An investment bank is a financial institution that assists individuals, corporations, and governments in raising financial capital by underwriting or acting as the client's agent in the issuance of securities (or both).

1. Apoorva Rathore

2. Investment Banking: The Concept
• Investment banking assists corporations in raising
financial capital by underwriting and/or acting as
the client’s agent in the issuance of securities.
• It may also assist companies involved in mergers
and acquisitions and provide services such as
market making, trading of derivatives and equity
securities.

3. A market maker is a person or brokerage house that buys and sells securities in
order to provide liquidity to the markets.
Example: A market maker has entered a sell order for Microsoft and the bid/ask is
Rs.65.25/Rs.65.30. The market maker can try to sell shares of MSFT at Rs.65.30.
The market maker can bid higher or lower than the current bid of Rs.65.25. If he
enters a bid at Rs.65.26 then a new market is created (referred to as making a
market) because that bid price is now the best bid. If the market maker attracts a
seller at the new bid price of Rs.65.26 then he has successfully "made the
spread“. The market maker sold 1,000 shares at Rs.65.30 and bought these shares
back at Rs.65.26. As a result, the market maker made Rs.40 (1,000 shares x
Rs.0.04) on the difference between the two transactions.

4. • Investment banks do not take deposits.
• The two main lines of business in investment banking are
called the sell side and the buy side.
The "sell side" involves trading securities for cash or for other
securities (e.g. facilitating transactions, market-making), or the
promotion of securities (e.g. underwriting, research, etc.).
The "buy side" involves the provision of advice to institutions
concerned with buying investment services. Private equity
funds, mutual funds and hedge funds are the most common
types of buy side entities.

5. Investment Banking: Functions
• Research Services
Investment banks provide research services to its clients, which
includes giving buy and sell recommendation of stock, financial
statement analysis, financial forecasting, financial modelling.
• Sales and Trading
Investment banks deals with sales and trading of securities in
secondary market.
• Raising capital
As a financial intermediary, investment banks helps his clients
for raising capital that means raising capital through IPO (Initial
Public Offerings), Private placements. Investment banks earn
revenue through consulting fees.

6. Investment Banking: Functions
• Underwriting
Investment banks provide underwriting of securities and
broking related services for their clients. When an investment
bank underwrites equity or any debt instrument, then it
ensures his clients that investors will purchase his newly issue
of stocks. Investment banks plays intermediary role between
his client and the investors.
• Merger and acquisition
Investment banks provide advisory regarding to merger and
acquisition to its clients. Investment banks create different
merger and acquisition models and do accretion or dilution
analysis to analyze company.

7. Suppose a company hopes to obtain Rs.10 Lakhs in an
initial public offering. Based on a variety of factors,
including the firm’s expected earnings over the next few
years, its investment bankers determine that investors
will be willing to pay Rs.11 each for 1,00,000 shares of
the company’s stock. As the sole underwriter of the
issue, the bank buys all the shares at Rs.10 a piece from
the company. If it manages to sell all 1,00,000 at Rs.11,
the bank makes a nice Rs.100,000 profit (100,000 shares
x Re.1 spread).
Investment Banking: Example

8. Investment Banking: Reason
Investment banking provides a platform for investors to build and
maintain their investments as they have teams of experienced
professionals who offer knowledgeable insights into the stock
exchange. Additionally, they have the expertise in terms of
investing in the most profitable areas in different industries.
Therefore, individuals and companies are advised to seek the
services of an investment bank as they can benefit from up-to-
date and expert insights in investing money and raising capital.

9. Investment Banks
• Merrill Lynch
• Goldman Sachs
• Deutsche Bank
• JP Morgan
• Morgan Stanley
• Credit Suisse
• Bajaj Capital
• Barclays India
• Cholamandalam Investment
& Finance Company
• ICICI Securities Ltd
• IDFC Private Equity
• IDBI
• IFCI
• Kotak Mahindra Capital
Company
• SBI Capital Markets
• Tata Investment
Corporation Limited