AN APPRAISAL OF INVESTMENT BANKING IN INDIA

Sanjeet Singh, BBSB Engineering College, Fatehgarh Sahib Gagan Deep Sharma, BBSB Engineering College, Fatehgarh Sahib Mandeep Manhendru, GJIMT, Mohali ABSTRACT
Investment banking is a particular form of banking which finances capital requirements of enterprises. Investment banking assists as it performs IPOs, private placement and bond offerings, acts as broker and carries through mergers and acquisitions. son of banking encompassing business entities dealing with creation of capital for other companies. The present condition of the investment banking in India and also evaluate the future scope. . Out of the total 111 investment bankers registered with SEBI on 30th October 2008, depending on the availability of data 10 non bank investment bankers were selected for study. Various tools (Graphs, tables) have been used to depict their growth trends and a study of their financial statements show their profitability and liquidity position. Only secondary data was collected for meeting the objectives of the study. Data was collected the web site of SEBI and the companies with the help of internet in the form of text and financial statements of investment bankers. The data has been evaluated with the help of statistical tools i.e., Trend analysis, Ratio analysis. Keywords: Investment Banking, India, SEBI, Capital, Ratio analysis, Trend analysis.

1. INTRODUCTION OF THE STUDY Investment Banking: Banks earlier confined most of their operations to deposit
mobilization and credit dispensation. But in India, they have diversified their activities in line with their counterparts in developed countries, and gone into merchant banking also. This innovative banking has helped many young entrepreneurs who lacked sufficient experience and had a little capital to invest to enter into the field of industrial enterprise. This has led to the need for some agency which can take care of their interests from planning to execution of the projects. With industrial organisation growing more complex day by day, there is crying need for industrial rationalisation because of mergers, amalgamations and the integration of private with public companies. All this require sophisticated planning and management which cannot be provided by specialised agencies that have a flexible approach and possess a proper understanding of the problems of the corporate sector.

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Corporate sector needs the services of these experts to tackle problems in technical, financial, managerial and organizational fields. A study by the Reserve Bank of India showed that insufficient project preparation, defective technical planning, inefficient of indifferent management and financial bottlenecks faced by promoters were primarily responsible for delay in the implementation of projects. Merchant banks have a role to play to rectify these defects. Investment banking is a particular form of banking which finances capital requirements of enterprises. Investment banking assists as it performs IPOs, private placement and bond offerings, acts as broker and carries through mergers and acquisitions. son of banking encompassing business entities dealing with creation of capital for other companies. In addition to acting as agents or underwriters for companies in the process of issuing securities, investment banks also advise companies on matters related to the issue and placement of stock. Investment Banking, branch of finance concerned with the underwriting, distribution, and maintenance of markets in securities issued by business firms and public agencies. Investment bankers are primarily merchants of securities; they perform three basic economic functions: (1) provide capital for corporations and local governments by underwriting and distributing new issues of securities; (2) maintain markets in securities by trading and executing orders in secondary market transactions; and (3) provide advice on the issuance, purchase, and sale of securities, and on other financial matters. In contrast to commercial banks, whose chief functions are to accept deposits and grant short-term loans to businesses and consumers, investment bankers engage primarily in long-term financing. According to Investors world, Investment banking services are performed by Investment banks. An Investment bank can be defined as an individual or institution which acts as an underwriter or agent for corporations and municipalities issuing securities. Most also maintain broker/dealer operations, maintain markets for previously issued securities, and offer advisory services to investors. Investment banks also have a large role in facilitating mergers and acquisitions, private equity placements and corporate restructuring. Unlike traditional banks, investment banks do not accept deposits from and provide loans to individuals also called investment banker. Financial intermediaries who perform a variety of services, including aiding in the sale of securities, facilitating mergers and other corporate reorganizations, acting as brokers to both individual and institutional clients, and trading for their own accounts. Investment banks are often treated as synonyms of merchant banks. But there is a difference in the services they perform. This is stated as below. Merchant banks and investment banks in their purest forms are different kinds of financial institutions that perform different services. In practice, the fine lines that separate the functions of merchant banks and investment banks tend to blur. Traditional merchant banks often expand into the field of securities underwriting, while many investment banks participate in trade financing activities Pure investment banks raise funds for businesses and some governments by registering and issuing debt or equity and selling it on a market. The current offerings of investment banks & merchant banks vary by the institution offering the services, but there are a few characteristics that most companies that offer both investment & merchant banking share. With the advent of Globalization, latest financial trends and economic development the line of differences between Investment Banking and Merchant Banks has

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considerably reduced. It was impossible for Indian banks to stay aloof from international trends. With merchant banks/ issuing houses in the U.K already converted to investment banks, India is not far behind. Evidence o this trend is the adoption of Bought-out deals (BODs), Initial placement of equity, venture capital funds, and influx of foreign investment banks and acquisition of stake in Indian merchant banks by foreign investment banks. ICICI is an investment banking outfit (Machiraju, 2004). Potential of Investment Banking in India The major problem of Indian capital markets today is the lack of investor confidence, which is mainly on account of lack of liquidity, unscrupulous issuers and merchant bankers and poor or unapprised issues. Investment Banking can solve this problem because investors would be dealing with reputed investment bankers in the primary bankers in the primary market rather than unknown issuers. The issues will be properly appraised and priced. Similarly, Investment Banks would hold the issue until market conditions are appropriate for issue, thus reducing the risk exposure of investors to gestation for issue. Moreover, the price of reissue will be a better indicator of issues performance. Investment banks make the primary market for IPOs thus assuring protection to the issuer about subscription In sum, the quality of pricing, appraisal, and primary market functions will improve resulting in substantial improvement in investor confidence. Since the investment bank lends its name to the issue it implies that investors can trust the issue. As a result, Investment bankers are gradually replacing merchant banking (Machiraju, 2004, pp 15)

