INDEX

Chapter No SUB NO Particular Page no

1 Introduction 2- 39
1.1 Merchant
banking
1.2 Merchant
banking history
1.3 Issue
management
history
1.4 Merchant
bankers and issue
management
1.5 Functions/
services of
portfolio
management
1.6 Portfolio
management
2 Research 40 – 45
methodology
2.1 Objectives of the
study
2.2 Collection of data
2.3 Tools and
techniques used
for analysis
3 Review of 46 -53
literature
4 Presentation of 54-75
data and data
analysis
5 Findings and 72
suggestions
6 Conclusion 74
7 Bibilography 75

1
 CHAPTER 1:- INTRODUCTION

MERCHANT BANKING
Original Definition: A Merchant Bank is a British term for a bank providing
various financial services such as compliant bills arising out of trade, provided that advice
on acquisitions, mergers, foreign exchange, underwriting new issues, and portfolio
management.
The Focus Definition: A Merchant Bank can be usually pronounced as a
financial services company with a private equity investment arm offering investment
banking and auxiliary amenities as well. Since a merchant bank acts not only as an
advisor and broker but also as a principal, a merchant bank has a longer-term approach
than a typical investment bank and is highly concerned with the viability of each
investment opportunity and providing the right advice for a strong partnership with each
client company.
In banking, a merchant bank is sold-style term for an Investment Bank. It can
also be used to describe the private equity activities of banking. This article is about the
history of banking as developed by merchants, from the Middle Ages onwards.
Amongst the swift changes extensive the financial world, Merchant Banking has
emerged as an indispensable financial advisory package. Merchant banking is a
service-oriented function that transfers capital from those who own to those who can use
it. They try to identify the needs of the investors & corporate sector & advice
entrepreneurs what to do to be successful.
The merchant banking has been defined as to what a merchant banker does. A merchant
Banker has been defined by Securities Exchange Board Of India (Merchant Banker)
rules, 1992, as “Any person who is engaged in the business of issue management either
by making arrangements regarding selling, buying or subscribing to securities or

2
acting as manager, consultant, advisor or rendering corporate advisory services in
relation to such issue management.

1.2 MERCHANT BANKING HISTORY

In late 17th and early 18th century Europe, the largest companies of the world were
merchant adventurers. Supported by wealthy groups of people and a network of overseas
trading posts, the collected large amounts of money to finance trade across parts of the
world. For example, The East India Trading Company secured a Royal Warrant from
England, providing the firm with official rights to lucrative trading activities in India.
This company was the forerunner in developing the crown jewel of the English Empire.
The English colony was started by what we would today call merchant bankers, because
of the firm's involvement in financing, negotiating, and implementing trade transactions.
The colonies of other European countries were started in the same manner. For example,
the Dutch merchant adventurers were active in what are now Indonesia; the French and
Portuguese acted similarly in their respective colonies. The American colonies also
represent the product of merchant banking, as evidenced by the activities of the famous
Hudson Bay Company. One does not typically look at these countries' economic
development as having been fueled by merchant bank adventurers. However, the colonies
and their progress stem from the business of merchant banks, according to today's
accepted sense of the word. Merchant banks, now so called, are in fact the original
"banks". These were invented in the middle Ages by Italian grain merchants. As the
Lombardy merchants and bankers grew in stature on the back of the Lombard plains
cereal crops many of the displaced Jews who had fled persecution after 613 entered the
trade. They brought with them to the grain trade ancient practices that had grown to

3
normalcy in the middle and far east, along the Silk Road, for the finance of long-distance
goods trades.

The Jews could not hold land in Italy, so they entered the great trading piazzas and halls
of Lombardy, alongside the local traders, and set up their benches to trade in crops. They
had one great advantage over the locals.

Christians were strictly forbidden the sin. The Jewish newcomers, on the other hand,
could lend to farmers against crops in the field, a high-risk loan at what would have been
considered usurious rates by the Church, but did not bind the Jews. In this way they could
secure the grain sale rights against the eventual harvest. They then began to advance
against the delivery of grain shipped to distant ports. In both cases they made their profit
from the present discount against the future price. This two-handed trade was time
consuming and soon there arose a class of merchants, who were trading grain debt instead
of grain.

TRADITIONAL MERCHANT BANKING

Merchant Banking, as the term has evolved in Europe from the 18th century to
today, pertained to an individual or a banking house whose primary function was to
facilitate the business process between a product and the financial necessities for its
development. Merchant banking services span from the earliest negotiations from a
transaction to its actual consummation between buyer and seller.

In particular, the merchant banker acted as a capital sources whose primary

activity was directed towards a commodity trader/cargo owner who was involved in the
buying, selling, and shipping of goods. The role of the merchant banker, who had the
expertise to understand a particular transaction, was to arrange the necessary capital and
ensure that the transaction would ultimately produce "collectable" profits. Often, the

4
merchant banker also became involved in the actual negotiations between a buyer and
seller in a transaction.

MODERN MERCHANT BANKING

During the 20th century, however, European merchant banks expanded their
services. They became increasingly involved in the actual running of the business for
which the transaction was conducted. Today, merchant banks actually own and run
businesses for their own account, and that of others.

Since the 18th century, the term merchant banker has, therefore, been considerably
broadened to include a composite of modern-day skills. These skills include those
inherent in an entrepreneur, a management advisor, a commercial and/or investment
banker plus that of a transaction broker. Today a merchant banker is who has the ability to
merchandise -- that is, create or expands a need -- and fulfill capital necessities. The
modern European merchant bank, in many ways, reflects the early activities and breadth
of services of the colonial trading companies.
Most companies that come to a U.S. merchant bank are looking to increase their
financial stability or satisfy a particular, immediate capital need.

Professional merchant bankers must have: 1) an understanding of the product, its

industry and operational management; 2) an ability to raise capital which might or might
not be one's own (originally merchant bankers supplied their own capital and thereby took
an equity interest in the transaction); 3) and most importantly, effective skills in
concluding a transaction - the actual sale of the product and the collection of profit. Some
people might question whether or not there are many individuals or organizations that
have the abilities to fulfill all three areas of expertise.

