring com)anyL toc; often decline4 7hy> One mut realiKe that eHiting hareholder mut be

convinced to ell their toc;4 Few hareholder are willing to ell their toc; to an acquirer without firt being

)aid a )remium on the current toc; )rice4 $n addition! hareholder mut alo ca)ture a ta;eover )remium to

relinquih control over the toc;4 The large hareholder of the target com)any ty)ically demand uch an

eHtraction4 (Uually once a ta;eover i announced! the 5arb: or arbitrager! buy u) hare on the o)en mar;et

and drive u) the hare )rice to near the )ro)oed ta;eover )rice4" MIA tranaction can be roughly divided into

either merger or acquiition4 Thee term are often ued interchangeably in the )re! and the actual legal

difference between the two involve arcana of accounting )rocedure! but we can till draw a rough difference

between the two/

A(-9-&-o* 7hen a larger com)any ta;e over another (maller firm" and clearly become the new owner!

the )urchae i ty)ically called an acquiition on 7all Street4 Ty)ically! the target com)any ceae to eHit )ot+


52/88

tranaction (from a legal cor)oration )oint of view" and the acquiring cor)oration wallow the buine4 The

toc; of the acquiring com)any continue to be traded4

M'=.'= A merger occur when two com)anie! often roughly of the ame iKe! combine to create a new

com)any4 Such a ituation i often called a 5merger of equal4: 0oth com)anieL toc; are tendered (or given

u)"! and new com)any toc; i iued in it )lace4 For eHam)le! both 9hryler and #aimler+0enK ceaed to eHit

when their firmmerged! and a new combined com)any! #aimler9hryler wa created4

M,A %)7-9o=y 9'=7-'9

For an $+ban;! MIA adviing i highly )rofitable! and there are many )oibilitie for ty)e of tranaction4

Perha) a mall )rivate com)anyL owner


53/88

R'>='9'*&-*. &' &%=.'&

An $+ban; that re)reent a )otential eller ha a much greater li;elihood of com)leting a tranaction (and

therefore being )aid" than an $+ban; that re)reent a )otential acquirer4 Alo ;nown a ell+ide wor;! thi ty)e

of adviory aignment i generated by a com)any that a))roache an invetment ban; (alo an invetment ban;

may alo ma;e the initial a))roach and 5)itch: the idea of the com)any being old or merged" and a; the

=


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ban; to find a buyer of either the entire com)any or a diviion4 Often! ell+ide re)reentation come when a

com)any a; an invetment ban; to hel) it ell a diviion! )lant or ubidiary o)eration4 &enerally )ea;ing!

the wor; involved in finding a buyer include writing a Selling Memorandum and then contacting )otential

trategic or financial buyer of the client4 $f the client ho)e to ell a emiconductor )lant! for intance! the $+

ban;er will contact firm in that indutry! a well a buyout firm that focu on )urchaing technology or high+

tech manufacturing o)eration4

B(yo(& F-=+9 %*) $BO9

0uyout firm! which are alo called financial )onor! acquire com)anie by

borrowing ubtantial cah4 Thee buyout firm (alo called %0O firm" im)lement a

management team they trut! im)rove ale and )rofit! and ultimately ee; an eHit

trategy (uually a ale or $PO" for their invetment within a few year4 Thee firm

are driven to achieve a high return on invetment (*O$"! and focu their effort

toward treamlining the acquired buine and )re)aring the com)any for a future

$PO or ale4 $t i quite common that a buyout firm will be the elling hareholder in

an $PO or follow+on offering4

/2 TRADING

T=%)-*.can ma;e or brea; an invetment ban;4 7ithout trader to eHecute buy and ell tranaction! no )ublic

deal would get done! no liquidity would eHit for ecuritie! and no commiion or )read would accrue to the

ban;4 Trader carry a 5boo;: accounting for the daily revenue that they generate for the firm4

On behalf of the ban; and it client! the )rimary function of a l%=.' -*7'9&+'*& %*;i buying and elling

)roduct4 $n mar;et ma;ing! trader will buy and ell financial )roduct with the goal of ma;ing an incremental

amount of money on each trade4Sales-9 &' &'=+ &o= %9-9@

%*) &%;' o=)'=94 Sale de; then communicate their clientR order to the a))ro)riate trading de;! who can

)rice and eHecute trade! or tructure new )roduct that fit a )ecific need4 Structuringha been a relatively

recent activity a derivative have come into )lay! with highly technical and numerate em)loyee wor;ing on

creating com)leH tructured )roduct which ty)ically offer much greater margin and return than underlying

cah ecuritie4Strategistsadvie eHternal a well a internal client on the trategie that can be ado)ted in

variou mar;et4 *anging from derivative to )ecific indutrie! trategit )lace com)anie and indutrie in a

quantitative framewor; with full conideration of the macroeconomic cene4 Thi trategy often affect the way

the firm will o)erate in the mar;et! the direction it would li;e to ta;e in term of it )ro)rietary and flow