2. OBJECTIVES OF THE STUDY

To study the level of operations of Investment Banking in India To study the Liquidity position of Investment Bankers To study the Profitability position of Investment Bankers

3. REVIEW OF LITRATURE
A number of researchers have been study about the banking and its different branches. O Brien, Nichols and Lin (2005) examined whether investment banking ties influence the speed with which analysts convey unfavourable news. They find that affiliated analysts are slower to downgrade from "Buy" and "Hold" recommendations and significantly faster to upgrade from "Hold," in both within-analyst and withinissuer tests. Findings indicated that banking ties increase analysts' reluctance to reveal negative news, and that reform efforts must carefully consider the incentives of affiliated and unaffiliated analysts to initiate coverage and convey the results of their research. Ellis, Michaely, OHara(2006) constructed a comprehensive measure of overall investment banking competitiveness for follow-on offerings that aggregates the various dimensions of competition such as fees, pricing accuracy, analyst recommendations, distributional abilities, market making prowess, debt offering capabilities, and overall reputation. Mullineaux, Roten (2000) examined underwriting performances by commercial bank-affiliated firms (Section 20's) and traditional investment banks over the period 1995-98. They found that gross spreads are significantly lower in the case of Section 20 underwritings, but that yield spreads are not. Their sample included a substantial number of observations following changes in

Federal Reserve policies. Livingston, Miller (2000) examined the impact of investment banker prestige on underwriter spreads, offering yields, and other expenses for 2,449 nonconvertible industrial debt issues offered during the period 1990 to 1997. Study found that higher prestige underwriters charge significantly lower underwriting fees. Offering yields are also lower and offering prices are higher for prestigious underwriter, which indicates that investment banker reputation acts to certify the value of a debt issue to investors. Kolasinski, Kothari (2004) find evidence that conflicts of interest arising from M&A relations influence analysts' recommendations, corroborating regulators' and practitioners' suspicions in a setting, i.e. M&A relations, not previously examined in research on analyst conflicts. In addition, the M&A context allowed them to disentangle the conflict of interest effect from selection bias. They found that analysts affiliated with acquirer advisors upgrade acquirer stocks around M&A deals, even around all-cash deals, wherein selection bias is unlikely. Also consistent with conflict of interest, but not selection bias, targetaffiliated analysts publish optimistic reports about acquirers after, but not before, the exchange ratio of an all-stock deal is set. Jain, Kini (1999) examined variables which proxy for the incentives of lead underwriters to supply monitoring post-issue. These variables include lead investment bank reputation and whether warrants are issued to the underwriter by the issuing firm. They found that lead bank reputation is positively associated with the post-issue performance of IPO firms. Servaes, Zenner(1996) compared acquisitions completed with and without investment bank advice over the 1981 to 1982 period. They found that the choice to use an investment bank depends on the complexity of the transaction, the type of transaction (takeovers versus acquisitions of assets), the acquirers prior acquisition experience, and the degree of diversification of the target firm. Benveniste, Ljungqvist, Yu, Wilhelm Jr. (2001) present evidence that firms attempting IPOs learn from the experience of their contemporaries. These information spillovers affect revisions in offer terms and the decision whether to carry through with an offering. The evidence also supports the argument that IPOs are implicitly bundled as a means of promoting more equitable sharing of information production costs. One apparent consequence of this behaviour is that while initial returns and IPO volume are positively correlated in the aggregate, the correlation is negative among contemporaneous offerings subject to a common valuation factor. These findings are consistent with the Benveniste, Busaba, and Wilhelm (2001) argument that the dynamics of volume and initial returns in primary equity markets reflect, at least in part, an institutional response to information externalities. Galetovic, Anand (2000) examined how the tension between relationships and competition is resolved in the investment banking market, which for decades has been characterized by both relationships and competition. The model studies the impact on relationships of four different dimensions of competition: nonexclusive relationships, competition from arm's-length intermediaries, non-price competition, and endogenous entry. The analysis shows how market equilibrium adjusts so that relationships are sustained in the face of such competition. Puri, M. (1996) examined empirically the pricing of bank-underwritten securities as compared to investment-house-underwritten securities over a unique period in the U.S. (preGlass-Steagall) when both banks and investment houses were allowed to underwrite securities. The results support a certification role for banks, which is more valuable for junior and information sensitive securities. Baron, P. (1980) considered a model is in which an investment banker is better informed about the capital market than is an issuer of new securities and in which the distribution effort of the banker cannot be observed by the issuer. The model demonstrates that there can be a positive demand