5
Who are the Merchant Bankers?

-Merchant banks are private financial institution.

-Their primary sources of income are PIPE (Private Investment In Public Entities)
financings and international trade.

-Their secondary income sources are consulting, Mergers & Acquisitions help and
financial market speculation.

-Because they do not invest against collateral, they take far greater risks than traditional banks.

-Because they are private, do not take money from the public and are international in

Scope, they are not regulated.

-Anyone considering dealing with any merchant bank should investigate the bank and its
managers before seeking their help.

-The reason that businesses should develop a working relationship with a merchant bank is
that they have more money than venture capitalists. Their advice tends to be more
pragmatic than venture capitalists.

6
 1.3ISSUE MANAGEMENT INTRODUCTION

The merchant banker plays a vital role in the management of public issues. In terms of guidelines for
merchant banker, the authorized activities are the following:

• Issue management

• Corporate advisory services related to the issue.

• Underwriting.

7
• Portfolio management services and

• Acting as manager, consultants or advisors to the issue.

Merchant banking has a pivotal role in helping mobilization of 2resources of the nation not only from
metropolitan cities but also from the Semi-urban and rural areas by advising the prospective investors
where to invest their surplus funds for remunerative returns and capital appreciation and entrepreneurs
about the profitable areas of activities.

The concept of "issue management" started getting popularity and as a natural consequence thereof, the
major banks operating began expanding them activities 3 in this innovative area. A major foreign bank
like Grind lays, Citicorp and Standard Chartered were the first entrants closely followed by Indian
counterparts like ICICI and the State Bank of India through their merchant banking divisions set up in
the early seventies. The boom in the capital market, in the early eighties followed by the gradual
deregulation in the economy and the immense strain on the profitability margin of the banks, primarily
due to reduced spread on interest income and subsidized financing can be termed as the
transformational period for the banking system, wherein a strong need was felt for diversification
simply, for survival.

Merchant bankers assist companies in tying up underwriting arrangement, for the issue; in appointing
brokers, bankers, printers, advertising agents and registrars to the issue and coordinate the activities of
these agencies and institutions for the successful floatation of the issue.

In addition to the above services, management of public issue of corporate securities also cover" advice
on the designing of a sound capital structure acceptable to the financial institutions and determining the
quantum and terms of the public issue of different forms of securities, the extent and sources, loan
finance and deployment of internal resources, etc.' It also covers, advice on timing of the public issue
and compliance with the necessities of the companies Act / Stock Exchange.

In issue management, a decision on the size and timing of the public issue in the light of the market
conditions, procuring underwriting support from brokers and institutional underwriters are equally
important tasks which a merchant banker performs.

8
For the successful issue marketing, stock exchange clearances and listing of the securities are the
necessary arrangements which are also assisted to by the merchant banker.

The various agencies associated with public issue are given below:

• Merchant bankers

• Underwriter and brokers

• Banker to the issue

• Registrar to the issue

• Advertising agents

• Legal advisor, to the issue

• Trustees for debenture holders (in debenture issue)

• Auditor of the company

• Printers

1.4 MERCHANT BANKERS AND CAPITAL ISSUE MANAGEMENT

Merchant Banker has been defined under the Securities & Exchange Board of India (Merchant Bankers)
Rules, 1992 as ―any person who management either by making arrangements regarding selling, buying
or subscribing to securities as manager, consultant, advisor or rendering corporate advisory service in
relation to such issue management. The capital issue management comprises of the effective
management of market related factors. They are • Transition to rolling settlement on the equity market •
Impact on different classes of market users • Obtaining a liquid bond market • Impact of reforms of

9
1990s • Law and taxation • Taxation of capital • Legal reforms • Political economy of financial sector
reforms • Market design, market inefficiencies, trading profits

Issue Management: The management of issues for raising funds the management of issues for raising
funds through various types of ins management. The function of capital issues management in India is
carried out by merchant bankers. The Merchant Bankers have the requisite skill and competence to
carry out capital issues management. The funds are raised by companies to finance new projects,
expansion / modernization/ diversification of existing u contained in SEBI (Merchant Banker) Rules
and Regulations, 1992 clearly brings out the significance of Issue Management as follows: issue
management either by making arrangement regarding selling, buying or subscribing to securities as
manager, consultant, advisor or rendering corporate advisory services in relation to such issue
management.

MERCHANTS OF PUBLIC ISSUE MANAGEMENT

Classification of Securities Issue:

1. Public Issue

2. Right Issues

3. Private Placements

Decision to Raise Capital Funds Preparation and Finalization of Prospectus Obtaining SEBI Approval
Arranging underwriting Selection of Registrars, Brokers, Bankers, etc. Printing and Publicity of Public
Issue Documents Arranging Press for investor Conference Issue Launch SEBI Compliance.

10
1. Public Issue of Securities When capital funds are raised through the issue of a prospectus, it is called
‗‗public issue of securities. Its capital markets. A security issue may take place either at part, or at a
premium or at a discount.

The Prospectus must disclose all the essential facts about the company to the prospective purchasers of
the shares. Further, the prospectus must conform to the formal set out in Schedule II of the Companies
Act, 1956, besides taking into the account SEBI guidelines. SEBI insists on the adequacy of disclosure
of information that should serve as the basis for investors to decide about the investment of their money.

2. Rights Issue When shares are issued to the existing shareholders of a company on a privileged basis,
it is called as ‗Rights - emotive Issue right to. The subscribe to the new issue of shares. Rights shares
are offered as additional issues by corporate to mop up further capital funds. Such shares are offered in
proportion to the capital paid up on the shares held by them at the time of the offer. It is to be noted that
the shareholders, although privileged to be offered on the issue, are under no legal obligation to accept
the offer. Right shares are usually offered on terms advantageous to the shareholders.

