EXECUTIVE SUMMARY

Investment banking includes a wide variety of activities, including underwriting,

selling, and trading securities, providing financial advisory services, and managing
assets. Investment banks cater to a diverse group of stakeholders – companies,
governments, non-profit institutions, and individuals – and help them raise funds on
the capital market. They perform the following major functions for their customers:
 Serve as trading intermediaries for clients
 Lend and invest banks’ assets
 Provide advice on mergers, acquisitions, and other financial transactions
 Research and develop opinions on securities, markets, and economies
 Issue, buy, sell, and trade stocks and bonds
 Manage investment portfolios
Investment banks once contrasted sharply with commercial banks, where
people mainly deposited their money and sought commercial and retail loans. In
recent years, though, the two types of structures have become increasingly similar;
commercial banks now offer more investment banking services as they attempt to
corner the market by presenting themselves as one-stop shops.
Investment banks do differ from brokerages and broker-dealers, though,
even though those three entities are often thought of as one and the same. A brokerage
firm takes a commission for assisting in the purchase and sale of stocks, bonds, and
mutual funds. A broker-dealer executes similar functions, but it also trades for its own
account. An investment bank actually is a broker-dealer that provides corporations
with financial services, such as assistance with initial public offerings, merger and
acquisitions advice, and strategic planning.
INTRODUCTION

Investment banking is a particular form of banking which finances capital

requirements of an enterprise. Investment banking assists as it performs IPOs, private
placement and bond offerings, acts as broker and carries through mergers and
acquisitions. Investment banking is a field of banking that aids companies in
acquiring funds. In addition to the acquisition of new funds, investment banking also
offers advice for a wide range of transactions a company might engage in.

Traditionally, banks either engaged in commercial banking or investment banking. In

commercial banking, the institution collects deposits from clients and gives direct
loans to businesses and individuals.

Through investment banking, an institution generates funds in two different ways.

They may draw on public funds through the capital market by selling stock in their
company, and they may also seek out venture capital or private equity in exchange for
a stake in their company.

An investment banking firm also does a large amount of consulting. Investment

bankers give companies advice on mergers and acquisitions, for example. They also
track the market in order to give advice on when to make public offerings and how
best to manage the business' public assets. Some of the consultative activities
investment banking firms engage in overlap with those of a private brokerage, as they
will often give buy-and-sell advice to the companies they represent.

The line between investment banking and other forms of banking has blurred in recent
years, as deregulation allows banking institutions to take on more and more sectors.
With the advent of mega-banks which operate at a number of levels, many of the
services often associated with investment banking are being made available to clients
who would otherwise be too small to make their business profitable.

At a very macro level, ‘Investment Banking’ as term suggests, is concerned

with the primary function of assisting the capital market in its function of
capital intermediation, i.e., the movement of financial resources from those
who have them (the Investors), to those who need to make use of them for
generating GDP (the Issuers). Banking and financial institution on the one
hand and the capital market on the other are the two broad platforms of institutional that
investment for capital flows in economy. Therefore, it could be inferred that investment
banks are those institutions that are counterparts of banks in the capital markets in the
function of intermediation in the resource allocation.

Nevertheless, it would be unfair to conclude so, as that would confine investment banking
to very narrow sphere of its activities in the modern world of high finance. Over the
decades, backed by evolution and also fuelled by recent technologies developments, an
investment banking has transformed repeatedly to suit the needs of the finance community
and thus become one of the most vibrant and exciting segment
of financial services. Investment bankers have always enjoyed celebrity
status, but at times, they have paid the price for the price for excessive flamboyance as
well.

In the words of John F. Marshall and M.E. Eills, “investment banking is what investment
banks do”. This definition can be explained in the context of how investment banks have
evolved in their functionality and how history and regulatory intervention have shaped
such an evolution. Much of investment banking in its present
form, thus owes its origins to the financial markets in USA, due o which,
American investment banks have banks have been leaders in the American
and Euro markets as well. Therefore, the term ‘investment banking’ can
arguably be said to be of American origin.
CHAPTER 01

WHAT IS INVESTMENT BANKING ?

 A person or organization sometimes acts as an underwriter or mediator for corporations

and municipalities issuing securities.
 Most of them also preserve broker-dealer operations to maintain markets for formerly
issued securities and suggest advisory services to investors.
 Investment banking also has a large role in facilitating mergers and acquisition, private
equity placements and corporate restructuring.

Definition:

An individual or institution, which acts as an underwriter or agent for corporations and

municipalities issuing securities. Most also maintain broker/dealer operations, maintain
markets for previously issued securities, and offer advisory services to investors. Investment
banks also have a large role in facilitating mergers and acquisitions, private equity
placements and corporate restructuring. Unlike traditional banks, investment banks do not
accept deposits from and provide loans to individuals. Also called investment banker.”

Concept of Investment Bank:

The banking scenario in India is itself huge, covering the different facets of the
economy. By and large, investment banks in India are itself an institution which
generates funds in two different ways. The first manner in which it works is by
drawing public funds via the capital market by way of selling stock in their company.
The other way in which it operates is to seek for venture capital or private equity, as a
substitute for a stake in their company.

Investment Banks:

An investment bank is a financial institution that assists corporations and

governments in raising capital by underwriting and acting as the agent in the issuance
of securities. An investment bank also assists companies involved in mergers and
acquisitions, divestitures, etc. Further it provides ancillary services such as market
making and the trading of derivatives, fixed income instruments, foreign exchange,
commodity, and equity securities.
 Unlike commercial banks and retail banks, investment banks do not take
deposits. Trading securities for cash or securities (i.e., facilitating transactions,
market-making), or the promotion of securities (i.e., underwriting, research, etc.) was
referred to as the “sell side”. Dealing with the pension funds, mutual funds, hedge
funds, and the investing public who consumed the products and services of the sell-
side in order to maximize their return on investment constitutes the “buy side”. Many
firms have buy and sell side components.
Investment banks help companies and governments and their agencies to raise
money by issuing and selling securities in the primary market. They assist public and
private corporations in raising funds in the capital markets (both equity and debt).

Investment banks also act as intermediaries in trading for clients. Investment

banks differ from commercial banks, which take deposits and make
commercial and retail loans. In recent years, however, the lines between the two types of
structures have blurred, especially as commercial banks have
offered more investment banking services. Investment banks may 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 brokerages and investment banks; this
includes some of the best known financial services firms in the world.

Few facts about Investment Banking

 Unlike traditional banks, investment banks do not accept deposits from and provide
loans to individuals also called investment banker.
 Investment banks help companies and governments (or their agencies) raise money by
issuing and selling securities in the capital market (both equity and debt).
 Almost all investment banks also offer strategic advisory services for mergers,
acquisition, divestiture or other financial services for clients, such as:
 trading of derivatives
 fixed income
 foreign exchange
 commodity
 Equity security.
 Trading securities for hard cash or securities (i.e., facilitating dealings, market-making),
or the endorsement of securities (i.e., underwriting, research, etc.) is referred to as the
“sell side”.
 On the other hand the “buy side” constitutes :
 the pension fund,
 mutual funds,
 hedge funds,
 The investing public who use the goods and services of the sell-side with the intention
of make best use of their return on investment.
 Many firms have both buy and sell side mechanism.

Basics of Investment Banking:

The banking sector is one of the biggest contributors to a nation’s economy, provided
it is managed in an innovative and professional environment. Investment banking is
one rapidly growing form of banking.

An investment bank is a type of financial intermediary that performs a

variety of functions such as underwriting, facilitating mergers and acquisitions or
brokerage services for institutions. The work of an investment bank begins right from
the counseling before the underwriting sessions, and stretches right till the securities
are properly handled and distributed. Investment banks play a very crucial role in
market transactions on behalf of, or for private and public investors, government and
corporations. There are a number of investment banks that also provide highly
professional services in assisting their clients with industrial know-how on various
parameters.