for investment banking advisement and distribution services. Willman, OCreevy, Nicholson, Soane(2002) examined the management of traders in financial markets from the perspectives of agency and prospect theory. Using interview data from a sample of traders and managers in four investment banks, they argued that managers focus on avoiding losses rather than making gains. This focus emerged from the characteristics of managers and the nature of their role Fang, L. (2005) studied the relation between investment bank reputation and the price and quality of bond underwriting services. Findings of the study suggested that banks' underwriting decisions reflect reputation concerns, and are thus informative of issue quality. He also suggested that economic rents are earned on reputation, and thereby provide continued incentives for underwriters to maintain reputation. Rau, RP. (1998) investigated the determinants of the market share of investment banks acting as advisors in mergers and tender offers. In both mergers and tender offers, bank market share is positively related to the contingent fee payments charged by the bank and to the percentage of deals completed in the past by the bank. Ismail, Chahine (2006) analyzed 635 US M&A transactions from 1985 to 2004. In contrast with prior research, they distinguished between the target and acquirer fees, and examined their independent effects on the level of the merger premium. The study provided evidence of a positive (negative) association between target (acquirer) fees and the level of the premium. It indicated that the reputation of investment banks affects the level of merger fees, but does not affect the level of the premium. The findings confirmed the conflict of interests between target and acquirer firms where the investment banks efforts are positively related to shareholders interest. McLaughlin, R.M (2002) revealed through empirical analysis that investment-banker advisory fees in tender offers average 1.29% of the value of a completed transaction, far below the levels often alluded to in the business press. Most fees are contingent on offer outcome, with target-firm fees typically contingent on transaction value and bidding-firm fees on the number of shares purchased. Ljungqvist, Asker (2005) investigated this conjecture in a sample of 5,272 equity deals and 12,453 debt deals by large U.S. firms between 1975 & 2003. Using several distinct sources of identification, they found that this phenomenon is at least as important in determining the choice of lead underwriter as the banks reputation or the issuing firms existing relationship with the underwriter. They argued that this finding has important implications for understanding the nature of competition among investment banks, the success of entrants, & the likely impact of investment bank mergers on market power. Baum, Rowley (2004) used data on all underwriting syndicates in Canada over nearly 40 years, and examine whether, and if so to what extent, managers are aware of and strategic about their network positions by comparing the effects of partner selection on network position at two levels of complexity. Their findings showed that when investment banks managers formed and joined underwriting syndicates, they improved their network positions by spanning more structural holes. Vives, X. (2001) reviewed the role of competition in banking against the background of a transforming sector. He used industrial organization and modern financial intermediation analysis to study the relationships between the level of competition, risk-taking incentives, and the regulatory frame. The consequences for market structure of the liberalization process and the need for competition policy in the sector were high-lighted. A number of studies have been undertaken regarding competition among Investment Bankers, their role in acquisition, IPOs etc most of these have been carried out in

USA, and except one study by H Kamalini, there was no information available about any empirical research carried out in India.

4. RESEARCH METHODOLOGY
The study relates to financial appraisal of Investment bankers in India. Out of the total 111 investment bankers registered with SEBI on 30th October 2008, depending on the availability of data 10 non bank investment bankers namely IFCI, Almondz Global, Arihant Capital, Brescon corporate, AK Capital Service, Fortune Financial, India Infoline ltd, Munoth FinANCIAL services and Pioneer Investcorp were selected for study. Various tools (Graphs, tables) have been used to depict their growth trends and a study of their financial statements show their profitability and liquidity position. Only secondary data was collected for meeting the objectives of the study. Data was collected from books, journals, and internet in the form of text and financial statements of investment bankers. STATISTICAL TOOLS: following statistical tools has been used for the evaluation of the data.

Trend Analysis
Trend analysis has been employed to measure the growth trends of the sample units over the last five years through following parameters: Income from operations Wage bills Owned funds NPAs Profit before tax Interest

Ratio Analysis is used to substantiate Trend Analysis to know how well liquidity
and profitability has been maintained over the last five years. Liquidity and Profitability ratios have been calculated for each of 10 merchant bankers. The following ratios have been calculated depending upon the availability of data. LIQUIDITY RATIO - Liquidity refers to the ability of a concern to meet its current obligations as and when these become due. Current Ratio it may be defined as the relationship between current assets and current liabilities. It is a measure of general liquidity and is most widely used to make the analysis of a short term financial position or liquidity of the firm. Current Ratio Current Assets Current liabilities

Quick Ratio Quick Ratio may be defined as the relationship between quick/liquid assets and current liabilities. A asset is said to be liquid if it can be converted into cash within a short period without loss of value.

Quick Ratio

Quick Assets

Current liabilities

Absolute Liquid Ratio Absolute liquid assets include cash in hand and at bank and marketable securities which can be realised even faster than debtors and bill receivable. Absolute Liquid Ratio Absolute Liquid Assets Current liabilities

PROFITABILITY RATIOS- These ratios are calculated to measure the overall

efficiency of the business. They are calculated either in relation to sales or investment. Operating Profit Ratio - It is calculated by dividing operating profit by sales. Operating profit is calculated as: Operating Profit= Net Sales-operating cost Operating Profit Ratio Operating Profit Sales X100

Net Profit Ratio-It establishes a relationship between net profit (after taxes) and sales, and indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm. Net Profit Ratio Net Profit after tax Sales X100

Return on Shareholders Investment It is also known as ROI. It is the return on shareholder funds and is the relationship between net profits (after interest and tax) and proprietors funds ROI Net Profit after int and tax Shareholder funds X100

Dividend Payout Ratio- It is calculated to find the extent to which earnings per share have been retained in the business. It is also important because ploughing back of profits enables a company to grow and pay more dividends in future
Dividend Payout Ratio

Dividend per Equity Share Earnings Per Share

Earning Per Share- Earnings per Share is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares. Comparing EPS o various companies, it gives a comparative earnings or earnings power of a company. Earning Per Share NP after tax and Preference dividend No. of equity shares

5.