3. Private Placement When the issuing company sells securities directly to the investors, especially
institutional investors; it takes the form of private placement. In this case, no prospectus is issued, since
it is presumed that the investors have enough information and experience and can evaluate the risks of
the investment. Private placement covers shares, preference shares and debentures. The role of the
financial intermediary, such as the merchant bankers and lead managers, assures great significance in
private placement. They involve themselves in the task of preparing an offer memorandum and
negotiating with investors.

1.5 FUNCTIONS/ SERVICES OF MERCHANT BANKERS

11
 Merchant banking is dynamic in nature and so are the services provided by merchant
bankers. Starting from meeting the financial necessities of the merchants engaged in
overseas trade, the services provided by merchant bankers have increased manifold and are
continuously changing. Changes in the types of services performed by merchant bankers can
be attributed partly due to the changing economic environment and partly due to changing
regulatory measures by the regulators.
With the SEBI (Merchant Bankers) Amendment Regulations, 1997, the fee based,
and fund-based services of merchant bankers have been segregated and merchant bankers
can carry on the fee-based services only. So now-a-days, the functions performed by
merchant bankers in India can be broadly classified as follows:

i. Management of capital issues.

ii. Consultant, adviser of the capital issues.
iii. Corporate counseling
iv. Project counseling.
v. Underwriting of capital issues.
vi. Capital restructuring services.
vii. Portfolio management.
viii. Loan/Credit syndication
ix. Arranging working capital finance
x. Arranging foreign currency finance.
xi. Investment services to non-Indian residents.
xii. Merger and acquisition services
xiii. Arranging venture capital
xiv. Private placement of shares
xv. Issue manager for PSU divestment.
xvi. Financial engineering.

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 1.6 PORTFOLIO MANAGEMENT

INTRODUCTION

Stock exchange operations are peculiar in nature and most of the Investors feel insecure in
managing their investment on the stock market because it is difficult for an individual to identify
companies which have growth prospects for investment. Further due to volatile nature of the
markets, it requires constant reshuffling of portfolios to capitalize on the growth opportunities.
Even after identifying the growth-oriented companies and their securities, the trading practices
are also complicated, making it a difficult task for investors to trade in all the exchange and
follow up on post trading formalities.

Investors choose to hold groups of securities rather than single security that offer the greater expected
returns. They believe that a combination of securities held together will give a beneficial result if they
are grouped in a manner to secure higher return after taking into consideration the risk element. That is
why professional investment advice through portfolio management service can help the investors to
make an intelligent and informed choice between alternative investments opportunities without the
worry of post trading hassles.

MEANING OF PORTFOLIO MANAGEMENT

Portfolio management in common parlance refers to the selection of securities and their continuous
shifting in the portfolio to optimize returns to suit the objectives of an investor. This however
requires financial expertise in selecting the right mix of securities in changing market conditions to
get the best out of the stock market. In India, as well as in a number of western countries, portfolio
management service has assumed the role of a specialized service now a days and a number of
professional merchant bankers compete aggressively to provide the best to high net worth clients,
who have little time to manage their investments. The idea is catching on with the boom in the
13
capital market and an increasing number of people are inclined to make profits out of their
hard-earned savings.

Portfolio management service is one of the merchant banking activities recognized by Securities
and Exchange Board of India (SEBI). The service can be rendered either by merchant bankers or
portfolio managers or discretionary portfolio manager as define in clause (e) and (f) of Rule 2 of
Securities and Exchange Board of India(Portfolio Managers)Rules, 1993 and their functioning are
guided by the SEBI.

According to the definitions as contained in the above clauses, a portfolio manager means any
person who is pursuant to contract or arrangement with a client, advises or directs or undertakes on
behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or
administration of a portfolio of securities or the funds of the client, as the case may be. A merchant
banker acting as a Portfolio Manager shall also be bound by the rules and regulations as applicable
to the portfolio manager.

Realizing the reputation of portfolio management services, the SEBI has laid down certain
guidelines for the proper and professional conduct of portfolio management services. As per
guidelines only recognized merchant bankers registered with SEBI are authorized to offer this
service.

Portfolio management or investment helps investors in effective and efficient management of their
investment to achieve this goal. The rapid growth of capital markets in India has opened up new
investment avenues for investors.

The stock markets have become attractive investment options for the common man. But the need is
to be able to effectively and efficiently manage investments in order to keep maximum returns with
minimum risk.

Hence this is the study on “PORTFOLIO MANAGEMENT &INVESTMENT DECISION” so

as to examine the role, process and merits of effective investment management and decision.

14
DEFINITIONS OF PORTFOLIO

Investor’sWords.com

A collection of investments (all) owned by the same individual or organization. These investments
often include stocks, which are investments in individual businesses; bonds, which are investments
in debt that are designed to earn interest; and mutual funds, which are essentially pools of money
from many investors that are invested by professionals or according to indices.

1) Financial Dictionary andWikiAnswers.com

A collection of various company shares, interest securities or money-market instruments. People may
talk grandly of 'running a portfolio' when they own a couple of shares but the characteristic of a
serious investment portfolio is diversity. It should show a spread of investments to minimize risk -
brokers and investment advisers warn against 'putting all your eggs in one basket'.
DEFINITIONS OF PORTFOLIO MANAGEMENT

1. Investor’swords.com

The process of managing the assets of a mutual fund, including choosing and monitoring appropriate
investments and allocating funds accordingly.

2. Investor Glossary

Determining the mix of assets to hold in a portfolio is referred to as portfolio management. A

fundamental aspect of portfolio management is choosing assets which are consistent with the
portfolio holder's investment objectives and risk tolerance. The ultimate goal of portfolio
management is to achieve the optimum return for a given level of risk. Investors must balance risk
and performance in making portfolio management decisions. Portfolio management strategies may

15
be either active or passive. An investor who prefers passive portfolio management will likely
choose to invest in low cost index funds with the goal of mirroring the market's performance. An
investor who prefers active portfolio management will choose managed funds which have the
potential to outperform the market. Investors are generally charged higher initial fees and annual
management fees for active portfolio management.

