IMERT MBA 2006 - 2008 Batch

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IMERT - Where Leaders are made...

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Placement Cell Team,
IMERT, Pune

Corporate Study Circle - Investment banking

Investment banking

You might have wondered what exactly an investment bank is and what exactly it does. In this article, I have tried to explain some details about an investment bank and its functions. In next part I will write about investment banking career.

What is an investment bank?

An investment bank is a firm that helps companies raise capital for their business by selling securities. It differs from commercial banks because it does not have checking or savings account nor does it offer loans to people. Its clients are business firms who want to raise capital for their businesses.

However companies use investment banks in a similar way as they use commercial banks. If a company needs capital, it may get a loan from a bank, or it may ask an investment bank to sell equity or debt.

Some of the major investment banks include Goldman Sachs, Merrill Lynch, Morgan Stanley Dean Witter, Salomon Smith Barney, Donaldson, Lufkin & Jenrette, J.P. Morgan and Lehman Brothers etc.

Contrary to popular belief, investment bankers are not brokers. Brokers sell securities that a firm underwrites and manage the portfolios of retail investors. Brokers are just a part of whole investment banking system.

The main services offered by an investment bank are

Merger and acquisitions (M&A) advisory

Raising capital or financing by issuing securities

General advisory services

Departments in an Investment bank

Generally, the breakdown of an investment bank includes the following areas:

Corporate Finance

Corporate finance generally performs two different functions:

1) Mergers and acquisitions advisory and 2) Underwriting.

On the mergers and acquisitions (M&A) advising side of corporate finance, bankers assist in negotiating and structuring a merger between two companies. If, for example, a company wants to buy another firm, then an investment bank will help finalize the purchase price, structure the deal, and generally ensure a smooth transaction. The underwriting function within corporate finance involves shepherding the process of raising capital for a company. In the investment banking world, capital can be raised by selling either stocks or bonds to investors.

Sales

Sales is another core component of any investment bank. Salespeople take the form of: 1) the classic retail broker, 2) the institutional salesperson, or 3) the private client service representative.

Brokers deal with individual investors and sell stocks and stock advice to the common man. Institutional salespeople deal with large institutional investors. Institutional investors are those who manage large groups of assets, for example pension funds or mutual funds.

Private Client Service (PCS) representatives lie somewhere between retail brokers and institutional salespeople. They provide brokerage and money management services for extremely wealthy individuals. Salespeople make money through commissions on trades made through their firms.

Trading

Traders also provide a vital role for the investment bank. Traders facilitate the buying and selling of stock, bonds, or other securities such as currencies, either by carrying an inventory of securities for sale or by executing a given trade for a client.

Research

Research analysts follow stocks and bonds and make recommendations on whether to buy, sell, or hold those securities. Stock analysts (known as equity analysts) typically focus on one industry and will cover up to 20 companies' stocks at any given time. Some research analysts work on the fixed income side and will cover a particular segment, such as high yield bonds or U.S. Treasury bonds. Salespeople within the I-bank utilize research published by analysts to convince their clients to buy or sell securities through their firm. Corporate finance bankers rely on research analysts to be experts in the industry in which they are working. Reputable research analysts can generate substantial corporate finance business as well as substantial trading activity, and thus are an integral part of any investment bank.


Bibliography: Trupti Desai's blogpage

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Corporate Study Team
IMERT, Pune

Introducing IMERTs Powerful Points

IMERTs Powerful Points is the home for the best of Power Points Presentations (.ppt) by the students of MBA - IMERT, Pune.
This initiative has been taken so that everyone is made aware of the good work done by fellow IMERTians!

FAQs ...

How do I post my presentation?

- All the members of the IMERT's google group can post their ppt's along with a brief description on the topic of presentation to imertpune@googlegroups.com

Note: If you are not a member yet, you can become a member by scrolling to the end of this page and entering your e-mail ID in the text box and clicking Subscribe.

- Alternatively you can also mail your presentations to the generic mailbox of IMERT Students - imertmba@gmail.com and if your presentation is really good, it will be made available for download on this page.

How will decide if the presentation is good or not?

- This will be done by the Study Circle Team in consultation with the Corporate Study Team and the class where the presentation was given.

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Corporate Study Team,
IMERT, Pune

MBA - Guest Lecture - The Concept and Role of Mutual Funds

Ms.Purvi Shah form Karvy Stock Broking Ltd today presented a very insightful lecture on The Concept and Role of Mutual Funds and its scope in India's fast growing economy. In her talk Ms.Shah spoke about the Mutual fund structure, its accounting, disclosure and other reporting requirements, tax implications in mutual funds and also understanding the offer document, among other interesting topics.