FINDINGS AND ANALYSIS

This chapter shows the growth trends of the units of study over the last five years and the comparison of units through their liquidity and profitability ratios. An attempt has been made to identify those firms which have been able to grow in the competitive area and have shown improved performance. TREND ANALYSIS 1. IFCI FINANCIAL SERVICES LTD Table 1: IFCI Financial Services Ltd (Absolute figures) (ABOUT TO HERE) Interprtation Owned funds increased by 220% in 2008 as compared to that in 2006 After suffering loss for 3 consecutive years, it recorded profit of Rs 1262 cr in 2007 and Rs 1668 cr in 2008 The significant reduction in net NPAs in 2007 resulted from settlements, restructuring, up gradation of assets and adequate provisioning Table 2: IFCI Financial Services Ltd (Trends) (ABOUT TO HERE) Interpretation As compared to 2004, Income from operations by 81% in 2007 and there was a light decrease in 2008 Interest shows a falling trend since 2004 due to funds given by government, the increase since 2006 was due to stoppage of funds by government. After showing a decreasing trend till 2006, wage bills show a sharp increase by 98% in 2006 NPAs were reduced by 40% in 2008 as compared to that in 2004 2. ALMONDZ GLOBAL SECURITIES LTD TABLE 3: Almondz Global Securities Ltd (Absolute figures) ABOUT TO HERE Interpretation Owned funds showed a sharp rise in 2008 to Rs 86.29 cr. This was due to increase in reserves of the company. Income from operations increased to Rs 86 cr, an increase of 67% from 2004. There were nil NPAs Interest formed a small percentage of expenses, not rising significantly. Table 4: Almondz Global Securities Ltd (Trends) ABOUT TO HERE Interpretation Wage bills in 2007 were highest in the five year period and decreased in 2008. Profit before tax decreased in 2007 from 2006 but increased in 2008 by 147% Owned funds did not show significant increase till 2007 and it increased by approx 700%

3. ARIHANT CAPITAL MARKETS Table 5: Arihant Capital Markets (Absolute figures) ABOUT TO HERE Interprtation Owned funds continuously increased till 2007 and in 2008 increased to Rs 40 cr from Rs 11.54 cr. The company recorded income from operations at Rs 19.26 cr, highest in five years in spite of increase in wage bill in 2008. Overall the company showed a good position during the five year period

Table 6: Arihant Capital Markets (Trends) ABOUT TO HERE

Interpretation
All the parameters showed an upward trend in 2006 and 2007, signalling a strong growth of the company. Out of these income from operations showed the highest growth by approximately 100% growth in 2008 from 2007. Interest paid showed increase of 650% in 2008 from 2004. The 254% increase in owned funds from 2007 to 2008 is the second best figure for owned funds after India Infoline, whose funds increased by 262% in 2008

4) BRESCON CORPORATE ADVISORS LTD Table 7: Brescon Corporate Advisors Ltd (Absolute figures) ABOUT TO HERE Interpretation Owned funds showed a continuous increase in the five year period which was mainly due to increase in reserves of company whereas the equity capital remained almost same. Profit before tax decreased in 2007 from 2006 but rose in 2008. Overall the company showed and improvement in operations over the previous year.

Table 8: Brescon Corporate Advisors Ltd (trends) Interpretation Owned funds and profit before tax showed a sharp upward trend from 2007 to 2008, increasing by 128% and 208% respectively. Income from operations showed a stabilized trend since 2006 increasing by mere .3% in 2007 and 4% in 2008. Wage bills grew at an average of 24% every year, not showing any significant increase in 2007 and 2008. 5. A.K. CAPITAL SERVICES LTD Table 9: AK Capital services Ltd (Absolute figures) ABOUT TO HERE Interprtation

The Company delivered superior financial performance during the financial year ended 31March 2008 with improvement across all parameters. Wage bills was Rs.7 cr for the financial year ended 31March 2008 as against Rs 4 cr in the previous financial year. Owned funds increased due to issue of Preference shares and increase in reserves of the company.

Table 10: AK Capital services ltd (Trends) ABOUT TO HERE Interpretation Although full data for AK Capital services was not available, the trends with the available data depict upward trend in all the parameters. Although interest paid increased over the years, still the company managed to earn high income form operations. Owned funds increased by approx 522% in 2008 from 2004, on account of issue of preference shares. 6. FORTUNE FINANCIAL SERVICES (INDIA) LTD Table 11: Fortune Financial Services (India) Ltd( Absolute figures) ABOUT TO HERE Interpretation The company showed increase in all parameters in 2008 from 2007. Increase in owned funds was due to first time allotment of preference shares Income from operations in 2008 has led to increase in the amount of reserves of the company adding to the rise in owned funds Table 12: Fortune Financial Services (India) Ltd (Trends) Interpretation Wage bills show an upward trend since 2007, it was mainly on account of recruitment of additional man-power due to expansion activities Profit before tax dipped in 2007 but again rose in 2008 by 65% There was a sharp increase in income from operations and interest during 2007-08 rising by approx100% and 700% respectively. 7. INDIA INFOLINE LTD Table 13: India Infoline Ltd (Absloute figures) ABOUT TO HERE Interpretation Owned funds rose by 220% in 2007 from Rs 52 cr in 2006 to Rs 168 cr in 2007 mainly due to conversion of convertible bonds into shares and allotment of shares to employees under its ESOP scheme. Income from operations also showed a significant increase in 2007 and 2008 being Rs 8.8 cr in 2004 to Rs 55 cr and Rs 134 cr in 2007 and 2008 respectively. Table 14: India Infoline Ltd (Trends) ABOUT TO HERE Interpretation

