What is Investment Banking?

Learn about Investment Banking with Lara Dutta

Case breakdown: Movie Chalo Dilli

The scene that you just saw, shows you how Mihika Mukherjee (Played by Lara Dutta) is telling Manu Gupta (played by Vinay Pathak) about her work. When Manu Gupta seems to be offended by her reply, she tells him, about her job profile in detail. She tells him that she helps in capital formation for the businesses by way of outright purchase and security sales which is offered by the issuer.

In this blog, Learning Perspective would explore, what is Mihika Mukherjee talking about?

What is Investment Banking?

Investment Banking is a separate branch of banking. It relates to the formation or creation of capital for different businesses. Every business needs to have a capital in place to survive and thrive. Investment/Merchant bankers help in this process.  Generally, businesses have capital in two forms, either in the form of debt (i.e. term loans, bonds etc.) or in the form of equity (shares by investors) or a combination of both. Majority of businesses have a combination of both of equity and debt.

Investment banks offer many  services such as helping in sale of securities, underwriting debt and equity securities (Mihika mentions this), help in mergers and acquisitions, due diligence etc.

Underwriting is a process of raising capital for the clients in the form of debt or equity securities. By buying shares outright from the issuer of securities  and then selling it to the public  or to different companies. In this process, investment bankers undertake a certain amount of risk.

Understanding Investment Banking

Let’s say, if a company wants to raise Rs. 300 crore in the form of capital. The company can hire investment bankers to help them in doing this. Investment/Merchant bankers may advise the company to take a route of IPO or FPO or QIP, (Initial Public offer, Further public offer and Qualified institutional placement) depending on company’s financial statements, their needs and the future direction of the company.

Securities are financial instruments that are traded in the market. Equity securities can mean shares and stocks while debt securities could be bonds, debentures etc. Derivatives include futures and options. Value of derivative depends upon an underlying asset such as interest rate, currencies, commodities etc.

Some of the famous investment banking companies in India include:

  1. ICICI Securities
  2. SBI Capital
  3. Edelweiss Financial Services
  4. HSBC
  5. JP Morgan India

Association of investment bank of India is the nodal body of Investment banks. It regulates and governs the investment banks in India (Indian and foreign). It promotes knowledge, foresight and sincere advise.

References: http://www.aibi.org.in/investment.asp

Written by: Ms. Gitika Chandra

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