Industries from diverse sectors like media and telecommunications, real

estate, industry, finance, health care, consumer products and various such segments
are provided assistance by investment banking services. Along with these, an
investment bank also deals in the securities, trading services, credit counseling,
financial engineering and merchant banking. The primary source of income for
investment bankers is the commissions, fees and gain margins on transactions
provided for the above mentioned institutions.
 The role of an investment bank as a mediator is to directly familiarize the
nature of the investment and the entity being invested in. In case of conventional
banking, people deposit finances in the form of cash, assets and so on with a bank.
The bank in turn can lend to a borrower under some standard norms to utilize in his
own way. In the case of investment banking, there is a direct familiarization of both
the investor and the borrower. This means that an individual or institutional investor
has an option to choose his type of investment or division of investment into any
given entity looking out for funds. An investment bank can also assist investment in
the financial market.

Investment banks provide companies with expert guidance and formulate

strategies on their behalf for disinvestment, and also to merge or acquire new entities.
Good investment banking involves procedures to maintain and upgrade the quality of
services and keep a close watch on the emerging trends in the market, where their
customer’s money can be invested. It also incorporates risk management services in
order to streamline the flow of capital, check its overuse, and come up with a detailed
analysis of credit risks.

The investment banking market was increasing leaps and bounds, until the
present recession struck. Banks all over the world are trying to recoup the losses. The
US is the biggest market for investment banks, followed by Europe, Middle East,
Africa and Asia. The global hubs of investment banking are a few economically
sound centers like London, New York and Tokyo. However, investment banking is
not restricted in its scope to a few regions of the world. It caters to a global
community which makes it highly sensitive to global ups and downs, along with
innovative fluctuations.

Role of an Investment Bank:

The major work of investment banks includes a lot of consulting. For instance, they
offer advices on mergers and acquisitions to companies. The role that an investment
bank plays sometimes gets overlapped with that of a private brokerage house. The
usual advice of buying and selling is also given by investment banks.

There is no demarcating line between the investment banking and other forms
of banking in India. This has been observed majorly of late. All banks nowadays want
to provide their customers the best of services and create a niche for themselves and
that is why apart from investment banks, all other banks too are aiming at making it
big.

At the macro level, investment banking is related with the primary function of
assisting the capital market in its function of capital intermediation, i.e., the
movement of financial resources from those who have them (the investors), to those
who need to make use of them for producing GDP (the issuers). Over the decades,
investment banks have always suited the needs of the finance community and thus
become one of the most vibrant and exciting segment of financial services.

Globally investment banks handle significant fund-based business of their own

in the capital market along with their non-fund service portfolio which is offered to
the clients. All these activities are broadly segmented across three platforms – equity
market activity, debt market activity and merger and acquisitions (M&A) activity.

Functions of Investment Banking:

Investment banks have multilateral functions to perform. Some of the most important
functions of investment banking can be jot down as follows:

 Investment banking help public and private corporations in issuing securities in

the primary market, guarantee by standby underwriting or best efforts selling and
foreign exchange management. Other services include acting as intermediaries in
trading for clients.
 Investment banking provides financial advice to investors and serves them by
assisting in purchasing securities, managing financial assets and trading securities.
 Investment banking differs from commercial banking in the sense that they don’t
accept deposits and grant retail loans. However the dividing line between the two
fraternal twins has become flimsy with loans and securities becoming almost
substitutable ways of raising funds.
 Small firms providing services of investment banking are called boutiques. These
mainly specialize in bond trading, advising for mergers and acquisitions,
providing technical analysis or program trading.
Who needs an Investment Bank?

Any firm contemplating a significant transaction can benefit from the advice
of an investment bank. Although large corporations often have sophisticated
finance and corporate development departments provide objectivity, a valuable contact
network, allows for efficient use of client personnel, and is vitally interested in seeing
the transaction close.

Most small to medium sized companies do not have a large in-house staff,
and in a financial transaction may be at a disadvantage versus larger
competitors. A quality investment banking firm can provide the services
required to initiate and execute a major transaction, thereby empowering
small to medium sized companies with financial and transaction experience
without the addition of permanent overhead, an investment bank provides
objectivity, a valuable contact network, allows for efficient use of client
personnel, and is vitally interested in seeing the transaction close.

Most small to medium sized companies do not have a large in-house staff,
and in a financial transaction may be at a disadvantage versus larger
competitors. A quality investment-banking firm can provide the services.

What to Look For In an Investment Bank:

Investment banking is a service business, and the client should expect top-notch
service from the investment banking firm. Generally only large client firms will get
this type of service from the major Wall Street investment banks; companies with less
than about $100 million in revenues are better served by smaller investment banks.
Some criteria to consider include:

 Services Offered:

For all functions except sales and trading, the services should go well
beyond simply making introductions, or “brokering” a transaction. For example, most
projects will include detailed industry and financial analysis, preparation of relevant
documentation such as an offering memorandum or presentation to the Board of
Directors, assistance with due diligence, negotiating the terms of the transaction,
coordinating legal, accounting, and other advisors, and generally assisting in all
phases of the project to ensure successful completion.

 Experience:

It extremely important to make sure that experienced, senior members of

the investment banking firm will be active in the project on a day-to-day basis.
Depending on the type of transaction, it may be preferable to work with an investment
bank that has some background in your specific industry segment. The investment
bank should have a wide network of relevant contacts, such as potential investors or
companies that could be approached for acquisition.

 Record of Success:

Although no reputable investment bank will guarantee success, the firm

must have a demonstrated record of closing transactions.

 Ability to Work Quickly:

Often, investment banking projects have very specific deadlines, for

example when bidding on a company that is for sale. The investment bank must be
willing and able to put the right people on the project and work diligently to meet
critical deadlines.

 Fee Structure:

Generally, an investment bank will charge an initial retainer fee, which

may be one-time or monthly, with the majority of the fee contingent upon successful
completion of the transaction. It is important to utilize a fee structure that aligns the
investment bank’s incentive with your own.

 Ongoing Support:

Having worked on a transaction for your company, the investment bank

will be intimately familiar with your business. After the transaction, a good
investment bank should become a trusted business advisor that can be called upon
informally for advice and support on an ongoing basis.
 Because investment banks are intermediaries, and generally not providers
of capital, some executives elect to execute transactions without an investment bank
in order to avoid the fees. However, an experienced, quality investment bank adds
significant cant value to a transaction and can pay for its fee many times over.

The investment banker has a vested interest in making sure the transaction
closes, that the project is completed in an efficient time frame, and with terms that
provide maximum value to the client. At the same time, the client is able to focus on
running the business, rather than on the day-to-day details of the transaction, knowing
that the transaction is being handled by individuals with experience in executing
similar projects.
CHAPTER 02

Organizational Structure and Core of an Investment Bank

Organizational Structure of an Investment Bank

Main Activities and Units

The primary function of an investment bank is buying and selling products
both on behalf of the bank's clients and also for the bank itself. Banks
undertake risk through proprietary trading, done by a special set of traders
who do not interface with clients and through Principal Risk, risk
undertaken by a trader after he or she buys or sells a product to a client and
does not hedge his or her total exposure. Banks seek to maximize
profitability for a given amount of risk on their balance sheet.