In 2008 owned funds increased to Rs 1049 cr, a growth of 262% in the same period among all the 10 companies considered or the study. Interest increased consistently since 2005 till 2008. Wage bills showed an upward trend since 2006 rising by Rs 134 cr from 2004 to 2008.

8. MUNOTH FINANCIAL SERVICES LTD Table 15: Munoth Financial Services Ltd (Absolute figure) ABOUT TO HERE Interpretation Owned funds did not show any wide fluctuations during the five year period, equity capital remained same while there were minor changes in reserves of the company. The company earned highest income from operation in 2006 of Rs 2 cr but decreased in 2007 and 2008 by respectively. Profit before tax showed an erratic trend rising and falling in alternate years.

Table 16: Munoth Financial Services Ltd (Trends) ABOUT TO HERE Interpretation The trend line of the company show an erratic trend with wide fluctuations, all the parameters except profit before tax show a downward trend after 2006. Profit before tax show a stable trend rising marginally over the period 9. PIONEER INVESTCORP LTD. Table 17: Pioneer Investcorp Ltd.(Absolute figures) ABOUT TO HERE Interpretation The company recorded its lowest owned funds at Rs 8 cr, while it recorded highest funds in 2008; it was because of share application money and increase in reserves of the company. Income from operations also showed huge increase in 2008 rising by 213% from 2007 Profit before tax from Rs .32 cr in 2004 to Rs 28 cr in 2008 Table 18: Pioneer Investcorp Ltd.(Trends) ABOUT TO HERE Interpretation Till 2006 all the parameters were almost at same level, post 2006 all the parameters showed an upward trend. In 2007, interest paid was less and profit before tax was high, post 2007 interest increased, lowering the level of profits. However income from operation increased at a steady pace. 10. SMIFS CAPITAL MARKETS LTD Table 19: SMIFS Capital Markets Ltd (Absolute figures) ABOUT TO HERE Interpretation

Owned funds of the company increased gradually over the period, mainly due to increase in the reserves of the company and the equity capital remained same. It recorded loss of Rs 15 cr in 2004 but recovered in 2005 with a profit of Rs 39 cr, an increase of 350%, but income decreased drastically in 2006 with mild recoveries in 207 and 2008. Company incurred loss in 2005 & 2005 and earned profits till 2008. However profits fell in 2008 by 70% of 2007.

Table 20: SMIFS Capital Markets Ltd (Trends) ABOUT TO HERE Interpretation The trends of the company show inconsistency in its operations. There was a sharp rise in profits in 2005 followed by a sharp fall in 2006, which rose marginally in following years. Decrease in interest paid post 2005 led to increase in profits, but profits fall after 2007 even when the interest paid shows a decline. Wage bills however showed rising trend can be a reason for decline in profits. RATIO ANALYSIS
Table 21: Liquidity Ratios ABOUT TO HERE INTERPRETATION In 2004, Almondz Global maintained the highest current ratio at 5.02, followed by Pioneer Investcorp at 3.64 and Fortune Financial at 3.56. Fortune Financial showed a consistent pattern as they maintained the highest liquidity ratios in 2004, 2005 and 2006 In 2006, India Infoline was the only company to maintain current and quick ratio above 6, however it maintained lower levels in 2007 and 2008. In 2007 & 2008, Almondz maintained overall highest current ratio at 8.15 and 10.18 respectively. AK Capital Service recorded the lowest figures for liquidity ratios at .22 approx in 2008

PROFITABILITY RATIOS
Table 22: Profitability Ratios I ABOUT TO HERE INTERPRETATION IFCI & SMIFS gave negative returns due to loss incurred but gave positive returns once they earned profits post 2007. Highest NP ratio was of Brescon Corporate at 201% in 2008 followed by SMIFS at 115% in 2004, while the lowest NP ratio was of SMIFS of 947% in 2005, due to loss. Highest ROI was recorded for Fortune Financial at 160% 2007, a 320% increase from 2006 Overall Brescon Corporate showed superior performance over the five year period among all companies by earning consistent profits and giving out increased returns on investment.

PROFITABILITY RATIOS Table 23: Profitability Ratios II ABOUT TO HERE Interpretation

The maximum EPS was of AK Capital at Rs 48.47 in 2008, lowest being of IFCI at -51.28 in 2004. Maximum increase in EPS was for Arihant Capital, a growth of approx 400% from Rs 7.98 in 2007 to Rs 39.05 in 2008. On the other hand, SMIFSs EPS declined from Rs 27.99 in 2007 to Rs 10.92 in 2008. There was no dividend paid by Munoth Financial services throughout the five year period due to lack of sufficient profits.

