Backdrop

Merchant banking firms, by whatever name they are referred, have been playing a pivotal role in global economic growth for centuries. It took an organized form in Europe and the UK in the 18^th century. It started with assisting in trade finance and then expanded to complete financial and advisory services. In India, SBI and ICICI set up their merchant banking divisions in early 1970s. In 1992, SEBI mandated the registration of merchant bankers to carry out their activities in Indian securities markets.

The global investment banking market is estimated at around $380 billion in 2024 (more than Rs. 32 lakh crores). India’s investment banking business reached $1.3 bn in 2024 (approx. Rs. 11,050 crores) in terms of fees earned by Indian investment bankers. Kotak Mahindra leads with 7.2% of the total fees generated by Indian investment bankers. Fees are substantially received from two segments:

1. Equity Capital Markets (fundraising from the market – debt and equity)
2. Mergers and Acquisition advisory

ECM raised nearly $72.3 bn from Indian investors. Of which, IPOs reached an all-time high worth $20.5 bn while FPO raised $51.6 bn this year surpassing all records.

M&A value and volumes fluctuate depending on global and local economic sentiments. 2024 ends with nearly 3000 transactions with deal value of around $80.5 billion (nearly Rs. 7 lakh crores). Domestic M&A reached $41.9 bn, inbound M&A grew to $29.6 bn; and outbound M&A grew to $8.3 bn.

Source: https://mergersandinquisitions.com/

SEBI (Merchant Bankers) Regulations, 1992.

https://www.business-standard.com/finance/personal-finance/india-s-investment-banking-fees-reach-1-3-bn-in-2024-kotak-mahindra-leads-125010300290_1.html

Top Indian investment bankers

Source: Extracted from https://indiadispatch.com/p/india-investment-banking-2024-full-review

This market is significantly driven by the following:

1. Growth in emerging markets raises demand for orderly growth of the corporate sector, development of newer and innovative financial products, application of technological advances to achieve depth and attain global reach.
2. Demand for funds for growth and expansion.
3. Growing complexity in corporate finance and capital markets. Companies seek professional advice for navigating complex financial transactions.
4. Sustainability and ESG concerns.

Services

Investment banking institutions offer a wide array of services to clients, among others, including:

1. Mergers and Acquisitions (M&A) Advisory: Investment banks advise companies on mergers, acquisitions, and other strategic transactions.
2. Fundraising and Underwriting Securities: Investment banks facilitate raising funds through various financial instruments.
3. Project management and credit syndication: They assist companies in project planning, including writing feasibility reports and negotiating with financial institutions. They also assist in arranging for short – long term funds from banks and financial institutions.
4. Financial Advisory: They provide financial advice to clients on various matters, including strategy, restructuring, valuation, etc.
5. Research: They conduct research on companies, industries, special themes, and markets to provide their insights and recommendations to clients.

Structure of investment banking

The investment banking industry is classified into three categories from a size perspective:

1. Bulge bracket (upper tier)
2. Middle market (mid-level businesses)
3. Boutique market (small and specialised businesses)

From the structural perspective, investment banking firms are classified into the following categories:

1. Full services banks: These firms provide both advisory and banking services, and research on a wide range of financial products.
2. Financial conglomerates: These companies offer all kinds of banking and other financial services combined with investment banking services.
3. Independent investment banks: These firms exclusively offer investment banking services that include, among others, fundraising, and corporate advisory.

Qualities

There is a tough competition to enter into this profession. There are a few critical skills and qualities a student should inculcate before he or she is out in practice. They are:

1. Ability to maintain complete confidentiality on assignments he or she is working on.
2. Commitment to ethical practices as Investment bankers face situations of conflict of interests
3. Optimum mix of qualitative attitude and quantitative skill set.

Institutions should help students to develop both qualitative and quantitative skill sets. Qualitative skill sets include an enabling attitude, commitment to ethics and integrity, pleasant personality, effective communication skills, creative and out-of-the-box thinking, good presentation skills, etc. Cultivating quantitative skill sets include, among others, good knowledge of multi-disciplines including corporate strategy, corporate finance, financial accounting, investment finance, financial modeling, and adequate command over language, etc.

Getting into investment banking

It is not easy to enter into the core of the investment banking profession unless one is from one of the reputed IIMs. Alternatively, one is a chartered accountant with adequate soft skills or one has undergone a specialised module on investment banking at reputed institutions. One can also enter laterally into a large and reputed investment bank after gaining a couple of years of experience in mid-level or bouquet firms.

Every year this sector needs a large talent pool over and above served by the IIMs and CAs at all levels of job profiles. Middle to lower levels of job profiles remain unfilled and offer good opportunities to deserving candidates. One may have to initially work on pitch documents, sector and company analysis, developing financial models for valuation assisting Analysts or Associates in a typical investment banking firm.

Another way to enter into an investment banking firm is to gain internships in these firms. during one’s studies. This will, however, not guarantee an entry but it will increase the chances of culminating into a full-time job.

Courses offered by reputed academic institutions which are generally known for strong industry-academic association and designed their courses in consultation with industry professionals or industry association would also help students to get entry into the investment banking sector. It is particularly helpful when investment banking professionals in practice are invited to teach or/and share their experiences on a regular basis.

NISM offers one such specialised certificate course on investment banking in association with the Association of Investment Banking of India.

Poised for higher growth

The investment banking industry has been contributing in achieving orderly economic growth by assisting companies and governments to raise funds and offering strategic advice for corporate restructuring to create value. In order to adapt to clients’ expectations, evolving regulations, geo-political changes, and technological advances, investment bankers have to continuously innovate to manage the changes. There may be temporary ups and downs along with economic cycles but this sector continues to witness significant growth in times to come.