Friday, April 16, 2010

What is Investment Banking?

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So you are going to college or university and want to pursue a profession that pays good money. Somewhere along the line you asked yourself what is investment banking? Quite simply, it is the side of banking that makes an investment in a company, rather than traditional commercial banking which deals with banking tellers, deposits, withdrawals and other everyday banking activities.

This is not a job for people who are cuddly or who enjoy curly problem solving. It is the study of curved businesses and damp scenarios involving dangerous finances and deafening profits. If you are not going into the deep then you will be defeated. Investment banking has long been labelled as one of the most cut throat, competitive, jobs in the world. It has become so competitive due to the nature and size of the funds/accounts that one must deal with on a day to day basis.

The profession requires an understanding of the defiant and a delicious appetite for delightful financial reports. You cannot be depressed and you must be determined to do the dirty work that disgusted the CEO. Accountants are disturbed by investment bankers because they spin numbers in a dizzy manner while their dry, dull and dusty calculators do the maths. This is one of the reasons that investment banking flies so far under the radar. Everyone hears about accountants doing this or that, and many college students aspire to be a number crunching accountant with a decent salary. The cut-throat world of investment banking however yields far greater profits, and can be far more demanding.

Eager young people will be elated to learn that many companies are embarrassed by their recent failures in the recession and will take anyone on board with empty pockets. The companies are encouraging and seek energetic and enthusiastic employees.

The job requires an understanding of the markets and a keen eye for companies with solid portfolios and income steams. The banker will find businesses eager to expand and recommend an investment that correlates with the projected profits. It is, to some degree, business forecasting in that the banker behind all of this, is looking to guide the businesses on their investments. The bank may seek an interest return or company shares or a percentage of profits. This shares risk and reward. One of the most highly publicised and sought after (in terms of jobs) investment banks in the country is Goldman Sachs. Roam those halls and you will run into some of the most powerful people in the world.

Advantages of Investing in India

India has a 20 million-strong scientific and technical manpower, more than the population of Taiwan. The number of literates in India is more than the combined population of France and Japan. India has a vast domestic market - a 300 million-strong middle class population with substantial purchasing power and another 700 million-strong population whose capacity to purchase is gradually increasing. Being a vibrant democracy with a large democratic set-up supplemented by a broad-based legal framework including arbitration and an independent judicial system, it boasts of a vast network of bank branches, financial institutions and well-organised capital and money markets. These attributes make India a favourable destination for NRI investments.

India also has a huge network of technical and management institutions of the highest international standard for development of excellent human resources. India has an enviable record of honouring its international financial obligations and has never defaulted. The country has a strong English language base for business purposes. The strong and vibrant small-scale sector is good enough for establishing strategic alliances with its foreign counterparts. The strategic location of the country in the context of the third world markets particularly the rapidly growing South and South-East Asian markets together with a supportive infrastructure base help in promoting a healthy environment for NRI inflows into the country.

India has more billionaires than China. This year there are 15 billionaires in China but last year in India, there were 20 billionaires, according to the Forbes magazine. India has emerged as the world's fastest growing wealth creator, thanks to a buoyant stock market and higher earnings. A number of Indian companies surpassed last year's net profit in just six months of the current fiscal, reflecting accelerating corporate earnings. 44% percent of the top 100 of the Fortune 500 companies are present in India. With its manufacturing and service sector on a searing growth path, India's economy may soon touch the coveted 10 percent figure.

The Indian diaspora's business has turned hot of late. Government has always wooed non-resident Indians assiduously to attract more inflows. Apart from the money transfer business, which compared to money invested in India is smaller; the Centre is trying its best to persuade NRIs to pump money into the country like never before. And, it has seen superlative success in re-cent years. The Prime Minister of India has announced dual citizenship for people of Indian origin. It has given a big boost to the NRI community across the world. With recruitment levels for overseas jobs skyrocketing, there is scope for more money coming into India. According to a recent Business Standard report, in the last three years, 850,000 people went to West Asia alone. And even as the official figure for Indians living in the US is put at 2 million, unofficial estimates put it at 3.5 million. And emigration to Canada and Australia continues to grow.

The ministries concerned have made sure that rules and regulations are simplified to make inflows easier. Where does the government see money being invested? Investment in bank deposits and company deposits may be made by NRIs. They are subject to different rules; investments with and without repatriation facilities are permitted under the schemes. As of now, NRIs are permitted to make direct investment in partnership and proprietorship firms in the country. This, the NRIs can do by way of subscription for shares or debentures of Indian companies. Further, they can also now place funds in company deposits. NRIs who undertake not to seek at any time repatriation of the capital invested in India and the income earned thereon are permitted to invest on non-repatriation basis. NRIs also have the option of investing in mutual funds floated by domestic public sector and private sector mutual funds on non-repatriation basis.

All they have to do is to make their applications to the Reserve Bank. They can also now invest in money market mutual funds (MMMFs) floated by commercial banks and financial institutions with authorization from the apex bank or the Securities and Exchange Board of India (Sebi), the market regulator. Yet another option is to invest in the securities of the Central or State governments and the National Plan/Savings Certificates by making remittances from abroad or out of funds held in their NRE/FCNR accounts. In effect, with regulations tapering off, compared with the scene some 7-8 years ago, non-resident Indians today have more choices to invest their hard-earned money in India. And, to make things easier and hassle-free, the government is doing all it can to persuade Indians who make big money away from home to park their funds here. Commendable though is the fact that the Indian diaspora has also begun to believe that it is better to channel their money home, thereby contributing to the development process of the nation they actually belong to.