6. CONCLUSION
Merchant banks and Investment Banks are used interchangeably in Indian context; even SEBI issues guidelines for Merchant Bankers only. During 1997-1998, due to sharp decline in the number of public issues, structural changes were introduced by abolishing multiple categories and replacing by a single category. Thus time was ripe to adapt, innovate and broad base their activities. Investment Bankers assist companies on numerous issues like IPOs Project Counselling, underwriting, Portfolio management etc. thereby reducing their cost while providing specialized services. There are big names like Reliance, HDFC, AXIS bank, ICICI and multinational corporations like ABN Amro, Goldman Sachs, and JP Morgan etc carrying out Investment Banking functions in India. They have shown exceptional growth from having a single office in a city to have presence in major cities of India. Their profits have increased manifolds during small period of starting their operations. The aim of the study was to examine the extent of operations of Investment Banks in India and importance of their services to corporate world. Analysis of the financial statements of the sample reveals that their performance has improved over a period of time. The companies which incurred losses successfully recovered and regained their competitive position. With an increase in the growth rate of the country and boom in the capital market in 2006 and 2007, they made unprecedented growth. But now when the economic growth is shrinking and India is facing slowdown, it will be interesting to see how their performance will be affected at a time when companies are emphasising on cost cutting and are hesitating to start new venture. With increased presence, wider acceptability and expanding markets the future of Investment Banking appears very promising

7. REFERENCES
Baron, P. (1980), A Model Of The Demand For Investment Banking Advisement And Distribution Services For New Issues Baum, Rowley (2004), Sophistication Of Interfirm Network Strategies In The Canadian Investment Banking Industry, Benveniste, Ljungqvist, Yu, Wilhelm Jr. (2001), Evidence of Information Spillovers in the Production of Investment Banking Services Chemmanur, Fulghieri (1994), Investment Bank Reputation, Information Production, And Financial Intermediation, The Journal Of Finance, Vol, XLIX, No. 1

Fang, L. (2005), Investment Bank Reputation and the Price and Quality of Underwriting Services, Kolasinski, Kothari (2004) Investment Banking and Analyst Objectivity: Evidence from Analysts Affiliated With M&A Advisors, Ljungqvist, Asker (2005), Sharing Underwriters with Rivals: Implications for Competition in Investment Banking, Machiraju, H.R,[2004], Merchant Banking: Principles & Practices, New Age Publishers, Edition 3. McLaughlin, R.M (2002), Investment-Banking Contracts In Tender Offers : An Empirical Analysis, Mullineaux, Roten (2000), Debt Underwriting by Commercial Bank-Affiliated Firms and Investment Banks: More Evidence http://ssrn.com/abstract=236843 O Brien, Nichols and Lin (2005) Analyst Impartiality and Investment Banking Relationships Puri, M. (1996), Commercial Banks In Investment Banking Conflict Of Interest Or Certification Role?, Journal of Financial Economics, Volume 40, Issue 3, March 1996, Pages 373-401 Rau, RP. (1998), Investment Bank Market Share, Contingent Fee Payments, And The Performance Of Acquiring Firms, Servaes, Zenner(1996), The Role Of Investment Banks In Acquisitions

TABLES & FIGURES TABLE.1

Rs in crores 2004 Owned funds Interest Income from operations Wage bills Profit/loss before tax NPA's 1522.39 1335.63 1096.14 86.09 -2763.78 2402.16 2005 1515.37 957.98 1293.37 39.21 -625.05 916 2006 1510.93 762.17 1645.69 25.41 -265.93 1130 2007 1941.79 730.94 1989.73 33.98 1262.34 15.28 2008 3324.87 821 1963 121.33 1668 -953

TABLE.2
IFCI 2004 Owned funds Cost of borrowings Income from operations Wage Bills Profit/loss before tax NPA's 100 100 100 100 100 100 2005 99.53 71.72 118.04 45.54 22.61 38 Percentage change 2006 99.24 57.06 150.13 29.51 9.62 47.04 2007 127.54 54.8 181.52 127.54 45.67 0.63 2008 218.39 61.66 179.08 218.39 60.35 -39.67

TABLE.3
Rs Crore 2004 Owned funds Interest paid Income from operations Wage bills Profit/loss before tax NPA's 8.57 0.51 21.81 1.25 2.86 Nil 2005 13.03 2.16 32.43 2.33 6.75 Nil 2006 19.08 2.61 51.61 4.53 13.05 Nil 2007 25.74 2.4 43.73 7.06 9.09 Nil 2008 86.29 3.21 86.38 6.52 13.28 Nil

TABLE.4
Percentage change 2004 Owned funds Cost of borrowings Income from operations Wage bills Profit/loss before tax NPA's 100 100 100 100 100 2005 152.04 423.52 148.69 186.4 236.01 2006 222.63 511.76 236.63 362.4 456 2007 300 470.58 200.5 564.8 317.83 2008 1006.8 629.41 395.64 521.6 464.33

TABLE.5
Rs Crore 2004 Owned funds Interest Income from operations Wage bills Profit/loss before tax NPA's 5.7 0.02 0.8 0.52 1.98 2005 6.66 NA 1.94 0.73 1.79 2006 9.33 NA 3.58 1.68 4.27 2007 11.54 NA 10.34 4.54 4.27 2008 39.07 0.33 19.26 9.24 19.52 -

