AN ASSIGNMENT ON

INVESTMENT BANKING IN INDIA UNDER INVESTMENT AND BANKING LAW

SUBMITTED BY
SUDHANSHU SHUKLA

CLASS- 9TH SEMESTER, B.COM.LL.B (HONS).

OF
FACULTY OF LAW,
Dr. SHAKUNTALA MISRA NATIONAL REHABILITATION
UNIVERSITY, LUCKNOW

UNDER THE GUIDANCE OF

(ASSISTANT PROFESSOR)

FACULTY OF LAW

(Dr. SHAKUNTALA MISRA NATIONAL REHABILITATION UNIVERSITY,

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 ACKNOWLEDGEMENT

I would like to thank my faculty Mr. Shail Shakya for providing me an opportunity to learn
one of the basic concepts of Investment Banking that is Investment Banking in India.

Here, I would also like to thank my friends and well wishers for helping me out in order to
prepare this assignment.

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 INDEX

1) INTRODUCTION………………………………………………………………….....4
2) COMMERCIAL BANKING V. INVESTMENT BANKING………….………….5-6
3) BUY SIDE V. SELL SIDE…………………………...................................................7
4) HEDGE FUNDS……………………………………………………………………..8
5) CONCLUSION…………………………………………………………………….....9
6) BIBLIOGRAPHY…………………………………………………………………...10

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 INTRODUCTION

Investment banking, or Investment banking, as it is often called, is the term used to describe
the business of raising capital for companies. Capital essentially means money. Companies
need cash in order to grow and expand their businesses; investment banks sell securities to
public investors in order to raise this cash. These securities can come in the form of stocks or
bonds, which we will discuss in depth later.

The biggest investment banks include Goldman Sachs, Merrill Lynch, Morgan Stanley Dean
Witter, Salomon Smith Barney, Donaldson, Lufkin & Jenrette, J.P. Morgan and Lehman
Brothers, among others. Of course, the complete list of I-banks is more extensive, but the
firms listed above compete for the biggest deals both in the U.S. and worldwide.

It is important to realize that investment banking and brokerage go hand-in-hand, but that
brokers are one small cog in the investment banking wheel. As we will cover in detail later,
brokers sell securities that a firm underwrites and manage the portfolios of retail investors.

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 COMMERCIAL BANKING v. INVESTMENT BANKING

Before describing how an investment bank operates, let's back up and start by describing
traditional commercial banking. Commercial and investment banking share many aspects, but
also have many fundamental differences. After a quick overview of commercial banking, we
will build up to a full discussion of what I-banking entails.

Although the barriers between investment and commercial banks have essentially been
removed by the recent passage of the Gramm-Leach-Bliley Financial Services Modernization
Act of 1999, we will for now examine the traditional model of the commercial banking
industry and compare it to investment banking. They will then investigate how the new
legislation affects commercial and investment banking organizations. Also, will distinguish
between the buy-side and the sell-side of the securities industry.

While regulation has changed the businesses in which commercial and investment banks may
now participate, the core aspects of these different businesses remain intact. In other words,
the difference between how a typical investment bank and a typical commercial operate bank
is simple: A commercial bank takes deposits for checking and savings accounts from
consumers while an investment bank does not.

Commercial Banks
A commercial bank may legally take deposits for checking and savings accounts from
consumers. The federal government provides insurance guarantees on these deposits through
the Federal Deposit Insurance Corporation (the FDIC), on amounts up to $100,000. To get
FDIC guarantees, commercial banks must follow a myriad of regulations. The typical
commercial banking process is fairly straightforward. You deposit money into your bank, and
the bank loans that money to consumers and companies in need of capital (cash). You borrow
to buy a house, finance a car, or finance an addition to your home. Companies borrow to
finance the growth of their company or meet immediate cash needs. Companies that borrow
from commercial banks can range in size from the dry cleaner on the corner to a
multinational conglomerate.

Investment Banks
An investment bank operates differently. An investment bank does not have an inventory of
cash deposits to lend as a commercial bank does. In essence, an investment bank acts as an
intermediary, and matches sellers of stocks and bonds with buyers of stocks and bonds. Note,

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however, that companies use investment banks toward the same end as they use commercial
banks. If a company needs capital, it may get a loan from a bank, or it may ask an investment
bank to sell equity or debt (stocks or bonds). Because commercial banks already have funds
available from their depositors and an investment bank does not, an I-bank must spend
considerable time finding investors in order to obtain capital for its client.

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 THE BUY-SIDE v. SELL-SIDE

Fidelity, T. Rowe Price, Janus and other mutual fund companies all represent a portion of the
buy-side business. These are mutual fund money managers. Insurance companies like
Prudential, Northwestern Mutual, and Allstate also manage large blocks of assets and are
another segment of the buy-side. Yet another class of buy-side firms manage pension fund
assets - frequently, a company's pension assets will be given to a specialty buy-side firm that
can better manage the funds and hopefully generate higher returns than the company itself
could have. There is substantial overlap among these money managers - some, such as
Putnam and T. Rowe, manage both mutual funds for individuals as well as pension fund
assets of large corporations.

Who are the buyers of public stocks and bonds? They are individual investors (you and me)
and institutional investors, firms like Fidelity and Vanguard. The universe of institutional
investors is appropriately called the buy-side of the securities industry.

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 HEDGE FUNDS

Since the mid-1990s, hedge funds? popularity has grown tremendously. Hedge funds pool
together money from large investors (usually wealthy individuals) with the goal of making
outsized gains. Historically, hedge funds bought individual stocks, and shorted (or borrowed
against) the S&P 500 or another market index, as a hedge against the stock. (The funds bet
against the S&P in order to reduce their risk.) As long as the individual stocks outperformed
the S&P, the fund made money.

Nowadays, hedge funds have evolved into a myriad of high-risk money managers who
essentially borrow money to invest in a multitude of stocks, bonds and derivative instruments
(these funds with borrowed money are said to be leveraged). Essentially, a hedge fund uses
its equity base to borrow substantially more capital, and therefore multiply its returns through
this risky leveraging. Buying derivatives is a common way to automatically leverage a
portfolio.

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 CONCLUSION

Capital essentially means money. Companies need cash in order to grow and expand their
businesses; investment banks sell securities to public investors in order to raise this cash.
These securities can come in the form of stocks or bonds, which we will discuss in depth
later..
It is important to realize that investment banking and brokerage go hand-in-hand, but that
brokers are one small cog in the investment banking wheel. As we will cover in detail later,
brokers sell securities that a firm underwrites and manage the portfolios of retail investors.

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 BIBLIOGRAPHY

Websites

1. Investopedia.com

Statutes

1. SEBI

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