An investment bank is split into the so-called front office, middle office, and back
office. While large full-service investment banks offer all of the lines of businesses,
both sell side and buy side, smaller sell side investment firms such as boutique
investment banks and small broker-dealers will focus on investment banking and
sales/trading/research, respectively.
Investment banks offer services to both corporations issuing securities and
investors buying securities. For corporations investment bankers offer information on
when and how to place their securities in the market. The corporations do not have to
spend on resources with which it is not equipped. To the investor, the responsible
investment banker offers protection against unsafe securities. The offering of a few
bad issues can cause serious loss to its reputation, and hence loss of business.
Therefore, investment bankers play a very important role in issuing new security
offerings.

Core Investment Banking Activities

Front Office:

 Investment banking is the traditional aspect of the investment banks which also
involves helping customers raise funds in the capital markets and giving advice on
M&A's aka mergers and acquisitions. Investment banking may involve
 subscribing investors to a security issuance, coordinating with bidders, or
negotiating with a merger target. Another term for the investment banking
division is corporate finance, and its advisory group is often termed mergers and
acquisitions (M&A). The investment banking division (IBD) is generally divided
into industry coverage and product coverage groups. Industry coverage groups
focus on a specific industry such as healthcare, industrials, or technology, and
maintain relationships with corporations within the industry to bring in business
for a bank.
 Sales and trading: On behalf of the bank and its clients, the primary function of a
large investment bank is buying and selling products. In market making, traders
will buy and sell financial products with the goal of making 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 and take orders. Strategists advise external as well as
internal clients on the strategies that can be adopted in various markets. Ranging
from derivatives to specific industries, strategists place companies and industries
in a quantitative framework with full consideration of the macroeconomic scene.
This strategy often affects the way the firm will operate in the market, the
direction it would like to take in terms of its proprietary and flow positions, the
suggestions salespersons give to clients, as well as the way structures create new
products.
 Research is the division which reviews companies and writes reports about their
prospects, often with "buy" or "sell" ratings. While the research division may or
may not generate revenue, its resources are used to assist traders in trading, the
sales force in suggesting ideas to customers, and investment bankers by covering
their clients. Research also serves outside clients with investment advice in the
hopes that these clients will execute suggested trade ideas through the Sales &
Trading division of the bank, thereby bringing in revenue for the firm. There is a
potential conflict of interest between the investment bank and its analysis in that
published analysis can affect the profits of the bank.

Other businesses that an investment bank may be involved in:

 Global transaction banking is the division which provides cash management,
custody services, lending, and securities brokerage services to institutions. Prime
brokerage with hedge funds has been an especially profitable business.
 Investment management is the professional management of various securities
(shares, bonds, etc.) and other assets (e.g. real estate), to meet specified
investment goals for the benefit of the investors. Investors may be institutions
(insurance companies, pension funds, corporations etc.) or private investors (both
directly via investment contracts and more commonly via collective investment
schemes e.g. mutual funds). The investment management division of an
investment bank is generally divided into separate groups, often known as Private
Wealth Management and Private Client Services.
 Merchant banking is a private equity activity of investment banks.
 Commercial banking sees article commercial bank.

Middle Office:

 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 'bad' trades
having a detrimental effect to a desk overall. Another key Middle Office role is to
ensure that the above mentioned economic risks are captured accurately, correctly
and on time. In recent years the risk of errors has become known as "operational
risk" and the assurance Middle Offices provide now includes measures to address
this risk.
 Corporate treasury is responsible for an investment bank's funding, capital
structure management, and liquidity risk monitoring.
 Financial control tracks and analyzes the capital flows of the firm; the Finance
division is the principal adviser to senior management on essential areas such as
controlling the firm's global risk exposure and the profitability and structure of the
firm's various businesses.
 Corporate strategy, along with risk, treasury, and controllers, often falls under the
finance division as well.
 Compliance areas are responsible for an investment bank's daily operations'
compliance with government regulations and internal regulations. Often also
considered a back-office division.

Back Office:

 Operations involve data-checking trades that have been conducted, ensuring

that they are not erroneous, and transacting the required transfers. While some
believe that operations provide the greatest job security and the bleakest career
prospects of any division within an investment bank, many banks have
outsourced operations. It is, however, a critical part of the bank.

Technology refers to the information technology department. Every major investment

bank has considerable amounts of in-house software, created by the technology team,
who are also responsible for technical support. Technology has changed considerably
in the last few years as more sales and trading desks are using electronic trading.

Investment Banks Provide Four Primary Services:

Raising capital, advising in mergers and acquisitions, executing securities

sales and trading, and performing general advisory services. Smaller
investment banks may specialize in two or three of these categories.

1. Raising Capital:

An investment bank can assist a firm in raising funds to achieve a variety of

objectives, such as to acquire another company, reduce its debt load, expand existing
operations, or for specific project financing. Capital can include some combination of
debt, common equity, preferred equity, and hybrid
securities such as convertible debt or debt with warrants. Although many people
associate raising capital with public stock offerings, a great deal of capital is actually
raised through private placements with institutions, specialized investment funds, and
private individuals. The investment bank will work with the client to structure the
transaction to meet specific objectives while being attractive to investors.

2. Mergers and Acquisitions:

Investment banks often represent firms in mergers, acquisitions, and

divestitures. Example projects include the acquisition of a specific firm, the sale of a
company or a subsidiary of the company, and assistance in identifying, structuring, and
executing a merger or joint venture. In each case, the investment bank should provide a
thorough analysis of the entity bought or sold, as well as a valuation range and
recommended structure.

3. Sales and Trading:

These services are primarily relevant only to publicly traded firms, or firms,
which plan to go public in the near future. Specific functions include making a market
in a stock, placing new offerings, and publishing research reports.

4. General Advisory Services:

Advisory services include assignments such as strategic planning, business

valuations, assisting in financial restructurings, and providing an opinion as to the fairness
of a proposed transaction.

Corporate Finance:

The bread and butter of a traditional investment bank, corporate finance

generally performs two different functions: 1) mergers and acquisitions advisory, and
2) underwriting. On the mergers and acquisitions (M&A) advising side of corporate
finance, bankers assist in negotiating and structuring a merger between two
companies. If, for example, a company wants to buy another firm, then an investment
bank will help finalize the purchase price, structure the deal and generally ensure a
smooth transaction. The underwriting function within corporate finance involves
shepherding the process of raising capital for a company. In the investment banking
world, capital can be raised by selling stocks or bonds (and some more exotic
securities) to investors.
Syndicate
The hub of the investment banking wheel, the syndicate group is a vital link
between salespeople and corporate finance. Syndicate exists to facilitate the placing of
securities in a public offering, a knockdown, drag-out affair between and among
buyers of offerings and the investment banks managing the process. In a corporate or
municipal debt deal, syndicate also determines the allocation of bonds. The most
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CHAPTER 3

CHARACTERISTICS AND STRUCTURE OF INDIAN INVESTMENT

BANKING INDUSTRY

Investment banking in India has evolved in its own characteristics structure over the
years both due to business realities and the regulatory regime.

On the regulatory front, the Indian regulatory regime does not allow all investment
banking functions to be performed under one entity for two reasons–(a) to prevent
excessive exposure to business risk under one entity and (b) to prescribe and monitor
capital adequacy and risk mitigation mechanisms. Therefore bankruptcy remoteness is
a key feature in structuring the business lines of an investment bank so that the risks
and rewards are defined for the investors who provide resources to the investment
banks. In addition, the capital adequacy requirements and leveraging capability for
each business line have been prescribed differently under relevant provisions of law.
On the same analogy, commercial banks in India have to follow the provisions of the
Banking Regulation Act and the RBI regulations, which prohibit them from exposing
themselves to stock market investments and lending against stocks beyond certain
specified limits.