TABLE.6
Percentage change 2004 Owned funds Interest Income from operations Wage bills Profit/loss before tax NPA's 100 100 100 100 100 2005 116.84 Nil 242.5 140.38 89.89 2006 163.68 Nil 184.53 323.07 215.66 2007 22.45 Nil 1292.5 873.07 215.65 2008 685.43 1650 2407.5 1776.92 985.85 -

TABLE.7
Rs Crore 2004 Owned funds Interest Income from operations Wage bills Profit before tax NPA's 6.81 6.45 2.17 2.82 NA 2005 9.44 9.83 2.9 5.04 NA 2006 16.6 13.65 3.92 7.62 NA 2007 20.36 13.76 4.53 6.89 NA 2008 29.03 14.23 4.8 12.68 NA

TABLE.8
Percentage change 2004 Owned funds Interest Income from operations Wage Bills Profit/loss before tax NPA's 100 100 100 100 2005 138.61 152.4 133.64 178.72 2006 243.75 211.62 180.64 270.21 2007 298.92 213.33 208.75 241.48 2008 426.2 220.62 221.19 449.64 -

TABLE.9
Rs Crore 2004 Owned funds Interest Income from operations Wage bills Profit before tax NPA's NA NA NA NA NA Nil 2005 16.3 NA 14.4 1.45 7.03 Nil 2006 25.25 0.23 26.8 2.65 12.98 Nil 2007 34.71 0.5 46.91 4.37 17.7 Nil 2008 101.46 0.72 87.59 7.19 40.08 Nil

TABLE.10
Percentage change 2004 Owned funds Interest Income from operations Wage bills Profit/loss before tax NPA's NA NA NA NA NA Nil 100 NA 100 100 100 Nil 2005 154.9 100 186.11 182.75 184.63 Nil 2006 212.94 217.39 325.76 301.37 251.77 Nil 2007 622.45 313.04 688.26 495.86 570.12 Nil 2008

TABLE.11
Rs Crore 2004 Owned funds Interest Income from operations Wage bills Profit before tax NPA's 9.34 0.22 1.62 0.45 0.83 nil 2005 10.9 0.14 4.98 0.71 2.94 nil 2006 16.27 0.25 14.65 1.45 9.21 nil 2007 43.56 0.52 17.19 2.13 9.8 Nil 2008 53.12 4.45 32.69 5.01 16.24 Nil

TABLE.12
Percentage change 2004 Owned funds Interest Income from operations Wage bills Profit/loss before tax NPA's 100 100 100 100 100 Nil 2005 116.72 63.63 307.4 157.77 354.21 Nil 2006 174.19 113.63 904.32 322.22 1109.63 Nil 2007 466.38 236.36 1061.11 473.33 1180.72 Nil 2008 568.73 2022.72 2017.9 1113.33 1956.62 Nil

TABLE.13
Rs Crore 2004 Owned funds Interest Income from operations Wage bills Profit before tax NPA's 47.04 NA 8.8 0.35 6.82 Nil 2005 52.32 0.03 21.21 0.92 3.22 Nil 2006 168.93 2.17 20 1.94 39.7 Nil 2007 289.7 6.39 269.7 55.87 79.6 Nil 2008 1049.6 21.1 616.1 134.7 236.6 Nil

TABLE.14
Percentage change 2004 Owned funds Interest Income from operations Wage bills Profit/loss before tax NPA's 100 NIL 100 100 100 NA 2005 111.22 100 241.02 262.85 47.21 NA 2006 359.11 7233.33 227.27 554.28 582.11 NA 2007 615.85 21300 3064.77 15962.85 1167.15 NA 2008 2231.29 70333 7001.36 38485.71 3469.2 NA

TABLE.15
Rs Crore 2004 Owned funds Interest Income from operations Wage bills Profit before tax NPA's 8.29 0.14 1.99 0.49 0.71 2005 8.51 0.07 1.35 0.47 0.33 2006 9.26 0.19 2.28 0.31 1.11 2007 9.43 0.15 1.96 0.31 0.33 2008 9.97 0.04 1.82 0.14 0.5

TABLE.16
Percentage change 2004 owned funds interest income from operations wage bills profit/loss before tax NPA's 100 100 100 100 100 2005 102.65 50 67.83 95.91 102.65 2006 111.7 135.71 114.57 63.26 111.7 2007 113.75 107.14 98.49 63.26 113.75 -2008 120.26 28.57 91.45 28.57 120.26

TABLE.17
Rs Crore 2004 owned funds Interest Income from operations wage bills profit before tax NPA's 26.58 0.04 1.35 0.47 0.32 2005 8.78 0.43 1.65 0.25 0.45 2006 17.74 0.8 6.04 0.37 3.47 2007 26.6 0.91 18.5 0.93 12.76 2008 85.61 4.95 58.01 5.57 28.11

TABLE.18
Percentage change 2004 owned funds interest income from operations Wage bills profit/loss before tax NPA's 100 100 100 100 100 2005 33.03 1075 122.22 53.19 140.62 2006 66.74 2000 447.4 78.72 1084.37 2007 100.07 2275 1370.37 197.87 3987.5 -2008 322.08 12375 4297.03 1185.1 8784.37

TABLE.19
Rs Crore 2004 owned funds Interest Income from operations wage bills profit before tax NPA's 45.32 2.08 -15.85 0.54 -13.91 NA 2005 47.01 0.72 39.77 0.65 -1.21 NA 2006 50.18 0.64 8.98 0.77 10.13 NA 2007 59.75 0.7 17.14 1.17 13.51 NA 2008 65.2 0.29 15.32 1.45 3.97 NA