3. Financial Dictionary
Managing a large single portfolio or being employed by its owner to do so. Portfolio managers have the
information and skill which encourage people to put their investment decisions in the hands of a
professional (for a fee).

DISCRECTIONERY PORTFOLIO MANAGEMENT

BusinessDictionary.com
Investment account arrangement in which an investment manager makes the buy-sell decisions
without referring to the account owner (client) for every transaction. The manager, however, must
operate within the agreed upon limits to achieve the client's stated investment objectives.

DEFINITIONS OF PROJECT PORTFOLIO MANAGEMENT

1).Internet.com

PPM, short for project portfolio management, refers to a software package that enables corporate
and business users to organize a series of projects into a single portfolio that will provide reports
based on the various project objectives, costs, resources, risks and other pertinent associations.
Project portfolio management software allows the user, usually management or executives within
the company, to review the portfolio which will assist in making key financial and business
decisions for the projects.
2). Bitpipe.com

16
Project portfolio management organizes a series of projects into a single portfolio consisting of
reports that capture project objectives, costs, timelines, accomplishments, resources, risks and other
critical factors. Executives can then regularly review entire portfolios, spread resources
appropriately and adjust projects to produce the highest departmental returns. Also called as
Enterprise Project management and PPM

MEANING OF PORTFOLIO MANAGERS

Portfolio manager means any person who enters into a contract or arrangement with a client.
Pursuant to such arrangement he advises the client or undertakes on behalf of such client
management or administration of portfolio of securities or invests or manages the client’s funds.

A discretionary portfolio manager means a portfolio manager who exercises or may under a contract
relating to portfolio management, exercise any degree of discretion in respect of the investment or
management of portfolio of the portfolio securities or the funds of the client, as the case may be. He
shall independently or individually manage the funds of each client in accordance with the needs of
the client in a manner which does not resemble the mutual fund.

A non-discretionary portfolio manager shall manage the funds in accordance with the directions of
the client.

A portfolio manager by virtue of his information, background and experience is expected to study
the various avenues available for profitable investment and advise his client to enable the latter to
maximize the return on his investment and at the same time safeguard the funds invested.

SCOPE OF PORTFOLIO MANAGEMENT

Portfolio management is an art of putting money in fairly safe, quite profitable and reasonably in liquid
form. An investor’s attempt to find the best combination of risk and return is the first and usually the
foremost goal. In choosing among different investment opportunities the following aspects risk
management should be considered:

17
18
a. The selection of a level or risk and return that reflects the investor’s tolerance for risk
and desire for return, i.e. personal preferences.

b. The management of investment alternatives to expand the set of opportunities

available at the investors acceptable risk level.

The very risk-averse investor might choose to invest in mutual funds. The more
risk-tolerant investor might choose shares, if they offer higher returns. Portfolio
management in India is still in its infancy. An investor has to choose a portfolio according
to his preferences. The first preference normally goes to the necessities and comforts like
purchasing a house or domestic appliance. His second preference goes to some contractual
obligations such as life insurance or provident funds. The third preference goes to make a
provision for savings required for making day to day payments. The next preference goes
to short term investments such as UTI units and post office deposits which provide easy
liquidity. The last choice goes to investment in company shares and debentures. There are
number of choices and decisions to be taken on the basis of the attributes of risk, return and
tax benefits from these shares and debentures. The final decision is taken on the basis of
alternatives, attributes and investor preferences.

For most investors it is not possible to choose between managing one’s own portfolio.
They can hire a professional manager to do it. The professional managers provide a variety
of services including diversification, active portfolio management, liquid securities and
performance of duties associated with keeping track of investor’s money.

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 1.7 PERSONS INVOLVED IN PORTFOLIO
MANAGEMENT

WHO CAN BE A PORTFOLIO MANAGER?

1. INVESTOR:
Are the people who are interested in investing their funds?

2. PORTFOLIOMANAGERS:

Is a person who is in the wake of a contract agreement with a client, advices or directs or
undertakes on behalf of the clients, the management or distribution or management of the
funds of the client as the case may be.

3. DISCRETIONARY PORTFOLIOMANAGER:
Means a manager who exercise under a contract relating to a portfolio management exercise
any degree of discretion as to the investment or management of portfolio or securities or funds
of clients as the case may be. The relationship between an investor and portfolio manager is of
a highly interactive nature.

The portfolio manager carries out all the transactions pertaining to the investor under the
power of attorney during the last two decades, and increasing complexity was witnessed in
the capital market and its trading procedures in this context a key (uninformed) investor
formed ) investor found himself in a tricky situation , to keep track of market movement
,update his information, yet stay in the capital market and make money , therefore in looked
forward to resuming help from portfolio manager to do the job for him . The portfolio

20
management seeks to strike a balance between risk’s and return.

The generally rule in that greater risk more of the profits but S.E.B.I. in its
guidelines prohibits portfolio managers to promise any return to investor. Portfolio
management is not a substitute to the inherent risks associated with equity
investment

Only those who are registered and pay the required license fee are eligible to operate as
portfolio managers. An applicant for this purpose should have necessary infrastructure with
professionally qualified persons and with a minimum of two persons with experience in this
business and a minimum net worth of Rs.50lakh’s. The certificate once granted is valid for
three years. Fees payable for registration are Rs2.5lakh’s every for two years and Rs.1lakh’s
for the third year. From the fourth year onwards, renewal fees per annum are Rs.75000. These
are subjected to change by the S.E.B.I.

The S.E.B.I. has imposed a number of obligations and a code of conduct on them. The
portfolio manager should have a high standard of integrity, honesty and should not have
been convicted of any economic offence or moral turpitude. He should not resort to rigging
up of prices, insider trading or creating false markets, etc. their books of accounts are
subject to inspection to inspection and audit by S.E.B.I... The observance of the code of
conduct and guidelines given by the S.E.B.I. are subject to inspection and penalties for
violation are imposed. The manager has to submit periodical returns and documents as may
be required by the SEBI from time-to- time.