Therefore, Indian investment banks structure their business segments in different

corporate entities to be able to meet regulatory norms. For e.g. it is desirable to have
merchant banking is a separate company as it requires a separate merchant banking
license from the SEBI. Merchant bankers other than banks and financial institutions
are also prohibited from undertaking any other business other than that in the
securities market. However, since banks are subject to the Banking Regulation Act,
they cannot perform investment banking to a large extent on the same balance sheet.
Asset management business in the form of a mutual fund requires a three-tier
structure under the SEBI regulations. Equity research should be independent of the
merchant banking business so as to avoid the kind of conflict of interest as faced by
American investment banks. Stock broking has to be separated into a different
company as it requires a stock exchange membership apart from SEBI registration. A
complete overview of the regulatory framework for investment banking is furnished
later.
Investment banking in India has also been influenced by business realities to a large
extent. The financial services industry in India till the early 1980s was driven largely
by debt services in the form of term financing from financial institutions and working
capital financing by commercial banks and non-banking financial companies
(NBFCs). Capital market services were mostly restricted to stock broking activity
which was driven by a non-corporate unorganized body industry. Merchant banking
and asset management services came up in a big way only with the opening up of the
capital markets in the early nineties. Due to the primary market boom during that
period, many financial business houses such as financial institutions, banks and
NBFCs entered the merchant banking, underwriting and advisory business. While
most institutions and commercial banks floated merchant banking divisions and
subsidiaries, NBFCs combined their existing business with that of merchant banking.

Over the subsequent years, two developments have taken place. Firstly, with the
downturn in the capital markets, the merchant banking industry has seen a tremendous
shake out and only about a 10% of them remain in serious business as pointed out
earlier. The other development is that due to the gradual regulatory developments in
the capital markets, investment banking activities have come under regulations which
require separate registration, licensing and capital controls.

Due to the above reasons, the Indian investment banking industry has a heterogeneous
structure. The bigger investment banks have several group entities in which the core
and non-core business segments are distributed. Others have either one or more
entities depending upon the activity profile.

The heterogeneous and fragmented structure is evident even if Indian investment

banks are classified on the basis of their activity profile. Some of them such as –SBI,
IDBI, ICICI, IL & FS, Kotak Mahindra, Citibank and others offer almost the entire
gamut of investment banking services permitted in India. Among these, the long term
financial institutions are gradually transforming themselves into full service
commercial banks (called ‘universal banking’ in the Indian context). They also have
full service investment banking under their fold. Other entities such as NBFCs or
subsidiaries of public sector banks mainly offer merchant banking and other capital
market services. There are also several others who are providing only corporate
advisory services but prefer to hold merchant banking or underwriting registrations.
Presently, there are no global Indian investment banks although there is a bulge
bracket of investment banks in India that have some overseas presence to serve Indian
issuers and their investors. At the middle level are several niche players including the
merchant banking subsidiaries of some public sector banks. Some of these
subsidiaries have been either shut down or sold off in the wake of two securities scam
seen in 1993 and in 2000. However, certain banks such as Canara Bank and Punjab
National Bank have had successful merchant banking activities. Among the middle
level players are also merchant banks structured as non-banking financial services
companies such as Rabo India Finance Ltd, Alpic Finance etc. There are also in the
middle level, some pure advisory firms such as –Lazard Capital, Ernst & Young,
KPMG, Price Waterhouse Coopers etc. At the lower end are several niche players and
boutique firms, which focus on one or more segments of the investment banking
spectrum.

Service Portfolio of Indian Investment Banks

Core Services

Merchant Banking, Underwriting and Book Running

The primary market which was quite small in India, was revitalized with the abolition
of the Capital

Issues (Control) Act 1947 and the passing of the Securities and Exchange Board of
India Act, 1992. The SEBI functions as the regulator for the capital markets similar to
its counterpart, the SEC in USA. SEBI vide its guidelines dated June 11, 1992
introduced free pricing of securities in public offers for the first time in India. Over
the last ten years, there have been two distinct phases of primary market boom –the
first between 1992-1996 and the second between 1998-2001. The third wave of
primary market issues could shape up in the near future. This market is very closely
regulated by SEBI. In the days when the public offers market is very vibrant, this area
of service forms the main activity for most Indian investment banks. In the past few
years, though public offers have been very few, the private placement market
especially in the debt segment has been very active and has served as an important
source of funds for prime-rated corporates. Notable among such offerings are related
privately placed debentures issued by public sector corporations and leading private
companies. Financial institutions have been raising funds via the public offers and
hand holding them in the private placements as well. Once the private placement
markets also come under regulatory stipulations, investment banks would have a
wider role to play in such issuances.

Mergers and Acquisitions Advisory

The mergers and acquisitions industry was pretty nascent in India prior to 1994 and
continues to be tiny compared to the global scale of such transactions. However, two
main features that have given a big push to this industry are:

 The forces of liberation and globalization that have forced the Indian industry to
consolidate.
 The institutionalization of corporate acquisitions by SEBI through its guidelines,
popularly known as the Takeover Code.
One of the cream activities of investment banks has always been M&A advisory. The
larger investment banks specialize in M&A as a core activity. While some of them
provide pure advisory services in relation to M&A, others holding valid merchant
banking licenses from SEBI also manage the open offers arising out of such corporate
events.

 Corporate Advisory

Investment banks in India also have a large practice in corporate advisory services
relating to project financing, corporate restructuring, capital restructuring through
equity repurchases (including management of buyback offers under section 77A of
the Companies Act, 1956), raising private equity, structuring joint-ventures and
strategic partnerships and other such value added specialized areas.

 Support services and Businesses

Secondary Market Activities

Most of the universal banks such as ICICI, IDBI and Kotak Mahindra have their
broking and distribution firms in both the equity and debt segments of the secondary
market. In addition several other investment banks such as the IL & FS and pure
investment banks such as DSP Merrill Lynch and JM Morgan Stanley have a strong
presence in this area of activity. In the past few years, the derivatives segment has
been introduced in Indian capital market and this provides an additional avenue of
specialization for investment banks. Derivatives trading, risk management and
structured products offerings are the new segments that are fast becoming the areas of
future potential for Indian investment banks. The securities business also provides
extensive research offerings and guidance to investors. The secondary market services
cater to both the institutional and non-institutional investors.

 Asset Management Services

Most of the top financial groups in India which have investment banking businesses
such as the –ICICI, the IDBI, Kotak Mahindra, DSP Merrill Lynch, JM Morgan
Stanley, SBI and IL & FS also have their presence in the asset management business
through separate entities. As per the three layer structure propounded by SEBI, the
parent organization acts as the sponsor of the fund and the fund itself is constituted as
a trust. The trust is managed by an asset management company and a separate trustee
company which oversees the interests of the unit holders in the Mutual Fund. The
whole structure has as arm’s length distance from the sponsor’s other businesses and
entities.

 Wealth Management Services (Private Banking)

Many reputed investment banks nurture a separate service segment to manage the
portfolio of high networth individuals, households, trusts and other types of non-
institutional investors. This can be structured either as a pure advisory service wherein
the investment manager does not have any access to the funds or as a fund
management service wherein the investment manager is given charge of the funds. In
the former case, it becomes a non-discretionary portfolio and in the latter case, it
becomes a discretionary portfolio. Such activity is regulated under the SEBI
guidelines as already discussed. In other cases, wealth management may be restricted
to a research based activity wherein the investor is provided good investment
recommendations from time to time.

 Institutional Banking

Institutional investors have been a recent phenomenon in the Indian capital market,
which till then had the presence of a handful of public financial institutions such as
the UTI and the insurance companies. The term lending institutions such as the IDBI
and IFCI did not participate in secondary market dealing as a matter of policy. With
the advent of liberalization, there are presently a large number of domestic
institutional investors in the secondary market apart from approved foreign
institutional investors. In addition, institutional investments have risen significantly in
the primary markets through venture capital and private equity investments by
investors in both the domestic and non-domestic categories. Several of the leading
investment banks either have dedicated venture funds or private equity funds that
invest in primary market. In addition they make proprietary investments in the
secondary market through their dealing and market activities. The business portfolio
of Indian Investment Banks has been briefly discussed in Fig.

