IFS CIA 3

COMPONENT 1

5 ARTICLE REVIEWS ON FINANCIAL SERVICES

Done By:
Priyam Garg
1620525
4 BBA E
 FINANCIAL SERVICES

Financial services refer to various functions and services which are provided to individuals and
business firms by financial institutions in a system. These are not limited to the field of deposit-
taking, loan and investment services but are also present in the fields of insurance, estate, trust,
agency services, securities and all forms of financial or market intermediation including the
distribution of financial products.

It covers a wide range of activities. It assumes a significant place in the socio-economic

environment of any country. Banking services are believed to be the oldest financial service
existing in India.

 It includes asset management companies and liability management companies.

 It helps in not only raising the required funds but also in effective distribution.
 It helps in development of funds raised, assist in decision making in regard to financial
mix etc.
 It contributes towards the growth and development through mobilization of savings and
channeling them into a productive investment.
 It is also the second highest job offering sector among the top 10 sectors in the total 60
cities tracked for the study comprising Tier 1, Tier 2 and Tier 3 cities. It has contributed a
share of 26.35 % in providing maximum employment opportunities.

On the basis of movement of funds, financial services can be classified into:

 Fund based activities: In this, funds are arranged for the customers and the financial
intermediary charges interest for the amount of funds utilized. For example, Angel
financing & Seed capital, Private equity, Leasing & Hire & Factory services, Micro-
credit etc.
 Non-fund based activities: These are basically advisory/ancillary services for which the
bank charges a fee or a commission for rendering the services. It does not involve outlay
of funds. For example, Project advisory services, Custodian services, Credit rating
services, Bills rating services, Mergers and acquisitions services etc.

On the basis of service offerings, financial services can be classified into:

  Retail Financial Services: These services are provided to individuals and small/medium
business entities. For example, Acceptance of deposits, lending to borrowers, investment
of funds in the stock market, mutual funds etc.
 Wholesale Financial Services: These services are provided to large corporate. For
example, Merchant bankers, Underwriting new securities, Portfolio managers etc.

Regulators in the Indian Financial System:

o Reserve Bank of India (RBI) – It commenced its operations on April1, 1935 during the
British rule in accordance with the provisions of the RBI Act, 1934. It is the central bank
of the country. It is entrusted with the control, supervision, promotion and development
& planning of financial system. Its main function is to control the monetary base.
o Securities and Exchange Board of India (SEBI) – Earlier, there was something known
as the Forward Market Commission (FMC) which was the chief regulator of the
commodity of the Indian Futures Market. With the passing of the Finance Act, 2015,
FMC was removed and its duties were given to SEBI.
o Pension Fund Regulatory and Development Authority (PFRDA) – Founded in 2003,
PFRDA promotes old age income security by establishing, developing and regulating
pension funds and protects the interests of subscribers to schemes of pension funds and
related matters. Currently, it is regulating PFRDA promotes old age income security by
establishing, developing and regulating pension funds and protects the interests of
subscribers to schemes of pension funds and related matters.
o Insurance Regulatory and Development Authority (IRDA) – Founded in 1999, it is
tasked with the regulating and promoting the insurance and re-insurance industries in
India. Its incumbent headquarters is in Hyderabad.

Major Players in India:

 SBI Capital Markets Ltd.

 Birla Global Finance Ltd.
 HDFC
 PNB Finance Housing Ltd.
 ICICI Group
 ARTICLE REVIEW 1
VENTURE CAPITAL FINANCING IN EMERGING ECONOMIES
By Valentina Diana, Carmen Toderascu

BACKGROUND

Venture Capital is a specialized form of financial intermediation which is centered on supporting

innovative companies, by providing finance and also by providing monitoring and advice
services. Venture capital firms are sophisticated investors, whose partners have extensive
knowledge of the industry and other previous managerial experience. They are highly committed
to make high returns in medium term.

OBJECTIVES AND METHODOLOGY

The purpose of this paper is to analyze the use of Venture Capital financing in seven selected
emerging countries from Central and Eastern Europe (Bulgaria, Estonia, Hungary, Latvia,
Lithuania, Poland and Romania).

