Investment banking is a financial service offered by a finance company or a financial institutions division to large multinational corporations to assist them with their investment plans. This service helps high-net-worth and governments, in addition to large corporations and organisations, raise or create capital.
An investment bank's important roles include underwriting securities for various organisations, assisting in securities sales, arranging mergers, acquisitions, and reorganisations, and expanding the horizon of business investment opportunities.
Investment banking firms in India aim to assist large organisations, corporations, and governments in making large financial transactions and critical financial decisions. To do so, investment banks may frequently assist companies in issuing initial public offerings (IPOs). In addition, investment banks also provide transactional advisory services such as M&A and valuations.
Inter-relation Investment Banking and investment banks
While the investment banking division of a bank only offers underwriting and M&A (merger and acquisition) services, an investment bank functions as a full-service organisation and provides a variety of services to its clients, including equity research, market-making, asset management, derivatives trading, and FICC services (fixed income instruments, currencies, and commodities).
It provides both Sell-side and Buy-side services. Services related to trading equity, derivatives, promoting securities, etc., are offered on the sell-side, and consulting services are provided on the buy-side to companies interested in purchasing investments, such as insurance companies, pension funds, etc.
Types of investment banking
1. Regional Boutique
Smaller in scale, they serve no more than a dozen clients and are experts in just one field.
2. Elite Boutique
They offer high-value deals and are similar to bulge bracket banks in that they have numerous nationwide offices but lack worldwide reach.
3. Middle Market
They operate in the $50 million to $500 million range, are more prevalent than the local boutique division, and do not operate internationally.
4. Bulge Bracket
They are international investment banking firms. These banks work with significant clientele and transactions; they are well-known internationally and have offices worldwide.
Role of investment banking
● Investment banking acts as a middleman between investors and corporations. By valuing securities, it aids firms in maximising revenue. Investment banking services assist their clients in raising cash and complying with regulatory obligations.
● When firms undertake initial public offerings (IPOs), an investment bank may purchase the company's shares and sell them in the market as a proxy company. It benefits the business to hire the investment bank directly to handle the IPO. It offers advice on mergers and acquisitions as well as underwriting services.
Objectives of investment banking
● Investment banking's primary goal in the past was to close the funding gap between investors and the firms, people, and governments who needed money to expand and operate given business investment opportunities.
● However, the range of actions that fall under the jurisdiction of investment banking is no longer clearly defined. Investment banks offer various ancillary services to their clients in addition to underwriting and merger and acquisition-related advisory services. These services include equity trading, market-making, transaction facilitation, derivatives trading, and assistance with analysing risk associated with managing large projects.
Importance of investment Banking
Investment banks, with their knowledge, assist these businesses by providing underwriting services in a developing economy where all companies desire to acquire capital through stock and shares so enterprises can maximise their revenue while adhering to regulatory requirements. They furthermore provide their consumers with other advice services. Therefore, to put it briefly, these organisations play a pivotal role in assisting businesses, people, and governmental entities. Moreover, they contribute to expanding the local, governmental, and international economies using their knowledge.
Conclusion:
Corporations, governments, and financial institutions can benefit from investment banking's extensive financial consulting, capital raising, financing, and risk management services. In addition, investment banking has elaborated the view of business investment opportunities in India and globally. Pantomath offers financial services and has emerged as an authority in a leading mid-market investment bank.
