Primarily, investment banking firms in India aim at raising capital and providing financial consultancy services to companies, governments, and other entities. Let’s understand their key services in detail.
An investment banking firm provides various types of financial services, such as proprietary trading or trading securities for the clients. It helps companies evaluate capital markets to raise money and take care of other business requirements. But the point is what makes an investment bank so special?
For this, we need to understand the functioning of Normal banks that lend money to clients on a fixed interest rate, which isn’t personalized, and strictly follows the regulations and limitations in terms of the amount a bank can lend to a company or business. This might not go well for many start-ups who expect huge capital. This is when the need of an Investment banking firm comes in. They support in the following services:
Investment banking firms ensure their clients with an efficient assistance of the necessary knowledge about the risks and benefits of investment they are planning for their money in a particular company or organisation.
There are various investment banking firms in Gurgaon who offer promising services and act as an intermediary between the company and the investor by increasing the financial capital that includes acquisitions or mergers. Such Investment banking firms in Mumbai and other metros from pan India are specialized in serving the companies of different sizes as they know the market scenario and are efficient in suggesting the right approach towards investment possibilities.
The process of investment advice undergoes detailed investigation about the project, which has been provided by the client. Only then can a client be assured about potential growth and safety of the investment money, this helps in minimizing the risks associated with the proposed project or deal.
Investment banks employ highly competent professional, based on the hierarchy. These professionals include investment banking analysts, investment banking associates, vice presidents, directors or vice presidents, and managing directors. Based on their expertise, the staff members work on different projects and work hard for long hours to make the deal work for the parties involved.
Most of the times, investment bankers raise capital by using multiple methods as a combined strategy. Here are some of the services offered by the financial professionals:
Being an underwriter, investment banking firms basically plan the entire public issue. Based on the necessary capital requirement, and by understanding the need of the client who wants to raise the capital, etc. Alongside, they do in-depth study of the market conditions, this includes analysis of market conditions, target market, and investor’s risk-taking capacity, sensitivity, economic and political conditions, etc. Finally, based on the complete analysis, the investment banking firm forms a structure of the public issue and launches it once it's approved by the client.
Seven investment banks have underwritten Tata Steel Ltd's proposal to raise Rs.3,385.80-3,477 crore from the public by issuing 57 million shares in the price band of Rs.594-610. The objective behind buying the unsold shares was to ensure that India's largest steel maker can raise the amoount.
The deal was that each bank of the seven banks will buy unsold shares of worth Rs.557.14 crore that adds up to Rs.3,899.98 crore. The seven banks comprise of Kotak Mahindra Capital Co. Ltd, Citigroup Global Markets India Pvt. Ltd, Deutsche Equities India Pvt. Ltd, HSBC Securities and Capital Markets (India) Pvt. Ltd, RBS Equities India Ltd, Standard Chartered Securities (India) Ltd and SBI Capital Markets Ltd.
Mergers & Acquisitions hold a major scope among other services offered by investment banking firms. Types of mergers and acquisitions include – Mergers, Acquisitions, Tender Offers, Leverage Buyouts, Consolidations, etc. Hence, for any investment banking service provider, this segment has large weightage and scope. There are many technicalities and consent that has to go smoothly between the two entities especially in an M&A transaction. For both sides it's a crucial task to close as each one hires its own investment bank firm as advisors to get the maximum value for their shareholders.
Vodafone Idea Merger: Amid the entry of Reliance Jio and the price war, the merger between Idea and Vodafone worked for both. Finally, Vodafone acquired 45.1% stake in the combined entity with the Aditya Birla group holding a 26% stake and the remaining by Idea. And Vodafone Idea revealed their new branding as ‘Vi’ which was a successful integration of the two entities.
AOL and Time Warner: One of the biggest disasters of M&A in the history, initially the AOL and Time Warner merger was considered to be a breakthrough and seemed to create innovative synergies and outcomes. The deal was signed in 2000 for a huge amount of $350 billion, but after two years later the merged company reported loss of $99 billion. It was a huge setback for both the parties involved.
As per the reports, the merger of the two giants was not successful due to different company culture. AOL was too aggressive for Time Warner that followed traditional corporate culture. The deal later on became a resentment, which was exactly the opposite of synergies they were expecting. Hence, due to economic recession this deal led to s dissolution of merger in 2009.
The most important aspect to note down is the transactions done by investment banks are very much different from the other brokerage houses. They are different due to the following reasons: Firstly, the investment banking firms strictly entertain large investors, who have huge capacity to make high-value transactions, whereas, brokerage houses do not limit their services to only big investors, they are equally dedicated to serve even a small investor.
Secondly, the flow of the transaction of an investment banking firm is that an investor follows the advice of the firm at every step of the process, on the other hand, in brokerage houses the brokers are dependent on the investors for the follow up process of the transaction.
Asset management is a heavy weightage service offered by the investment banking firms. In many cases, these firms serve personalized solutions for the asset managers to their clients. Some of the major clients for this service includes large insurance companies, government provident fund departments, and more. Investment banking firms create an efficient portfolio for their client, which results in maximum returns for a particular risk or project they deal in, which is bearable for the client. In most of the cases, the assets considered to be managed are large, also, the investment banking firm charges a commission, which is a mutually decided percentage based on the asset under management.
Under this process private equity is included, as it is a type of private financing. Capital from a big investor or firm is an example of this equity financing. Venture capital investments, is another popular investment for start-ups, also a way to secure equity financing in exchange for an equity stake. Any Investment bank can act as an intermediary to connect companies with private investors or go with venture capital. With the help of IPOs, huge companies like Facebook and Google have raised billion dollars capital. Therefore, this kind of financing helps the companies to share their profits with investors.
In this process, investment banks assist companies to borrow a loan. For which the companies agree to pay back an amount as per the time, with interest. The process of debt financing is way different from equity financing as the lender holds no ownership right of the company that it is funding to. Therefore, their involvement is zero in business decisions. Once the debt is paid off, the business relationship ends there. However, this process can imply certain restrictions while the company needs to repay the debt.
Research might not be a direct vertical that affects the investment banking firms in India, but it indirectly plays a significant role in order to support the other profit-making divisions. In most of the investment banking firms there is an in-house research department where analysts work on research of equities and other securities so as to come up with suitable solutions. Equity Research resultantly supports the sales and trading department to come up with high-profit trading ideas. The investment banks hire high-quality buy-side and sell-side analysts to come up with accurate equity evaluation that supports the process.
With respect to the above points, please note that even the best investment banking firm in India perform in-depth research in the aspects of macroeconomics, market scenario, credit analysis, political conditioning and other quantitative analysis. This additionally supports all the other profit-making divisions of investment banking firms in building a precise decision. The market conditions are so dynamic that at every point in time they must be analysed to achieve accuracy in solutions.