In order to analyze the venture capital financing in the countries from Central and Eastern
Europe, the researchers used the SME Access to finance index (SMAF Index) and especially the
sub-index on access to equity finance. The equity finance sub-index is calculated using data from
the European Venture Capital Association and the European Business Angel Network.

CRITICAL ANALYSIS

 Hungary, Latvia, Estonia and Lithuania are the strongest performing countries in the
region with values of index above 100 whereas Poland, Bulgaria and Romania have the
least favourable equity finance environments.
 The value of the sub-index for EU is 98 indicating a slight decline since 2007.
 72 % of the total number of companies received venture financing in CEE compared to
only 58 % across Europe.
 We observe from the table on the type of investment in CEE (2013-14) that growth
investments in 2014 decreased by 10 %. If we consider the amount invested, we observe
a decrease from 259 million of Euro (in 2013) to 232 million of Euro (in 2014).
  The buyouts investment in the CEE region saw an increase of 120 % in 2014.
 Poland was the largest buyout from the analyzed CEE countries in 2014.
 The early stage funding (combined seed and start-up) comprised the majority of CEE
venture capital financing in 2014 with 57 % of the year’s investment value.
 When analyzing the number of companies that received venture capital investment in
CEE in 2014, Hungary took the lead with 66 companies financed comprising 31 % of the
total number of companies across the region.

DISCUSSION

The analysis in this article showed that venture capital financing is still underdeveloped in the
emerging economies of Central and Eastern Europe. The sectors attracting investments from risk
capital were the most innovative ones: communications, computer and consumer electronics and
consumer goods and retail. We have also seen an improvement in the region in 2014 compared
to 2007, but the amounts of investments are still very small compared to the developed countries
in European Union.

REFERENCES

(Valentina Diana, 2013)

Valentina Diana, C. T. (2013). Venture Capital Financing in Emerging Economies. CES Working Papers-
Volume III Issue 1 , 15.

RESEARCH GAP

The article limits itself to the countries in the European Union that also to only a few countries.
A further research as I suggest could include the economic and financial factors that sustain the
development of the venture capital market and what extent they can be applied to emerging
markets from Central and Eastern Europe.
 ARTICLE REVIEW 2
GROWING A BUSINESS- MERGERS AND ACQUISITIONS
By M.Boia, PhD student, Bucharest University of Economic Studies, Romania

BACKGROUND

Mergers and Acquisitions have become increasingly common on the financial market, with the
main goals of risk reduction and rapid business development by pooling resources, fast access to
innovation and international expansion. From the financial performance perspective, it can be
said that the 2007-08 global economic crisis had a negative impact on Mergers and Acquisitions
but they discovered that after the crisis period emerging market countries increased their foreign
acquisitions. There are various kinds of mergers and acquisitions based on different
characteristics of business, economic environment or financing operations.

OBJECTIVES AND METHODOLOGY

The article focuses on external growth strategy and the way business combinations influence the
market capitalization of the newly created group. This thesis examines top Mergers and
Acquisitions for the period 2011-2014 from the transaction value point of view and aims to
identify the quote evolution trends before and after the business combinations.

The practical approach consists of the empirical study of the amounts involved in mergers and
acquisitions between the years 2011-14. The theoretical approach involved descriptive-
qualitative research methods by detailing specific types of external growth, based on document
reviews of published academic papers, economic books, studies and journals.

CRITICAL ANALYSIS

 External growth strategies mainly start with the inability of the companies to survive on
the market due to severe crisis.
 Cross border mergers and acquisitions were on a rise between 2012 and 2014, among
transactions the largest share is held by the industrial sector followed by the real estate
and healthcare fields.
  The number of M & A increased gradually after the crisis period up to 2014 as a
Thomson Reuters study revealed.
 Comcast Corporation merged in 2014 with Time Warner Cable with good results in terms
of stock quote evolution. However, the deal was called off later as Comcast felt that it
would be too much power for one company.
 The merger of Tokyo Electron Ltd. and Applied Materials had regulatory problems and
the shares of Applied Materials fell down ultimately leading to the breaking down of the
merger.