 Interdependence between Different Verticals in Investment Banking

As is evident from Figure , there are different verticals in investment banking and
they do enjoy synergies with one another. While some of the service or business
segments form the core of investment banking, others provide invaluable support.
This inter-dependence and complementary existence has been explained below.

While merchant banking largely relates to management of public floatations of

securities or reverse floatations such as buy backs and open offers, underwriting is an
inherent part of merchant banking for public issues. Similarly, bought out deals and
market making are a part of the process of floating issues on the OTC Exchange of
India. The concept of market making has now been introduced for listing of certain
scrips in the main stock exchanges as well. Advisory and transaction service have a
close linkage with merchant banking as more often than not, such services culminate
in a merchant banking assignment for a public issue or a reverse floatation. Such
services also help in maintaining an enduring relationship with clients during those
times when merchant banking is not a hot activity due to depressed market conditions.
The other segment of primary market activity, i.e. venture capital and private equity
has equal synergies with merchant banking. Being in venture capital business which
enables identification of potential IPO candidates quite early, which helps not only in
generating good fee income from merchant banking services, but also good in capital
gains for the venture capital invested at earlier rounds of financing in such companies.
Similarly, being in private equity business helps in harnessing the potential offered by
later stage and listed companies, which may approach an investment bank primarily
for merchant banking services.

The support business vertical in the secondary market operations also have synergies
with those in the primary equity and debt market segment as far as investment
banking is concerned. Stock broking and primary dealership in debt markets nurture
institutional, corporate and retail clients who can be tapped effectively for asset
management, portfolio management, and private equity business. In addition,
presence in the equity derivative and foreign exchange derivatives segments can help
in offering solutions in treasury management to clients. In addition, the advisory and
transaction services vertical can draw expertise from such segments in providing
structured financing solutions to its clients. All these verticals are driven by support
services such as sales and distribution and also equity research and analysis. Lastly
but more importantly, the capability in sales and distribution also determines the
success of the merchant banking vertical.

Thus, it may be seen that the growth and success of an investment bank depends on its
strengths in each vertical and how well it combines them for synergies. To sum up,
investment banking is a business that is very sensitive to the economic and capital
market scenario and therefore, the broader the platform of its operations, the more is
likelihood of an investment bank surviving business cycles and sudden shocks from
the market.
CHAPTER 4

REGULATORY FRAMEWORK FOR INVESTMENT BANKING

Investment banking in India is regulated in its various facets under separate

legislations or guidance issued under statute. The regulatory powers are also
distributed between different regulators depending upon the constitutions & status
of the investment bank. Pure investment banks which do not presence in the lending
or banking business are governed primarily by the capital market regulator i.e. SEBI.
However universal banks & NBFC investment banks are regulated primarily by the
RBI 9in their core business of banking or lending & so far as the investment banking
segment is concerned, they are also regulated by SEBI. An overview of the regulatory
framework is furnished below:-

1. At the constitutional level, all investment banking companies incorporated under

the Companies Act 1956 are governed by the provision of the act.

2. Investment banks that are incorporated unde4r a separate statute such as the SBI
or the IDBI are regulated by their respective statue. IDBI is in the process of being
converted into Companies Act.

3. Universal Banks are regulated by RBI of India under the RBI Act 1934 & the
Banking Regulation Act which put restrictions on the investment banking exposures
to be taken by the banks. The RBI has relaxed the exposure limits for merchant
banking subsidiaries of the commercial banks. Till now, such companies were
restricting their exposure to a single entity through the underwriting business &
other fund based commitments such as standby facilities etc. to 25% of their net
owned funds. Therefore these companies are now on par with 19 Investment
Banking other investment banks which can do so upto 20 times their net owned
fund.

4. Investment banking companies that are constituted as non-banking financial

companies are regulated operationally by the RBI under Chapter IIIB section 45H &
45QB of the RBI Act, 1934. Under these sections RBI is empowered to issue
directions in the area of resources mobilization, accounts & administrative controls.
The following directions have been issued by the RBI so far: Non-Banking Financial
Companies Acceptance of Deposits (Reserve Bank) Directions, 1998. NBFCs
prudential Norms (Reserve Bank) Directions, 1998.

5. Functionally, different aspects of investment banking are regulated under the

securities & Exchange Board of India Act, 1992 & the guidelines & regulations issued
under. These are listed below: Merchant banking business consisting of
management of public offers is a licensed & regulated activity under the SEBI Act
(Merchant Bankers), 1992. Underwriting business is regulated under the SEBI
(underwriters) Rules & Regulations, 1993. The activity of secondary market
operations including stock broking are regulated under the relevant by-law of the
stock exchange & the SEBI (stock broker & sub broker) Rules & Regulations, 1992.
Besides for restricting unethical trading practices, SEBI has issued the SEBI
(Prohibition of fraudulent & unfair trade practices relating to securities markets)
Regulations 1995& also SEBI prohibited insider trading under regulations, 1992. 20
Investment Banking The business of asset management as mutual funds is regulated
under the SEBI (Mutual Fund) Regulations, 1996. The business of portfolio
management is regulated under the SEBI (Portfolio mangers) Rules & Regulations,
1993. The business of venture capital & private equity by such funds that are
incorporated in India is regulated by the SEBI(venture capital) Regulations,1996 & by
those that are incorporated outside India is regulated under the SEBI ( Foreign
venture capital funds) Regulations,2000. The business of institutional investing by
foreign investment banks & other investors in Indian Secondary markets is
governed by the SEBI (Foreign Institutional Investors) Regulations 1995.

6. Investments banks that are set up in India with foreign direct investment either as
joint ventures with Indian partners or as fully owned subsidiaries of the foreign
entities are governed in respect of the foreign investment by the Foreign Exchange
Management Act, 1999& Foreign Exchange Management (Transfer or issue of a
person resident outside India) Regulations 2000 issued there under as amended
from time to time through circulars issued by the RBI.
7. Apart from the above specific regulations relating to investment banking,
investment banks are also governed by the other laws applicable to all other
underwriting support on government securities issue & participate in auctions held
by the RBI.
CHAPTER 5

The Typical Hierarchy/Ladder within an Investment Bank

The basic hierarchy works in the following way

At the lowest level there are interns.

They are responsible for all the
imaginable variety of tasks – from
building Excel models to ordering
dinner. Then there are analysts –
pretty much the same story, except
that they also have interns to boss
around. Once the analysts get
promoted, they move to associate
level. They start managing the clients
and deal execution process. In a few
years they get a shot for promotion to
VP (vice-president) and later –
Director level. This is when the real
fun starts. At senior positions
bankers mostly focus on client
relationships and management of
their subordinates. Highest position
is Managing Director (MD). He is
the ultimate rainmaker – bringing in
new business and overseing the
entire division of the investment
bank.

Investment banking career path is

pretty much universal in the industry.
Some banks distinguish between VP and Senior VP, or Director and Senior Director,
but ultimately the way up the career ladder is standardised.
I drafted the outline in the infographics below. That should give you a basic idea on
what to expect if you are planning to break into investment banking world. Keep in
mind that this is only the basic snapshot – exact responsibilities, compensation and
time to promotion differ by individual bank, division, team and – of course – luck.