FUNCTIONS OF PORTFOLIO MANAGERS:

Advisory role: Advice new investments, review the existing ones, identification of

21
objectives, recommending high yield securities etc.
● Conducting market and economic service: This is essential for recommending good
yielding securities they have to study the current fiscal policy, budget proposal;
individual policies etc. further portfolio manager should take in to account the credit
policy, industrial growth, foreign exchange possible change in corporate law’s etc.
● Financial analysis: He should evaluate the financial statement of company in order to
understand, their net worth future earnings, prospectus and strength.
● Study of stock market: He should observe the trends at various stock exchange and
analysis scripts so that he is able to identify the right securities for investment
● Study of industry: He should study the industry to know its future prospects,
technical changes etc., required for investment proposal he should also see the
problems of the industry.
● Decide the type of portfolio: Keeping in mind the objectives of portfolio a portfolio
manager has to decide whether the portfolio should comprise equity preference shares,
debentures, convertibles, non-convertibles or partly convertibles, money market,
securities etc. or a mix of more than one type of proper mix ensures higher safety,
yield and liquidity coupled with balanced risk techniques of portfolio management
A portfolio manager in the Indian context has been Brokers (Big brokers) who on the basis of
their experience, market trends, Insider trader, helps the limited information persons.

The one’s who use to manage the funds of portfolio, now being managed by the portfolio of
Merchant Bank’s, professional’s like MBA’s CA’s And many financial institutions have
entered the market in a big way to manage portfolio for their clients.

According to S.E.B.I. rules it is mandatory for portfolio managers to get them self’s
registered.

Registered merchant bankers can act’s as portfolio managers. Investor’s must look forward,
for qualification and performance and ability and research base of the portfolio managers

NEED AND ROLE OF PORTFOLIO MANAGER:

22
With the development of Indian Securities market and with appreciation in market price of
equity share of profit-making companies, investment in the securities of such companies has
become quite attractive. At the same time, the stock market becoming volatile on account of
various facts, a layman is puzzled as to how to make his investments without losing the same.
He has felt the need of an expert guidance in this respect. Similarly, non-resident Indians are
eager to make their investments in Indian companies. They have also to comply with the
conditions specified by the RESERVE BANK OF INDIA under various schemes for
investment by the non-residents. The portfolio manager with his background and expertise
meets the needs of such investors by rendering service in helping them to invest their fund/s
profitably.
PORTFOLIO MANAGER’S OBLIGATION:

The portfolio manager has number of obligations towards his clients, some of them are:
● He shall transact in securities within the limit placed by the client himself with
regard to dealing in securities under the provisions of Reserve Bank of India
Act,1934.
● He shall not derive any direct or indirect benefit out of the client’s funds or
securities.
● He shall not pledge or give on loan securities held on behalf of his client to a third
person without obtaining a written permission from such clients.
● While dealing with his client’s funds, he shall not indulge in speculative
transactions.
● He may hold the securities in the portfolio account in his own name on behalf of his
client’s only if the contract so provides. In such a case, his records and his report to
his clients should clearly indicate that such securities are held by him on behalf of
his client.
● He shall deploy the money received from his client for an investment purpose as
soon as possible for that purpose.
● He shall pay the money due and payable to a client forthwith.

23
 ● He shall not place his interest above those of his clients.
● He shall not disclose to any person or any confidential information about his client,
which has come to his information.

He shall endeavor to:

● Ensure that the investors are provided with true and adequate information without
making any misguiding or exaggerated claims.
● Ensure that the investors are made aware of the attendant risks before any investment
decision is made by them.
● Render the best possible advice to his clients relating to his needs and the environment
and his own professional skills.
● Ensure that all professional dealings are affected in a prompt, efficient and
cost-effective manner.

COORDINATION WITH RELATING AUTHORITIES:

The portfolio manager shall designate a senior officer as compliance offer.

The senior officer: -
● Shall coordinate with regulating authorities regarding various matters.
● Shall provide necessary guidance to and ensure compliance internally by the portfolio
manager of all Rules, Regulations guidelines, Notifications etc. issued by SEBI,
government of India and other regulating authorities.
● Shall ensure that observations made/ deficiencies pointed out by SEBI in the
functioning of the portfolio manager do not recur.

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DEFAULTS AND PENALTIES:

The following aspects must be kept in view:

⮚ Liabilities for action in case of default - A portfolio manager is liable to penalties if
he: -
1. Fails to comply with any conditions subject to which certificate of registration has been
granted.
2. Contravenes any of the provisions of the SEBI act, its Rules and Regulations.

⮚ In such a case, he shall be liable to any of the following penalties, after enquiry: -

1. Suspension of registration for a specific period.

2. Cancellation of registration.

25
 1.8 THE PERFORMANCE EVALUATION OF SERVICES RENDERED BY
MERCHANT BANKERS

INTRODUCTION

The merchant banker, plays a vital role in the management of public issues. In terms of
guidelines for merchant banker, the authorised activities are the following:

● Issue management
● Corporate advisory services related to the issue.
● Underwriting.
● Portfolio management services and
● Acting as manager, consultants or advisors to the issue.

Merchant banking has a pivotal role in helping mobilisation of resources of the nation not only
from metropolitan cities but also from the semi-urban and rural areas by advising the prospective
investors where to invest their surplus funds for remunerative returns and capital appreciation
and entrepreneurs about the profitable areas of activities.