DISCUSSION

Six years after the financial crisis the world began to recover and the global growth prospects for
the world economy shows sign of strengthen for the following two years. Due to the downward
trend of business during the financial crisis, investors are trying to overcome the negative impact
and find new opportunities for expansion or, in the worst case recover as much as their
investment.

As found from the tables and graphs, amounts involved in business combinations are at high
levels and results of mergers and acquisitions can be regarded as underlying an increase in
market capitalization. The analysis of the market capitalization is not enough in order to establish
whether a business combination is successful or not.

REFERENCES

(Boia, 2015)

Boia, M. (2015). Growing a Business - Mergers and Acquisitions. Romania.

RESEARCH GAP

In this article, the analysis of market capitalization is not enough to establish whether a business
combination is successful or not. Therefore, the analysis should include long term period after
the business combination takes place, management issues and antitrust regulatory matters.
 ARTICLE REVIEW 3
CONFLICTS OF INTEREST IN THE UNDERWRITING OF IPOS AND PRICE
STABALIZATION
By Antonio Gledson de Carvalho, Douglas Bissera Pinheiro, Marcio de Sa Mello, Joao
Amaro de Matos
BACKGROUND

The year 2004 saw a resurgence of initial public offerings in Brazil after more than a decade IPO
drought. There was an unusual flow of IPO’s until the global financial crisis 2008 drew the
market to a halt. This IPO waves occurred in a poorly regulated market: many firms received
either equity or debt capital from their future underwriters to fund growth and, thus, take
advantage of such window. Loan- conflicted relationship and subsequent underwriting of debt
securities have existed but there is not one on equity-based conflict. Chances of disguising
mispricing are higher in the issuance of equity than debt securities. It is because the cash flow of
debt securities is predetermined allowing comparison across issues.

OBJECTIVES AND METHODOLOGY

Banks that supply capital and simultaneously underwrite securities for the same clients may
benefit themselves or their clients at the expenses of investors by overpricing securities. In this
article, we investigate this issue by analyzing price stabilization and short-term returns of IPOs.
The research suggests that equity conflicted underwriters overprice IPOs and use price
stabilization to disguise overpricing.

The existing models on price stabilization predict the stabilization depends on the riskiness and
the demand for the issue. Thus, our econometric model to analyze the effect of conflict of
interest on price stabilization has the following specification:

Dependent = B0 + B1CI + B2R (vector) + B3D (vector) + B4U + E

Where, Dependent can be overallotment, stabilization or stabilization intensity.

CI = dummy variable indicating existing conflict of interest between the issuer and the
underwriter.
 R (vector) = vector of variables characterizing the riskiness of issue

D (vector) = vector of variables representing the demand for the issue

CRITICAL ANALYSIS

 Equity conflict affects price stabilization in its three dimensions, while loan-only conflict
affects just the probability of occurrence of ASC.
 It increases overallotment: an average is 14.9 versus 13.8 percent for non-conflicted
areas.
 It increases the probability of ASC: 73 versus 44 percent.
 After the stabilization, returns on equity conflicted IPOs drop by 3.5 %, while returns on
loan-only conflict increases by 1 %.
 Price revision is the only covariate for which there is statistically significant difference
between loan-only and non-conflicted IPO’s.
 Variable Size bears a negative coefficient that is statistically significant at the five or one
Percent level.
DISCUSSION

We can argue that equity versus debt conflict gives the bank stronger incentives to manipulate
prices. Equity conflicted underwriters can reduce ownership dilution by overpricing the issue and
thus increase returns on their equity investment. Debt conflicted underwriters cannot increase the
return on their debt investment by overpricing issues, since the cash flow of debt securities is
predetermined.

REFERENCES

(Carvalho, 2015)

Carvalho, A. G. (2015). Conflicts of interest in the underwriting of IPO's and price stabilization.