INTERN

What do you do: It all starts here. You get a real taste of investment banking. Long
working hours, hard work, a lot of time understanding and mastering Excel and
Powerpoint. Multiple projects at once. Essentially, your main task is to assist analysts
or associates on whatever they ask for. This can vary from drafting slides to printing
pitch books or building a mini-valuation model.

Expect around 55% of your time working on slides, 15% on Excel and 30% on
general administrative crap. Exact work varies case by case of course. There will be
some interns going insane with 6 projects at once and some joggling around two big
deals and leaving early. Your intern workload will be a matter of luck.

Typical tasks: Look through the annual reports of 10-15 companies, find financial
data and input it in the Excel model to calculate multiples. Research market
information and draft a slide based on the layout suggested by your analyst. Contact
15 people to get biographies of specific team members and create a “Team” slide.

How much do you work: 9am to 2am is standard. Sometimes (rarely) you will be able
to finish around 12am. Sometimes (often) you won’t leave the office until 4am.
Expect at least a few all-nighters per month (see more coverage
on investment banking hours here).

How much are you paid: In most countries you earn as much as the first year analyst
(without the bonus). This should amount to at least $1.2k per week in global offices.
Take a careful look at the local offices: those outside financial hubs like NY or
London can often list a much smaller salary (for the same amount of work). In
Netherlands I was paid an equivalent of $1.1K per month where for the same
internship in London I was receiving $5k per month. On top of base salary you will
also be eligible for a number of perks – paid dinners after 9pm, late cabs home, and
sometimes even transport expenses or relocation reimbursements.
How long will it take to get promoted: 2-3 months in UK and US. Internships cycles
there are fixed. By the end of the term you will notified if you are offered a full-time
position. The tricky part starts with local offices. Those are pure evil. Be it Frankfurt,
Moscow, Amsterdam or Milan – they love to do one thing. Extend your internship.
And then again. It carries on to the point where you are expected to work as an intern
for 3 months and end up there for a year. I knew people who managed to change three
internship positions – slowly but surely being sucked into “indefinite internship”.

ANALYST

What do you do: You are in. Amazing. Don’t think your job will be much different
from internship times. Actually, as a first year analyst it is pretty much the same. Most
of your time will be devoted to preparing pitch books (gathering
information and drafting long presentations). As you progress you will be given more
responsibility. You might be asked to build you own Excel model or create a pitch
book skeleton.

Analyst position is probably the hardest and most demanding position time wise. You
still have to engage into multiple activities and take care of a huge pile of stupid
administrative tasks. As the same time, you have more responsibility. You are
expected to efficiently coordinate the work on the project (and the interns), quickly
produce high-quality output and proactively come up with good ideas and project
suggestions. Tough. Expect 30% Excel work, 50% Powerpoint, and 20%
administrative tasks (scheduling conference calls, arranging meetings, printing pitch
books or making travel arrangements).
Typical tasks: Building DCF valuation model from scratch for one of the
clients. Calculating the value of the company. Preparing presentation deck and
drafting slides.

How much do you work: Similar to interns times, first year analyst come in around
10am and leave after 12am. The more you progress in your investment banking career
path, the better your hours will be. At the level of second-year analyst you are likely
to get more help from interns too – so your job will begin to move away from boring
administrative duties to more exciting pitching and deal work.
How much are you paid: Expect a starting salary of at least $85K per year and a
bonus of $55k+ (keep in mind the exact numbers vary by the bank, your team and
individual performance).

How long will it take to get promoted: In three years you should be promoted
to associate position. After two years you will be critically evaluated and a decision
will be made if you stay in the bank. If so, you will work for one more year before
reaching associate level. A common statistic is that only 10% of the investment
banking analysts are promoted to associates. It is about right – but keep in mind the
number is so low because 80% of the analysts choose to move elsewhere.

ASSOCIATE

What do you do: in associate role you are still occupied with execution, but devote
much more time to project management. You act as a bridge between analysts and
seniors (VPs and Directors).

The array of your tasks will get more diverse at this level: 10% Excel, 20%
checking analyst work, 40% project management, 15% client
management, 15% administrative tasks (analyst recruiting, prep for
conference calls). This is the first time in your career you will have time and
responsibility to start interacting with clients and attend meetings.
Typical tasks: Check a set of multiples prepared by the analyst – and come up with
ideas on how to boost the valuation by adding a few other companies. Look
for additional revenue opportunities for the client. Lead the conference call with client
team on the findings.

How much do you work: Associates come in after 9am (I even knew one that never
showed up before 11am). They also leave before 11pm, but often come in on either
Saturdays or Sundays to finish some work. Despite long hours associates lifestyle is
marginally better than that of analysts. They have time to have longer lunch breaks or
even hit the gym in the evening. Occasional all-nighters happen but are incredibly
rare. 70-80 hours work week is standard.

How much are you paid: your overall compensation (bonus included) will start at
around $200k yearly and can go up to as much as $400k-$500k depending on the
bonus.
How long will it take to get promoted: 3.5 years if you are eligible. Promotion to the
VP level is not automated. You will be evaluated on a number of skills before being
offered a Vice-President position. Generally the bank will be looking for great project
management skills, good relationships with the clients, understanding of the industry
and technical aspects of the job.

VICE-PRESIDENT (VP)

What do you do: This is where it starts getting interesting. You are responsible for
deal execution and all the marketing work (pitches). You need to manage associates
and analysts to ensure the work is being done properly and on time – at the same
working on relationship building with the clients.

This why the role of a VP is probably the most challenging one in the bank. Besides
execution and everyday management activities you need to start winning clients if you
want to progress further in your career. Expect to spend 60% of your time on deal
execution and project management, and 40% on client management.
Typical tasks: Lead a meeting with a client where you present bank’s proposal. Draft
the outline of the upcoming pitch deck and explain to analysts / associates what needs
to be done. Anticipate a market development that can present an opportunity for the
bank and start proactively working in this direction.

How much do you work: Your hours keep getting better. You start around 9am but
usually leave before 9pm. Often VPs have to work at weekends too, but they
usually do it from home.

How much are you paid: compensation will start at $200k, and you should be able to
get the same amount in bonus.How long will it take to get promoted: can be two years
– and can be never. Many VPs are stuck in the position indefinitely. For you to be
able to move on to the next level you need to show your excellent deal execution
skills and ability to bring in new clients. Transition to Director level is incredibly
difficult. Goldman Sachs alone has more than 12,000 VPs – and only 300 or so
Managing Directors.
DIRECTOR / MANAGING DIRECTOR

What do you do: at this level your job is only about clients. Directors are rarely
involved in execution. They oversee and control the overall process but spend very
little time on it. Their task is to bring in new business.

Typical tasks: Fly around the globe to meet companies. Proactively approach
businesses to win deals. Position yourself to advise CEOs and spot developments in
the market that can potentially turn into new business.

How much do you work: Directors have a lifestyle that more often resembles
“normal”. They usually come in quite early, before 9am, and leave around 6-7pm.
They never show up on weekends, although they do work from home (which as an
analyst you can see from early emails Saturday morning). Despite shorter hours
travelling is a huge part of MD’s usual activities. A typical schedule of an MD would
be something like breakfast in Amsterdam with CEO of Shell and afternoon board
meeting somewhere in Oslo. At least three out of five days will be spent on the road.

How much are you paid: salaries start from around $300k without a bonus. The upper
potential is unlimited. There are MDs who get salaries close to their base
compensation, and there are some that manage to make millions in a year.

How long will it take to get promoted: as a Director you are already at the highest
ladder of your career. In some firms, you can also a become a Partner. Your
responsibilities will not change – but your compensation might increase significantly.
As a Director you can aim at even higher levels – like Group Head, but there is no
straightforward way to reach those. All is dependent on individual merit.
CHAPTER 06

LEADING INDIAN INVESTMENT BANKS.