This was followed by an interactive Q and A session.

For the presentation (.ppt) please click here.

Note: The file has been zipped(.zip) for convenient download.

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Corporate Study Team,
IMERT, Pune

Corporate Study Circle - 'Tweaks' for Interviewees

Year 2006 is being considered as the ideal year for placements of MBA grads by many, world over. With more and more investments by market leaders in the Indian market, the students here are also sure to see more of interview panels, big names on campus and fat pay packages.

FYI,

IBM to add 3,000 new employees in India
Nokia plans to add staff in Indian facility
Dell to set up manufacturing unit in India


The following article appeared on rediff and is a good read for 'interviewees'

Question: Where do you see yourself 5 years from now?

The aim of this question is to test your foresightedness and also gauge if you plan for the future. Stick to professional goals and aspirations while answering. The interviewer does not want to hear about a dream vacation you plan to take, or the industry you would like to be in. Talk about company related objectives. This is an opportunity for you to show that you want to succeed in the company and are keen on creating a career path there.

Sample answer: As your company has a strong performance-based culture, in five years I see myself playing a key role of Brand Manager, working on your marketing initiatives.

• Tip from Abbas Rizvi, Director, Eternity Placements (New Delhi): "I recommend that candidates give some thought to personal and professional aspirations, and then frame the answer accordingly. Aspiring to be the CEO or Director in five years may be unrealistic for an entry level executive. So, while enthusiasm is appreciated, it has to be aligned with the company's growth plans and the candidates' personal goals."

Question: Why should we hire you?

Being specific and highlighting your strengths versus the competition is the key here. Stay away from generalities like 'I am the best' or 'I am very hard working and dedicated', etc. Talk in quantifiable terms that will make you stand out and pinpoint the qualities you have that are valuable to the company. Give real examples that show them you are best-suited for the job.

Sample answer: In the past, I have implemented projects on attrition management, helping bring down employee turnover rates by 4 per cent. I believe this experience and knowledge will add value as employee retention is amongst your company's top priorities.

• Tip from M S Ramesh, Senior HR Manager, NTPC (Noida): "I like it when candidates have done some research about our revenue, about the challenges we are facing, before telling us how their experience relates to that. I would recommend that they point out things they may have done in their previous companies that could address our current problems."

Question: What if you don't make it in this interview?

This is often used as a stress question to check your spontaneity. The idea is to see if you have a back up plan and how you handle rejection. You need to be assertive and confident while answering this question. You can say you will be disappointed, adding that you will continue to move ahead in your career with the same enthusiasm and vigour.

Sample answer: I will be disappointed if that happens, but will work on specific feedback and try again when the opportunity presents itself.

• Tip from Rohini Seth, psychologist and organisational behaviour consultant (New Delhi): "I would recommend that candidates have a back up plan ready -- like going back to their old jobs or joining some other company in a similar field. It pays to be honest and tell the company your plans. I once heard a candidate respond to this question with 'I will join the competitor as I have an offer from them but was keen on working with your brand. We appreciated his honesty and hired him."

Question: Why do you want to make a career in ... (Sales, IT, HR, etc)?

The interviewer wants to learn what you know about the chosen career. Knowledge about the domain and the job shows the interviewer you are interested and demonstrates initiative on your part.

Sample answer: I have always been a people's person and counselling is a skill that comes naturally to me. Armed with a Master's degree in HR, I believe a job as an HR executive will give me an opportunity to put my natural skill sets and education to practice.

• Tip from Prabh Sharan, Training Manager, Kingfisher Airlines (Mumbai): "I would recommend that candidates present their interest and education as strong reasons for choosing a certain career. If you are making a career shift, then explaining the rational for such a move is also expected. Being honest helps. I interviewed a candidate who said she would like to take up a job that pays her the most and the job we offered fitted that bill as she had some financial responsibilities in the family. She came across as sincere and dedicated, and we offered her the job."

As we said earlier, it's all about the answers.

-- The writer is a corporate training consultant based in New Delhi.

Courtesy - Rediff

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Corporate Study Team

Corporate Study Circle: Lakhs And Crores to Millions and Billions

Conversions that matter when moving from Indian to global prespective…

Indian Quotation	Amount	International Quotation
1 Lakh	100,000.00	100 Thousands
10 Lakhs	1,000,000.00	1 Million
1 Crore	10,000,000.00	10 Million
10 Crores	100,000,000.00	100 Million
100 Crores	1,000,000,000.00	1 Billion

Cheers,

Corporate Study Team

MBA I - Legal Aspects - Understanding Salomon vs. Salomon Case (Contract Act)

Salomon vs. Salomon

The concept is nothing else but A COMPANY IS SEPARATE FROM ITS MEMBERS (SHAREHOLDERS). It simply means that the company is independent and separate from any other entities who are related to it (company).