1.8.1 ISSUE MANAGEMENT

Meaning

The concept of "issue management" started getting popularity and as a natural consequence
thereof, the major banks operating began expanding their activities 3 in this innovative area.
Major foreign banks like Grind lays, Citicorp and Standard Chartered were the first entrants
closely followed by Indian counterparts like ICICI and the State Bank of India through their
merchant banking divisions set up in the early seventies. The boom in the capital market, in the
early eighties followed by the gradual deregulation in the economy and the immense strain on
the profitability margin of the banks, primarily due to reduced spread on interest income and

26
subsidised financing can be termed as the transformational period for the banking system,
wherein a strong need was felt for diversification simply, for survival. Merchant bankers assist
companies in tying up underwriting arrangement, for the issue; in appointing brokers, bankers,
printers, advertising agents and registrars to the issue and coordinate the activities of these
agencies and institutions for the successful floatation of the issue.

In addition to the above services, management of public issue of corporate securities also covers"
advice on the designing of a sound capital structure acceptable to the financial institutions and
determining the quantum and terms of the public issue of different forms of securities, the extent
and sources, loan finance and deployment of internal resources, etc.' It also covers, advice on
timing of the public issue and compliance with the necessities of the companies Act / Stock
Exchange. In issue management, a decision on the size and timing of the public issue in the light
of the market conditions, procuring underwriting support from brokers and institutional
underwriters are equally important tasks which a merchant banker performs.

For the successful issue marketing, stock exchange clearances and listing of the securities are the
necessary arrangements which are also assisted to by the merchant banker.

The various agencies associated with public issue are given below:

● Merchant bankers
● Underwriter and brokers
● Banker to the issue
● Registrar to the issue
● Advertising agents
● Legal advisor, to the issue
● Trustees for debenture holders (in debenture issue)
● Auditor of the company

27
 ● Printers.

1.8.2 MANAGEMENT OF PUBLIC ISSUES

With the capital market growing at tremendous rate, more and more companies are approaching
the capital market 8 for equity and debt issues. The merchant banks usually deliver a package
under this service which comprises:

● Justification of premium on shares with SEBI (now that the controller of capital issues
has been abolished)
● Tie-up arrangement for underwriting the issue.
● Prospectus preparation
● Guiding the timing of issue with publicity campaign and other methods to ensure full
subscription.
● Obtaining compliance necessities for listing in stock exchanges
● Appointing registrars, managers, co-managers, collecting banks to the issue, liaison with
stock broking firms and mutual funds.

The lead manager, to the issue are responsible for all issue management activities from
drafting of prospectus / letter of offer to allotment of securities and their responsibilities
shall continue till the completion of essential follow up steps like listing of the
instruments and despatch of securities and refund orders. Even where these activities are
handled by agents, the lead manager, must ensure that the agents discharge their functions
properly by seeking various information and reports from the company. The following
are the major activities involved in public issue management.

● The evaluation of client’s fund necessities and evolution of a suitable finance package.
● The design of instruments such as equity, convertible debentures and non-convertible
debentures
● Appointment of agencies such as printers, advertising agencies, registrars, underwriters,
brokers and bankers to the issue.

28
 ● Government clearance for the project from various agencies involving licence, foreign
collaboration instrumental clearances and if necessary general body resolutions. The
major issue management functions handled by the lead manager, to the issue are given
below:
● Getting the memorandum and articles of association of the company approved by the
stock exchange where the securities are sought to be listed.
● Preparation of the draft prospectus / letter of offer and getting the same approved by
legal adviser, to the issue.
● Getting approval of the draft prospectus
● Filing of the draft prospectus with the Registrar of Companies
● Advising the company on underwriters to the issue Ganesan. "Merchant Banking:
Growing reputation", The Financial Express, May 19, 1993.
● Assisting the company in select ion and appointment of brokers and banker to the issue.
● Assisting the company in the selection of Registrars and printers.
● Assisting the company in selection and appointment of an advertising agency for the
publicity campaign for issue publicity and connected matters.
● Arranging for designing and printing of prospectus.
● Assisting the company in holding press, brokers and investors conferences in
co-ordination with the advertising agency.
● Liaising with the underwriters, brokers and bankers to the issue and stock exchanges
concerned till the issue opens.
● Handling post issue work like co-ordination with the registrars for despatch of refund
orders and allotment letters and collection of allotment money.

1.8.3 GUIDELINES AS TO ISSUE MANAGEMENT

Appointment of Registrars

29
 ● Hence forth, the lead managers shall ensure that registrars to issue registered with SEBI
are appointed in all public issues.
● Where application is expected to be very large in a public issue, the issuer in consultation
with the lead managers may associate one or more registrars holding certificates of
registration granted by SEBI for a limited purpose of collecting the application forms at
different levels for forwarding the same to the registrar to the issue. The registrar to the
issue shall, however, be primarily and solely responsible for all the activities assigned to
him for the issue management. Minimum Number of Share Application and Application
Money
● In case of public issue at par, minimum number of shares for which application is to be
made should be fixed at 500 shares of the face value of Rs.10 each.
● Where the issue is at a premium or comprises debentures whether convertible or
non-convertible the amount payable in all in respect of each instrument (i.e. on
application, allotment and calls) by each applicant shall not be less than Rs.5,000
irrespective of the size of the premium subject to application being for a multiple of
tradable lots.
● The successful applications will be issued share certificates / instrument for eligible
number of shares / investments in tradable lots; e.g. in case of shares of face value of
Rs.10 each, the tradable lots shall be 100 shares.
● The minimum application moneys to be paid shall not be less than 25% of the issue
price. The minimum number of instruments for which an application has to be made
shall in any case be not less than the marketable lot.