ICICI Securities Ltd. (I-Sec).

I-Sec is a part of the ICICI group whose parent company is the ICICI Bankm which
till recently was a financial institution that converted itself into a universal bank by it
merger with its own commercial bank, the ICICI Bank in 2003. I-Sec, which was
initially a joint venture with J.P. Morgan of the US, became fully owned by ICICI
after J.P. Morgan exited from the business.

I-Sec is a full service investment bank that provides services across all the segments
spanning –debt market, equity market, derivatives and corporate advisory services. It
has support services in research and broking. The advisory business focuses on
merger and acquisitions, cross border acquisitions, equity and bidding for a number of
reputed companies. The equity business offers research, sales and execution services
to institutional investors in the secondary market and capital market related services
such as execution of public offerings, structuring and regulatory and legal
documentation services.

In order to assist/provide corporate clients and institutional investors with investment

banking services in the USA. I-Sec set up two US based subsidiaries namely ICICI
Securities Holding Inc and ICICI Securities Inc. ICICI Securities Inc registered itself
with the National Association of Security Dealers Inc as a broker-dealer, empowering
it to engage in a variety of securities transactions in the US market.

ICICI Brokerage Services Limited, a member of the National Stock Exchange of

India Limited, is the domestic broking subsidiary of I-Sec’s distribution and
secondary market services are handled by the broking company.

DSP Merrill Lynch Ltd.

Originally incorporated as DSP Financial Consultants Ltd, its name was changed to
DSP Merrill Lynch (DSP-ML) in 1996 following its conversion into a joint venture
with Merrill Lynch of USA, a leading international capital raising financial
management and advisory company. Merrill Lynch has a 40% equity stake in DSP-
ML. DSP-ML is a part of the DSP group which has been in the securities and
brokerage business for 130 years in the Indian market, thus pre-dating even the
Bombay Stock Exchange.

DSP-ML is a leading full service Investment Bank that provides services across debt
market, equity market and corporate advisory segments. It also provides services to
private customers on equity and debt products and wealth management. It has a full
fledged research team serving the needs of both its institutional and retail clients. The
company is among the major players on proprietary account in the debt and equity
markets and is also a registered primary dealer in government securities.

The functional divisions at DSP-ML consist of the –Investment Banking Group, the
Equity Sales Group, the Equity Trading and Dealing Group, Debt Sales Group, the
Mergers and Acquisitions Group, the Research Group and the Private Client Group.
The investment banking group generates equity and debt products emerging from
IPOs, secondary issues and debt market issues as well as private placements. It is also
a leading underwriter in both equity and debt products. These products are distributed
through the equity sales group and the debt sales group. Both the marketing groups
serve a cross section of institutional clients, other non-institutional clients such as
trusts and investment companies, retail clients and overseas investors. The sales
groups also distribute apart from their own products, the products emerging from
other entities such as DSP Merrill Lynch Mutual Fund and other mutual funds. The
sales groups are supported by a national distribution networking comprising of
approximately 8000 sub-brokers and alliance partners.

The trading and dealing groups support the broking activity in equities and the
primary dealership activities in the debt market. DSP-ML, is one of the largest
institutional broking firms in India. It is a founding member of The Stock Exchange,
Mumbai (BSE) and is an active member of the National Stock Exchange (NSE) of
India in both the equity segment and the wholesale debt market segment. It is an
accredited primary dealer with the RBI and an active participant in the Government
Securities/Treasury bill markets. As a primary dealer, it makes a market for debt
securities by offering to buy and sell quotes. These quotes are also available on wire
services like Reuters, Crisil Market wire, Bloomberg and Dow Jones Newswires.
The mergers and acquisitions advisory has been structured as a separate specialist
group that offers their clients financial advice and assistance in restructuring,
divestures, acquisitions, de-mergers, spin-offs, joint ventures, privatization and
takeover defense mechanisms. The research group offers products such as –sectoral
reports, company reports and special theme analyses, daily, weekly and monthly
market views as well as specific policy forecasts. The private client group offers
depository, broking and investment advisory services to high net worth individuals,
professionals and promoters of business groups, corporate executives, trusts and
private companies.

In 1996, the DSP group floated a separate equity broking company called DSP
Securities Ltd. which is a member of the BSE.

JM Morgan Stanley Pvt. Ltd.

JM Morgan Stanley (JMMS) is a joint venture between the JM Financial Group and
Morgan Stanley Dean Witter of the USA. In 1997, Morgan Stanley which was
established in New York in 1935, had acquired Dean Witter, an investment bank
founded in 1924 in San Francisco. JM Morgan Stanley commenced operations in
April 1999. However, the association of the two partners is limited only to the
investment banking area. Both of them have separate asset management companies in
India which run independent of mutual fund businesses.

Unlike DSP-ML and I-Sec which have an integrated structure, the JM Group has
separate companies handling various components of the capital market business. The
core functions of investment banking are performed by JMMS. This company focuses
on capital raising, mergers and acquisitions, private equity and advisory work for
Indian corporations in both the international and domestic capital markets. The
function of distribution and marketing securities is handled by two of its wholly
owned subsidiaries –JM Morgan Stanley Retail Services Pvt. Ltd. (JMRS) and JM
Morgan Stanley Fixed Income Securities Pvt. Ltd. (JMFI). JMRS provides equity
distribution services for primary market products, mutual funds, equity sales and
marketing support for the group broking activity and wealth management and
portfolio management services to high net worth individuals. JMFI offers similar
services in fixed income (debt) securities. A third company, JM Morgan Stanley
Securities Pvt. Ltd. handles all the broking operations for the group and provides
services to institutional clients and others. It also provides research support for both
FII and Indian institutional clients.

SBI Capital Markets Ltd

Founded in 1986 as a hive-off of the SBI Merchant Banking division, SBI Capital
Markets Ltd. (SBI Caps) is amongst the oldest players in the Indian capital market. It
is a full service investment bank that provides investment, advisory and financial
services. In 2001, SBI Caps started its sales and distribution activity along with equity
and debt broking services.

SBI Caps provides services across the following spectrum:

 Mergers and Acquisitions: This group provides advisory services with regard
to disinvestment of the government, valuations, mergers and acquisitions in
the corporate sector, financial and business restructuring and other areas.
 Project advisory and structure finance: It is arguably one of the leading groups
in the company that provides services such as restructuring and privatization
advisory for public utilities, policy advisory to Central and State Governments,
regulatory bodies and government departments and organizations, project
structuring and advisory to the private sector and arranging finance for such
projects. SBI Caps has been a major player in governmental work and in the
infrastructure sector. The project advisory services consist of hand-holding
from the concept to commissioning stage involving project structuring,
contract structuring, financial modeling, preparation of information
memorandum, syndication of debt and equity and assistance in documentation
and financial closure. Other services include appraisals for green-field and
brown-field projects, techno-economic appraisal from banks and financial
institutions for establishing the viability of corporate restructuring plans, and
vetting of contracts, loan documents, project documentation etc.
 Capital market: This group provides merchant banking services in connection
with public issues, rights issues and public offers for buy-backs and open
offers. It also advises clients on the private placements, ADR and GDR issues
and overseas bond issues by the SBI.
  Treasury and Investments: This group deals with the proprietary investment of
the company in the equity, debt and money markets. Resource mobilization
and management is also undertaken by this group.
 Broking of Equity and Debt: SBI Caps is a registered broker and a member of
the NSE in the equity and wholesale debt segments and is also a member in
the equity segment. The broking group caters to the secondary market needs of
financial institutions, FIIs, mutual funds, banks, other corporates, high net
worth individuals, non-resident investors and retail investors. The company
commenced wholesale debt market broking in 2001. The company expects to
have a strong presence in institutional broking. The company plans to open a
derivative trading desk soon.
 Sales and Distribution of equity and mutual fund products: SBI Caps has been
a leading mobilizer of funds both for public offers and private placements.
 Research: This group provides the research support for in-house departments
and for institutional clients. Besides regular updates on companies and
industries, the research group brings out India Strategy, Debt Market Review
and Daily Debt Market review which are circulated to SBI Caps investment
banking and broking clients.
In its annual report for the year ending March 31, 2002, SBI Caps reported that is has
two business segments –(a) Fee based segment providing merchant banking and
advisory services like issue management, underwriting, arranger, project advisory and
structured finance. (b) Fund based segment which undertakes deployment of funds in
leasing, hire purchase and securities dealing. However, as a result of SEBI directives,
fresh lending under leasing and hire-purchase was stopped from 1st July 1998. For the
period 2001-02, SBI Caps was ranked first among issue managers by PRIME
database.