Mr. Salomon had his own business of boot manufacturing, etc. It's not the main issue here.

Since his children wanted to be a part of the business as owners, Mr. Salomon sold his business to the New Company (the company, he was planning to form) for a certain amount of money ( Rs.40000 ).

He was selling his business to the new company as he knew that the COMPANY IS SEPARATE LEGAL ENTITY.

He needed 7 members (shareholders) to form that company. Fortunately or unfortunately, he had 5 children. 7 members were found: 5 children, 1 wife, and Mr. Salomon himself.

So, he gave himself 20000 shares (1 Rupee each), 1 share to each child (total 5 shares for 5 children) and 1 share to his wife.

He elected his two children together with him to be the Directors of the company.

Let me refresh the case so that you get the points mentioned above. Mr. Salomon became a SHAREHOLDER, right? Yes. But the company still owes Mr. Salomon 20000 Rupees, right? Yes ...

So, The company gives him debentures of Rs.10000 and rest Rs.10000 were paid in cash, etc.

Let me remind you ... Figures are not that important here. But remember that he is a SHAREHOLDER in the company, and now, a DEBENTURE HOLDER too.

Can you look back so that you get another point? He was a DIRECTOR also. So, He was SHAREHOLDER, DIRECTOR & DEBENTURE HOLDER.

He was an ORDINARY SHAREHOLDER who would be paid after all the creditors are paid IF THERE IS LIQUIDATION OF THE COMPANY.

But He was a Debenture Holder too.

Ok.... We are in the main part now ...

After 1 year, the company went into Liquidation (because the liabilities were more than assets by certain amount) and the creditors needed to paid.

The LIQUIDATOR asked Mr. Salomon to pay all the creditors since Mr. Salomon was the OWNER of the company.

Salomon did not agree with that. Because He (Salomon) was supposed to paid for his DEBENTURES. But the Liquidator asked him to pay to Other Creditors!!!!!

TRIAL JUDGE VAUGHAN WILLIAMS agreed with Liquidator and asked SALOMON to pay on behalf of the company since Salomon was the owner, but Salomon didn't agree.

He appealed to COURT OF APPEAL so that he (Salomon) didn't have to pay the debts owed to creditors by the company. COURT OF APPEAL said that Salomon just found 6 people (his 5 children & wife) to form the company. Those 6 people are mere nominees of Mr. Salomon. COURT OF APPEAL also asked Mr. Salomon to pay.

NOW PLEASE CONCENTRATE .....

This time Salomon appealed to the highest court "HOUSE OF LORDS".

HOUSE OF LORDS rejected all the judgments made by TRIAL JUDGE VAUGHAN WILLIAMS, COURT OF APPEAL.

HOUSE OF LORDS said that there is neither fraud in the manner which Mr. Salomon formed the company, nor Mr. Salomon formed the company for Fraudulent purpose.

So, Mr. Salomon did not have to pay to the COMPANY'S Creditors since Mr. Salomon and The Company are two Separate (Legal) Entities.The company is separate from its members!


For more details on the Contract Act kindly refer -
http://www.vakilno1.com/bareacts/indiancontractact/indiancontractact.html

Note: A report on Salomon vs. Salomon Case has to be submitted on the 22nd of Sept. 2006.

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Cheers,
MBA I - Study Circle Team

Corporate Study Circle: An interesting read...

Petrol at Rs 30 a litre? Possible, but...

S. Gurumurthy

Both Marxists and the BJP perhaps feel shy to find themselves together on the petrol price hike. But little do both realise that the economics of petrol prices needs deeper reflection and is not simply a subject of slogans and agitations. There is a process link between crude and petrol, yes. But there is a missing link between the cost of crude and the price of petrol. What is that missing link? We pay for crude supplies from outside in dollars. But we sell petrol and diesel refined out of the dollar-based crude for rupees. Thus there is an intermediary between the prices of dollar-based crude and rupee-based petrol and that is the exchange rate between the dollar and rupee. So petrol prices in rupees not only depend on the price of crude in dollars but also the price of dollars in rupees. How this missing link between the crude and petrol prices works? The global crude price today is over 70 dollars per barrel. With the dollar rated at Rs 46, the cost of one barrel of crude is Rs 2,842. Imagine the price of one dollar is not Rs 46 but just half of it – Rs 23. Then the price of one barrel of crude becomes half in rupee terms, namely Rs 1,421, even though in dollar terms it is the same, that is, 70 dollars. So if the rupee appreciates in value we need to pay less rupees for dollars. Consequently, the crude will cost less in rupee terms. What is the issue now? Currently the dollar price in rupee terms highly undervalues the rupee whose real value is more. This compels us to pay more rupees for dollars. This makes the imported items, including the crude rated in dollars, costly in terms of rupees. How did the rupee get undervalued in the market? It is the Government of India which has exerted pressure to have the rupee undervalued. Surprised? It is not a well-kept secret that in the post-reform period, whenever the rupee rose against the dollar, the Government intervened to support the dollar against the rupee and kept the rupee in the market at lower than its real value. But why should the Government do it? And how to determine the real value of the rupee and prove that the Indian currency is undervalued in the market? A slightly complex subject, but can be simplified for the uninitiated. Experts would counsel that 'in the long run', that is over a period, the value of a currency would be equal to its purchasing power, regardless of the short-term fluctuations in its prices in the market. The real determinant of the exchange value between two currencies, they say, is the relative purchasing power of both, known as Purchasing Power Parity (PPP).