)oition! the uggetion ale)eron give to client! a well a the way tructure create new )roduct4 0an;

@


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alo underta;e ri; through )ro)rietary trading! done by a )ecial et of trader who do not interface with client

and through )rinci)al ri;! ri; underta;en by a trader after he buy or ell a )roduct to a client and doe not

hedge hi total eH)oure4 0an; ee; to maHimiKe )rofitability for a given amount of ri; on their balance heet4

The neceity for numerical ability in ale and trading ha created 3ob for )hyic! math and engineering

Ph4#4 who act a quantitative analyt4

%$DU$#$T2A dicued earlier! liquidity i the ability to find tradable ecuritie in the mar;et4 7hen a large number of

buyer and eller co+eHit in the mar;et! a toc; or bond i aid to be highly liquid4 %etL ta;e a loo; at the

liquidity of variou ty)e of ecuritie4

Co++o* 9&o;4 For toc;! liquidity de)end on the toc;L float in the mar;et4 Float i the number of hare

available for trade in the mar;et (not the total number of hare which may include unregitered toc;" time the

toc; )rice4 Uually over time! a a com)any grow and iue more toc;! it float and liquidity increae4


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Ho &' &=%)'= +%;'9 +o*'y8

Undertanding how trader ma;e money i im)le4 A dicued earlier! trader buy toc; and bond at a low

)rice! then ell them for a lightly higher )rice4 Thi difference i called the -)#%9; 9>='%)! or! im)ly! the

)read4 For eHam)le! a bond may be quoted at EE W bid! EE


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and old ,!,,, bond (which each have !,,, face value for a total value of ,, million"! the )read earned

would amount to -!,,, for the trader4 Not bad for a cou)le of trade4 S)read vary de)ending on the ecurity

old4 &enerally )ea;ing! the more liquidity a toc; or bond ha! the narrower the )read4 &overnment bond

the mot liquid of all ecuritie! ty)ically trade at )read of a mere


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S('99


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order! the tranaction flow i imilar to that of an OT9 toc;4 A buyer call a bro;er+dealer! indicate the bond

he wihe to buy! and the trader ell the ecuritie with a )hone call and a few ;eytro;e on hi com)uter4

/3 MIDD$E OFFICE ACTIVITIES OF INVESTMENT IN BANKING/RISK MANAGEMENT

R-9; M%*%.'+'*&involve analyKing the mar;et and credit ri; that trader are ta;ing onto the balance heet

in conducting their daily trade! and etting limit on the amount of ca)ital that they are able to trade in order to

)revent RbadR trade having a detrimental effect to a de; overall4 Another ;ey Middle Office role i to enure

that the above mentioned economic ri; are ca)tured accurately (a )er agreement of commercial term with

the o(*&'=>%=&y"! correctly (a )er tandardiKed boo;ing model in the mot a))ro)riate ytem" and on time

(ty)ically within =, minute of trade eHecution"4 $n recent year the ri; of error ha become ;nown a

o>'=%&-o*%l =-9; and the aurance Middle Office )rovide now include meaure to addre thi ri;4 7hen

thi aurance i not in )lace! mar;et and credit ri; analyi can be unreliable and o)en to deliberate

mani)ulation4

CORPORATE TREASURY

Co=>o=%&' &='%9(=y i re)onible for an invetment ban;R funding! ca)ital tructure management! and

liquidity ri; monitoring4 T='%9(=y +%*%.'+'*& (or &='%9(=y o>'=%&-o*9" include management of an

enter)rieR holding in and trading in government and cor)orate bond! currencie! financial future! o)tion

and derivative! )ayment ytem and the aociated financial ri; management4

All ban; have de)artment devoted to treaury management! a do larger cor)oration4 0an; may or may not

dicloe the )rice they charge for Treaury Management )roduct4

FINANCIA$ CONTRO$

F-*%*-%l o*&=oltrac; and analyKe the ca)ital flow of the firm! the Finance diviion i the )rinci)al advier

to enior management on eential area uch a controlling the firmR global ri; eH)oure and the )rofitability

and tructure of the firmR variou buinee4 $n the United State and United 8ingdom! a Financial 9ontroller

i a enior )oition! often re)orting to the 9hief Financial Officer4

CORPORATE STRATEGY

Co=>o=%&' 9&=%&'.y! along with ri;! treaury! and controller! often fall under the finance diviion a well4

/5 OTHER BUSINESS OF INVESTMENT BANKING

E


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Glo%l T=%*9%&-o* B%*;-*.

Glo%l &=%*9%&-o* %*;-*.i the diviion which )rovide cah management! cutody ervice! lending! and

ecuritie bro;erage ervice to intitution4

I*7'9&+'*& M%*%.'+'*&

I*7'9&+'*& +%*%.'+'*&

Bank - New Investment Opportunities in Indian Banking Sector

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