Basis of Allotment on over subscription

The allotment shall be subject to allotment in marketable lots, on a proportionate basis as

explained below:

30
● Applicants will be categorised according to the number of shares applied for.
● The total number of shares to be allotted to each category as a whole shall be arrived at
on a proportionate basis. General Obligation and Responsibilities As per SEBI, the lead
managers will have to fulfil the following obligations
● To enter into a memorandum of understanding with the company.
● To enter into inter se. allocation of responsibilities
● To assure that the offer documents comply with all necessities as per Companies Act,
1956, SEBI Guidelines and other related notifications of the government.
● To furnish due diligence certificate in the prescribed format.
● To independently assess the capability and capacity of the various intermediaries to
handle the issue and assure that they are registered with SEBI.
● To ensure that the banker, to the issue are appointed in the mandatory collection centres
as per Ministry of finance, Stock Exchange Division. To furnish to SEBI a certificate
from a chartered accountant / company secretary in practice to the effect that the
promoter's contribution including premium in its entirety has been paid
● To accept a minimum underwriting obligation of 5 per cent of the total underwriting
commitment or Rs.25 lakhs whichever is less.
● To satisfy himself that the issue is fully subscribed before announcing closure of the
issue.
● To exercise due caution while finalising the underwriting arrangement keeping in view
the track record of underwriters in meeting them.
● commitments in the devolved issues managed by the lead manager.
● To make it sure that the issuers release an advertisement giving details relating to over
subscription, basis of allotment etc. This advertisement should be released within 10
days from the of completion of the various activities.
● To ensure the compliance report of 45 days and 90 days respectively submitted by the
issuers.
● To ensure close co-ordination with the registrars to the issue and ensure compliance of
all subscriptions relating to the issue.

31
 ● Where there is a reservation for NRIs in public to ensure that 10 copies of the prospectus
with application forms are sent to the Indian Investment centre, New Delhi.
● To ensure compliance by the registrars to an issue in respect of handling of applications
accompanied by stock invest.
● Lead manager should note that if the offer documents modified in the light of SEBI's
observation and duly highlighting the changes made are not received by SEBI within 90
days from the date of conveying its observations, the file will be treated as closed at
SEBI. The lead managers will have to re-file the documents afresh.
● To confirm to SEBI within 7 days from the date to closure of the issue that the issue is
subscribed to the extent of at least 90 per cent.
● To ensure necessary compliance by the issuer with the Companies Act necessities with
regard to appointment of whole-time company secretaries.'
● To ensure that the collection agents appointed are properly equipped for the purpose of
collection in terms of infrastructure and man power necessities.
● In the case of unlisted companies going public for the first time, bonus shares issued to
the promoters out of free reserves built out of the genuine profits or share premium
collected in cash only will be allowed to be included for the purpose of reckoning
minimum promoter's contribution. In case of all companies where shares have been
issued to the promoters for consideration other than cash during the preceding 3
accounting years, the same will be reckoned for promoter’s contribution.
● To ensure that capital structure is presented in the offer document in the prescribed
manner.

1.8.4 Right of Lead Manager visa-a-via the Issuer

● Right to obtain correct information for preparation of the offer document for the issue
● Right to obtain copies for complete audited annual reports and other relevant documents

32
 ● Right to inspect the plant site, offices of the company or other places to ascertain the true
state of affairs of the company, specially relating to project implementation.
● Right to be consulted by the company before initiating legal proceedings in respect of any
issue.
● Right to be indemnified against any loss occasioned by acting on the opinion obtained
from the legal advisors.
● Right to interact with the legal advisors to the issue, auditors, advisors to the issue, banks
and other intermediaries associated with the issue.
● Right to reimbursement of expenses by him in the performance of his duties as the lead
manager
● Right to accept a certificate signed by the director, secretary of the company as to any
fact within the information of the company as sufficient evidence thereof.
● Right to be consulted in the matter of appointment of other intermediaries such as
registrars to the issue, bankers to the issue allotment advices, refund orders circulars etc
● Right not to be questioned for any default, omission or delay in performing any of the
duties conferred as the lead manager, provided there is no breach of duty on the part of
the lead manager.

1.8.5 PRE-ISSUE OBLIGATIONS

Memorandum of understanding

In terms of Regulation 18(2), before taking up any issue management, every, merchant banker
(lead manager) must invariably enter into a Memorandum of Understanding (MOU) with the

33
company making the issue (issuer) clearly setting out their mutual rights, liabilities and
obligations relating to the issue. 12 The lead manager may adapt the draft and incorporate such
clauses as may be considered necessary for defining his rights and obligations vis-à-vis the
issuer. While doing so, it must be ensured that either party should reserve for themselves any
rights, which would have the effect of diminishing in any way their liabilities and obligations
under the Companies Act, 1956 and SEBI (Merchant Bankers) Rules and Regulation, 1992.

Inters Allocation of Responsibilities

Where an issue is managed by more than one lead manager, the responsibility of each lead
manager shall be clearly delineated.

Submission of draft offer documents

The lead manager shall ensure that: -

● The terms of the issue and the offer documents namely prospectus or letter of offer are in
conformity with the guidelines for disclosure and investor protection and other statutory
necessities.
● The due diligence certificate as specified in Regulation 23 as per Form C accompanies
each draft offer document submitted to SEBI for vetting.
● The format or prospectus confirms to the format prescribed by the Department of
Company Affairs, Ministry of Law, Justice and Company Affairs, Vide GSR 614 (E)
dated October 3, 1991.
● The format of letter of offer conforms to disclosures prescribed in the Memorandum of
Form 2A under section 56(3) of the Companies Act, 1956 and the guidelines No.F
2/5/SE/76 dated February 5 and March 8, 1977 issued by the Stock Exchange Division
of Ministry of Finance

The following undertakings / certificates shall be enclosed with the draft offer document
submitted to SEBI: -

34
An undertaking from-

● The chief executive officer of the company that the complaints received in respect of the
issue would be attended to expeditiously and satisfactorily.
● The company secretary that the company will get the instruments of the proposed issue
listed within the prescribed time period and would take necessary steps in time for the
purpose.
● The company secretary that the company would apply in advance for the listing of the
shares which would be generated by the conversion of Debentures / Bonds.
● The issuer that the requisite funds for the purpose of despatching refund orders /
allotment letters / certificates by registered post will be made available to the registrar to
the issue.
● In the case of public issue, an undertaking from the issuer that the promoter’s
contribution including premium, in full will be brought in advance before the issue
opens.
● Certificate signed by the company secretary confirming the following:
● All refund orders against the previous issues have been despatched to the applicants,
● All shares / debenture certificates have been despatched to the allotters’; and The
instrument (s) has been listed on the stock exchange mentioned in the concerned offer
documents.
● In the case of public issue, an undertaking from the lead manager to get the issue fully
underwritten to the extent of offer to the public and to include details thereof in the final
prospectus.