Between 1955 and 1985 the real value of the Indian rupee and its exchange rate with the dollar were similar. In 1982 the real value of the rupee on PPP terms was Rs 15 to a dollar and the exchange rate was less, Rs 9.3 to a dollar. But between 1985 and 1992, the situation reversed; the real value of the rupee became lower than its actual exchange value. This led to a 20 per cent corrective depreciation of the rupee in 1991. However, from 1993, the policy was to leave the rupee largely market-determined for trade and current transactions and except for capital account. This is where the present story starts. Particularly from 1994 when investments by Foreign Institutional Investors were allowed, the rupee began appreciating in real terms. But the Finance Ministry and the RBI began intervening repeatedly to keep the rupee priced in the market at below its real value. Obsessed with the export-driven growth model of East Asian economies, the fashion then, the Government had opted for this strategy. As a crisis management formula for a while it was okay. But, on durable basis, this is unsuitable to an economy like ours which largely works on domestic activity. More, with the unprecedented dollar cost of fuel it is devastating the domestic economy now. That the rupee has been deliberately kept undervalued in the market is self-evident. First, take the rise in foreign exchange reserves and fall in rupee value. In principle if the foreign exchange reserve – that is foreign currency assets – rises, then the value of the rupee too will rise. Indian foreign currency assets have increased from 26 billion dollars in 1993 to 160 billion dollars today – an increase of 615 per cent. Surprisingly, thanks to the RBI interventions during this period to help the dollar and suppress the rupee in the market, the rupee did not rise at all! On the contrary, it has fallen from Rs 31 per dollar to Rs 46 per dollar now, that is, by 50 per cent! Next, take the Purchasing Power Parity between the rupee and the dollar. The actual GDP for 2005 measured in market determined rupee-dollar rates is 746 billion dollars against which GDP in purchasing power terms is 3699 billion dollars, that is, five times the market exchange-rated GDP. It means that the buying power of rupee is five times its actual exchange rate. Consequently the price of the rupee in the market is one-fifth of its real value. Theoretically then, the real exchange value of the rupee for the dollar should be Rs 9 to a dollar against Rs 46 to a dollar in the market today. Thus both in terms of rise of foreign assets and purchasing power of the rupee, its value should be higher than in 1993, but it is actually less! If the dollar-rupee exchange value today were the same as in 1993, when the Indian economy was not faring as well, the cost of the imported crude will be half of what it is in rupees today. This would halve the petrol prices. Then it is possible to sell petrol at Rs 30 per litre. But this will happen only if the policy makers get over their obsession of the 1990s for export-led growth.

Imagine the energy prices are halved today. What would be the competitive advantage of India? Is there any need to promote exports then? Exports will rise automatically once such cost advantage is built in. We are undervaluing the rupee to promote exports, and damage the domestic economy with artificially high energy cost which in turn hurts our export competitiveness. Ridiculous is the word. This has to be reversed. Today a strong rupee will make a stronger economy as some one put it. The reversal process can be calibrated over a period so that it does not cause shock. Will the Government and the RBI rethink? Will the Opposition, the BJP and the CPM, think rather than strike?

Comment: gurumurthy@epmltd.com


P.S: There are three kinds of lies: lies, damned lies, and statistics. But this is interesting... http://www.kshitij.com/research/petrol.shtml

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Cheers,

Corporate Study Team

Study Circle Update: 08th Sept 06

Forth coming Tests:

Economics - 11th Sept'06 (Demand Analysis)
SQM - 16th Sept'06 (LPP and Frequency Distribution)

Submissions:

IT - 9th Sept'06
CS: 1 & 2nd assignment on 14th of Sept.
Economics: 12th Sept.
Accounts: 16th Sept.

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