TABLE.20
Percentage change 2004 owned funds interest income from operations Wage Bills profit/loss before tax NPA's 100 100 100 100 100 NA 2005 103.72 37.5 250.91 120.37 8.69 NA 2006 110.72 30.76 56.65 142.59 72.85 NA 2007 131.84 33.65 108.13 216.67 97.12 NA 2008 143.86 13.9 96.65 268.51 28.5 NA

TABLE.21
2004 Current ratio IFCI Almondz Global Arihant Capital Brescon corporate AK Capital Service Fortune Financial India Infoline ltd Munoth Fin Services Pioneer Investcorp SMIFS 1.08 5.02 2.22 1.93 NA 3.56 3 1.93 3.64 2.55 1.08 .73 2.22 1.62 NA 3.54 3 1.89 3.58 2.32 0.079 NA .25 NA NA 2.5 1.03 NA NA NA 1.28 4.61 1.59 3.77 1.78 3.35 4.19 2.67 6.75 2.86 1.28 .83 1.59 3.26 1.78 3.34 4.19 2.55 6.6 2.57 0.16 NA .14 NA .45 1.21 .5 NA NA NA 2.25 3.45 1.19 2.05 4.07 2.69 6.44 2.17 3.31 1.32 2.25 1.35 1.19 2.04 4.07 2.69 6.44 2.16 3.28 1.25 1.01 NA .04 NA .80 2.12 .07 NA NA NA 2.5 8.15 1.01 2.18 3.64 3.91 1.5 2.57 4.35 2.41 2.5 2.08 1.01 2.17 3.64 3.91 1.5 2.5 1.56 1.42 1.02 NA .29 NA .95 2.91 .32 NA NA NA 2.81 10.1 8 1.34 1.98 .22 2.02 1.29 2.53 2.96 1.52 2.81 5.29 1.34 1.97 .22 2.02 1.29 2.27 2.04 1.3 2.13 NA .58 NA .19 .77 .31 NA NA NA Quick ratio AbsLiqui d ratio Current Ratio 2005 Quick Ratio AbsLiquid Ratio Current Ratio 2006 Quick Ratio AbsLiqui d Ratio CR 2007 QR ALR CR 2008 QR ALR

TABLE.22
2004 ROI Op profit Ratio 2005 ROI % 2006 ROI 2007 ROI 2008 ROI

IN %

NP Ratio

NP Ratio

Op profit Ratio

NP Ratio

Op profit Ratio

NP ratio

Op profit Ratio

NP Ratio

Op profit Ratio

IFCI Almondz Global Arihant Capital Brescon corporate AK Capital Service Fortune Financial India Infoline ltd Munoth Fin services Pioneer Investcorp SMIFS
NA 13.09 32.71 19.5 NA NA NA 20.68 4.48 115.4 -212 22.2 8 24 27.7 NA 8.35 14.39 3.61 .37 -31.31 NA 10.16 57.7 15.24 NA NA NA 29.31 6.27 85.18 NA 26.01 29.05 38.73 NA NA NA 18.48 18.3 -520.8 -21.4 34.15 20.6 30.84 32.33 20.2 33.39 2.33 13.18 -5.31 NA 12.16 42.9 31.59 NA NA NA 27.73 44.44 -947.9 NA 39.72 24.93 59.11 NA NA NA 36.94 48.73 111.55 -4.9 42.29 32.15 30.84 39.72 38.78 15.62 8.09 16.29 20.20 NA 38.87 36.74 51.51 NA NA NA 22.59 84.73 -8.91 NA 51.52 17.2 75.05 NA NA NA 9.03 58 91.72 46.2 23.07 26.77 23.18 39.35 160.9 17.99 1.80 39.24 26.15 NA 24.23 24.2 62.63 NA NA NA 34.18 85.83 53.04 NA 154.8 24.12 201.5 NA NA NA 30.21 51.27 6.93 30.6 10.3 36.2 9 33.5 5 26.2 1 22.1 1 15.0 2 6.63 34.7 3 9.35 NA 20.23 29.07 110.81 NA NA NA 36.26 81.51 3.43

TABLE.23
2004 Div Payout NA NA NA NA Nil NA NA NIL NA NIL 2005 Div Payout NA NA .26 NA .14 .26 NA NIL NA NIL 2006 Div payout NA NA .16 NA .12 .09 NA NIL 3.47 NIL 2007 Div payout NA NA .18 NA .12 .13 NA NIL 18.84 .03 2008 Div payout NA NA .46 NA .07 .18 NA NIL 42.22 .09

EPS IFCI Almondz Global Arihant Capital Brescon corporate AK Capital Service Fortune Financial India Infoline ltd Munoth Fin Services Pionee Investcorp SMIFS -51.28 1.8 3.86 6.29 8.08 2 2.56 1.31 .16 -25.41

EPS -5.79 4.19 3.83 11.35 10.54 5.71 6.45 .52 .52 -4.47

EPS 1.3 6.2 9.23 14.8 20.07 16.36 6.23 1.61 3.47 18.16

EPS 13.93 3.71 7.98 12.67 27.33 9.04 11.25 .62 12.56 27.99

EPS 15.22 4.29 39.05 28.18 48.47 11.75 29.77 .95 28.15 10.92