Kotak Mahindra Capital Company

Born in 1995 as part of a corporate re-organization as an unlimited company. The

Kotak Mahindra Capital Company (KMCC), is the investment banking entity
belonging to the Kotak Mahindra Group. It is a strategic joint venture between Kotak
Mahindra Bank Limited (KMBL) and the Goldman Sachs Group LLP of USA.
KMCC is a full service investment bank whose core business centers on equity
issuances and fixed income securities, mergers and acquisitions and advisory services.
As an investment bank, KMCC is registered with SEBI and is also registered as a
non-banking financial company with RBI. It is also an active member of the
association of Merchant Bankers of India (AMBI). KMCC has two wholly owned
subsidiaries –(a) Kotak Mahindra (UK) Limited, which is registered with the
Securities and Futures Association, UK and regulated by the Financial Services
Authority, UK and (b) Kotak Mahindra Inc based in USA, which is registered with
the Securities and Exchange Commission, USA. KMCC is the first Indian investment
bank to have sought such regulations in USA and UK. A third company called Kotak
Mahindra (International) Limited., based in Mauritius provides distribution and other
client services to non-resident investors.

In KMCC, the Equity Capital Markets group focuses on structuring and executing
diverse equity financing transactions in the public and private markets for corporates,
banks, financial institutions and the Government. Products include initial public
offerings (IPOs), rights offerings, convertible offerings, private placements and
private equity for unlisted and listed companies. In the advisory business, the
Structured Finance (Project Finance & Advisory Business) Group provides expertise
in various vertical segments in the infrastructure sector including power, oil, gas,
ports, automobiles, steel & metals and hotels by offering structured finance solutions
to clients. The Fixed Income Securities Group at KMCC advises PSUs, Government
companies, financial institutions, banks and corporates on raising capital by way of
public or private placement of debt. KMCC is credited with innovating on some bond
structures in the Indian market. The advisory group on mergers and acquisitions
provides complete solutions on strategy formulation identification of targets or
buyers, valuation, negotiations and bidding, capital structuring, transaction
structuring, assistance in legal documentation and acquisition financing strategies and
implementation.

KMCC is supported in its functions by Kotak Securities Ltd, a broking firm

incorporated in 1995 that is also a joint venture with Goldman Sachs which handles
all the broking, distribution and research business of the group. Kotak Securities is a
member of the debt segment of the NSE and is also a member of the National Stock
Exchange Members Association. Kotak Securities offers services to investors,
financial institutions, mutual funds, religious and charitable trusts, insurance
companies, etc. The institutional business division has a comprehensive research cell
with sectoral analysts covering all the major areas of the Indian economy. In the
international arena, it provides brokerage services on the Indian securities to
institutional and other investors who are based outside India. Due to its overseas
presence, the company has marketing interests in Indian GDR and ADR issues as
well.

The research products brought out by Kotak Securities include:

 For the institutional clients, a product called AKSESS, which primarily covers
secondary market broking. It caters to the needs of foreign and Indian
institutional investors in Indian equities (both local shares and GDRs).
 The Daily Forex Monitor which tracks the Indian and international foreign
exchange markets and opines on currency strategies on a daily basis.
 The Weekly Money Market Update which gives the details of the developments
in markets and provides a short-term interest rate view along with indicative
pricing for Triple A credits.
 The CURRENCY WATCH captures the monthly developments in the Indian
foreign exchange markets, analyses the key influencing issues, assess future
outlook and also recommends hedging strategies.
 Monthly FINSEC and FINSEC Focus.

Kotak Securities is also a registered primary dealer with the RBI in the government
securities market. As a primary dealer, the company acts as a market maker and also
provides two way quotes, acts as retailer and marketing agent, provides underwriting
support on government securities issues and participates in auctions held by the RBI.

Besides, the above companies, the Kotak Group includes the Kotak Mahindra Bank
which was formerly a non-banking finance company that has recently been converted
into a bank, the Kotak Mahindra Mutual Fund which is managed by the Kotak
Mahindra Asset Management Co. Ltd and the OM Kotak Life Insurance, which is a
joint venture with Old Mutual Plc of UK and the Kotak Mahindra Venture Capital Co.
which manages the private equity fund of the group.
Avendus Capital:

An investment bank providing mergers and acquisitions, fixed returns,

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

Bajaj Capital

The Bajaj Capital Group is one of the renowned Investment consultant and
Financial Planning firms in India. It is certified under the Category I of Merchant
Bankers by SEBI. Bajaj Capital provides custom-made Fiscal Planning facilities and
investment consultation to the investors, organizational investors, corporates, high
income patrons and Non-Resident Indians (NRIs).

Being one of the biggest distributors of economic goods, Bajaj provides an

extensive range of investment schemes such as general insurance, life insurance,
mutual funds, etc to both public and private institutions.

cholamandalam investment & finance company

a combined fiscal service provider of three firms namely cholamandalam dbs

finance limited (cdfl), dbs cholamandalam distribution limited and dbs
cholamandalam securities limited, cholamandalam dbs operates in 16 international
markets. dbs provides an extensive range of facilities to small and medium sized
enterprise, corporates, customers and comprehensive banking activities across middle
east and asia.

IDFC

Initiated in 1997 in Chennai, IDFC undertook the responsibility of providing

financial support to 332 projects accruing a profit of upto Rs 2, 20, 400 million. The
sectors under IDFC's financial assistance are infrastructure, agri related business,
transportation, healthcare, tourism and others.
SBI Capital Markets

SBICAPS is India's foremost investment bank and project consultant, aiding

local firms in capital enlistment endeavors for last many years. The firm started it
operations in 1986 and is an entirely owned subordinate of the State Bank of India.
Asian Development Bank (ADB) possesses 13.84% stakes in equity segment of
SBICAPS.

Tata Investment Corporation Limited (TICL)

A non-banking financial company (NBFC), TICL is listed with the Reserve

Bank of India under the group of 'Investment Company'. The firm's commercial
activities constitute mainly of endowing in long-standing investments in equity of the
firms in various sectors. The chief source of return for the firm entails income on
investment trading and income accrued on dividend.

Yes Bank

This Investment Banking association is engaged in the classification,

arrangement and implementation of deals for their clients in varied sectors and
nations. Some of the archetypal transactions incorporate divestitures, private equity
syndication, mergers & acquisitions and IPO consultation.

UTI Securities Ltd

Endorsed as a self-regulating professional body in 1994, UTI Securities Ltd., is

one of the renowned investment bank of India. After the termination of Unit Trust of
India (UTI) Act, the total share fund of UTISEL is now controlled by superintendent
of particular enterprise of UTI. The firm has been offering all sorts of investment
associated activities which incorporates investment banking and corporate
consultation facilities.