RESEARCH GAP
In this article, the methods are limited and there are discrepancies in results as the objective of
the research and one of the results are contrary.
 ARTICLE REVIEW 4
PERFORMANCE EVALUATION OF MERCHANT BANKING IN INDIA- A STUDY OF
SBI CAPITAL MARKET LIMITED
By Dr. Waghamare Shivaji, professor and dean, Gulburga University, Mr. Sandeep Kumar M,
Research scholar, Gulburga University

BACKGROUND

The origin of merchant banking is to be traced to Italy in late medieval times and France during
the 17th and 18th centuries. It initially consisted of merchants who assisted in financing the
transactions of other merchants in addition to their own trade. ‘Merchant Bank’ plays a very vital
role in the world of modern economic activities. The modern civilized world has firmly stood on
the strong monetary functions. As the days are progressing, commercial activities like
commerce, trade etc. are also simultaneously expanding and developing more and more, and to
give support to those activities, the role of merchant bankers has significantly increased.

OBJECTIVES AND METHODOLOGY

The purpose of this study is to:

 To know an overview of Merchant banking in India

 To evaluate income of Merchant banking in terms of Merchant banking advisory fees,
Income from securities/Hire purchase income and other income
 To know the financial performance of merchant banking in India

The present study is completely based on secondary data. The secondary data are collected from
annual reports of SBI capital market Limited, Thesis and various website.

CRITICAL ANALYSIS

 During the 5 years study period between 2009-2010 and 2013-2014, out of total income
the share of income from Merchant banking was 89.38 %.
 In terms of absolute figure in the year 2010-11 it earned maximum income of Rs. 598.04
crores which decreased to Rs.437.66 crores in 2011-12.
 The second source of this merchant bank’s income come from securities and the third
source is lease/hire purchase income.
  Expenses for ‘Employees cost & other expenses’ are the main expenses of this merchant
banks. During the time period of the study, these expenses are 59.25 and 37.51 %
respectively.

DISCUSSION

Merchant banking services strengthen the economic development of a country as they act as
sources of funds and information for corporations. Considering the way the Indian economy is
growing, the role of merchant banking services in India is indispensable. These financial
institutes also act as corporate advisory bodies to help corporations rightly get involved in
various financial activities.

REFERENCES

(Dr. Waghamare Shivaji, 2015)

Dr. Waghamare Shivaji, M. S. (2015). Performance evaluation of merchant banking in India- A study of
SBI capital Limited.

RESEARCH GAP

The data collected for this research is limited to a period of 5 years and also the most relevant
contributing factors are taken into account and the lesser important ones are ignored.
 ARTICLE REVIEW 5
RELATION BETWEEN GOLBAL STOCK EXCHANGES AND INDIAN STOCK MARKET
By Manas Mayur, Assistant Professor, Goa Institute of Management Sanquelim, Goa

BACKGROUND

With elements of digitalization and mechanization, the integration of Indian stock market with
global stock markets is increasing steadily. To gain profit in the Indian economy, one has to look
whether the overall global economy is expanding or declining.

OBJECTIVES AND METHODOLOGY

The Indian Market has always been a subject of curiosity and research. It is also observed that
the Indian stock market follows global cues which partially decide its direction for the day’s
trading. The article attempts to study the global markets to establish a mathematical model for
forecasting the value of S & P BSE Sensex.

Data is collected from major global stock exchanges for daily adjusted closing prices. The
sample indices selected for analysis represent all the major stock exchanges globally.

CRITICAL ANALYSIS

Using the mathematical model established through statistical methods, the predicted values of S
& P BSE Sensex were compared with the actual values of S & P BSE Sensex.

 63 % of the instances are such that the S & P BSE Sensex is undervalued w.r.t. the global
stock indices. The investors have an opportunity and may cash in to buy stocks during
this period with a long term perspective provided the economic health of the country is
good and growth oriented.
 Post recession period, the Indian economy showed signs of recovery.
DISCUSSION

The statistical model established through this study has been found to be a good measure. It is
however not advisable to use this model for prolong periods as in the case of sudden reversal of
direction or fall in global markets, this linear model will not be able to support. It is a proven fact
that an active stock market is volatile and moves in a cyclical manner.

REFERENCES

(Mayur, 2017)

Mayur, M. (2017). Relation betwen Global stock exchanges and Indian stock market.

RESEARCH GAP

The scope of this study is limited to the collection of secondary data, analyze and present a
mathematical model for prediction of future values of S & P BSE Sensex.