25-07-2012, 11:45 AM
role of investment banks in indian financial market
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Industry Profile
Financial Market:
Financial markets that function well are crucial for the long-run economic growth of a country. This paper, in the first instance, looks at how the financial development of an economy can be measured. It then traces the financial development of India through the 1990s to the present, assessing the development of each segment of financial markets. In doing so, it highlights the dualistic development of the financial sector. Finally, the paper makes an attempt to offer an explanation of this dualistic development and proposes a road map for the future development of financial markets in India.
We know that business units have to raise short-term as well as long-term funds
to meet their working and fixed capital requirements from time to time. This necessitates not only the ready availability of such funds but also a transmission mechanism with the help of which the providers of funds (investors/ lenders) can interact with the borrowers/users (business units) and transfer the funds to them as and when required. This aspect is taken care of by the financial markets which provide a place where or a system through which, the transfer of funds by investors/lenders to the business units is adequately facilitated.
Financial market may be defined as ‘a transmission mechanism between investors (or lenders) and the borrowers (or users) through which transfer of funds is facilitated’. It consists of individual investors, financial institutions and other intermediaries who are linked by a formal trading rules and communication network for trading the various financial assets and credit instruments.
Investment Banking
Investment banking is the field of banking that helps companies acquire funds. In addition to the acquisition of new funds, investment banking also offers advice for a wide range of transactions that companies may engage in.
Through investment banking, an institution generates funds in two separate 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.
Function of Investment Banking
An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions and provide ancillary services such as market making trading of derivatives fixed income instruments, foreign exchange, commodities, and equity securities.
There are two main lines of business in investment banking.
Trading securities for cash or for other securities
The promotion of securities
An investment bank can also be split into private and public functions with a Chinese wall which separates the two to prevent information from crossing.
The private areas of the bank deal with private insider information that may not be publicly disclosed, while the public areas such as stock analysis deal with public information
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.
Conclusion:
The research brought me to the conclusion that maximum number of investor wants to invest in stock market and they are ready to invest 10-25% of their savings. Most of investors are moderate in nature and they are fascinated towards the high return of Investment Banks. The most attracted feature which investor thinks of investment banks is professional management and diversification of Investment Banks.