Disclosures

⮚ Lead manager should ensure proper disclosures to the investors, keeping in mind their
increased responsibility consequent upon the notification of the merchant banker, Rules
and Regulations.

35
 ⮚ Lead manager shall ensure inclusion of the following information in the offer instruments

Disclaimer clause:

"It is to be distinctly understood that the vetting of the draft prospectus / letter of offer by
SEBI should not in any way be deemed / construed as approval from SEBI for the proposed
issue. SEBI does not take any responsibility for the financial soundness of any scheme or
project or for the statements made or opinions expressed in the offer document. SEBI merely
ensures, on the basis of information furnished to it, that adequate disclosures have been in the
offer document to enable the investors to take informed investment decisions".

Reservation for non-resident Indians (NRI) Overseas Corporate Bodies (OCBs) in public issues.

● "Name and address of at least one source in India from where individual NRI applicants
can obtain the application forms" - at the appropriate place.

● "NRI applicants may please note that only such applications as are accompanied by
payment in free foreign exchange will be considered for allotment under the reserved
category. Such NRIs who wish to make payment through Non-Resident Ordinary (NRO)
accounts shall not use the forms meant for reserved category but must use the form meant
for Resident Indians" - at the appropriate place

● . Stock invests -

Manner of obtaining stock invest and disposal of applications accompanied by stock

invest as also a paragraph, on the following lines at the appropriate places.

"Registrars-to-the issue have been authorised by the company through a resolution of the
Board to sign on behalf of the company to realise the proceed-s of the stock invest from
the issuing bank or to affix non-allotment advice on the instrument or cancel the stock
invest of the non-allotters or partially successful allotters who have enclosed more than

36
 one stock invest. Such cancelled stock invest shall be sent back by the registrars directly
to the investors".

Buyback arrangement for purchase of non-convertible portion (Khokha) of partly

convertible debentures.

● Full information relating to the terms of offer or purchase including the name (s) of the
party offering to purchase the kho-kha, the discount at which such offer is made and the
ultimate price that would work out to the investor including the discount portion.

Any such offer shall be on spot delivery basis, so as to be consistent with the provision of
the securities contract (Regulation) Act, 1956.

● Where no such arrangement has been disclosed in the offer document, the lead manager
may not allow such offer being made during the period he is associated with the issue.

Application form

In order to bring the salient features of the prospectus to the attention of every applicant the lead
manager shall ensure the following:

● Every application form distributed by the company or anyone else is accompanied by a

copy of the Memorandum in the manner prescribed in Form 2A under section 56(3) of
the Companies Act, 1956.
● The application form may be stapled to form part of the memorandum, alternatively, it
may be perforated part of the memorandum.
● The Memorandum in form 2A does not contain matters which are extraneous to the
contents of the prospectus.

37
 ● The memorandum in Form 2A shall be printed at least in point 7 size with proper
spacing.
● The disclaimer clause in form 2A shall be printed prominently, immediately after "Issue
Details"
● The risk factors in form 2A shall be printed along with issue highlights just preceding the
Para on "Capital Structure", with equal treatment in printing in all respects.
● In the application form meant for Indian public, the declaration relating to nationality and
resident ship shall be amended as under and shown prominently.
● The application form meant I ‘or NRIs does not contain provision for payment through
NR (0) accounts.
● On the face of the form, the following legend shall be printed in a box; Attention NRI
applicants; payment must be made through their Non-Resident External (NRE) / Foreign
Currency. Non-Resident (FCNR) accounts or through cheques / drafts sent from abroad
and drawn on convertible rupee accounts in India. Forms accompanied by cheques drawn
on NR (0) accounts are liable to be rejected".

Front outer cover page

The front outer cover page of the offer document shall contain the following details:

● The word "prospectus" or letter of offer as the case may be.

● Name of the issuer with registered office address
● Issue details
● Highlights and risk factors.
● Issue opening date
● Names and addresses of the lead manager,
● Name and addresses of the registrar to the issue.

38
 ● Credit rating, if applicable.

Appointment of other intermediaries

● Lead manager should ensure that the intermediaries being appointed are registered with
SEBI, wherever required.
● Lead manager should ensure that the banker to the issue are appointed in the mandatory
collection centres as per Ministry of Finance, Stock Exchange Division Guidelines. No.
F 1/36/SE/90 dated July 11, 1990.

Despatch of issue materials

Lead manager shall ensure that for public issue, prospectus, and other issue materials are
despatched to the various stock exchanges, brokers, underwriters and bankers to the issue well in
advance.

● Twenty copies of the prospectus and application form shall be despatched in advance.

● In the case of rights issue, lead manager shall ensure that the letters of offer are
despatched to all shareholders at least one week before the opening date of the issue.

● Four copies of the prospectus / letter of offer should be forwarded to SEBI as soon as
they are filed with the Registrar of Companies and in any case at least 15 days before
issue opening date.

39
Certificate Relating to Promoter's Contribution

A certificate from the chartered accountant / company secretary in practice to the effect that the
promoter's contribution including premium in its entirety has been brought in advance before the
public issue opens should be forwarded to SEBI at least one day prior to the date o opening in
the issue.

The certificate should be accompanied by a list of names and addresses of friends, relatives and
associates who have contributed to the promoter, quota along with the amount of subscription
made by each of them.

Underwriting

● In respect of every issue under his management, the lead manager shall accept a
minimum underwriting obligation of 5% of the total underwriting commitment or Rs.25
lakhs whichever is less.
● The outstanding underwriting commitments of a merchant banker shall not exceed 5
times his net worth at any point of time.
● The lead manager shall ensure that the issue to the public is fully underwritten and
details of underwriter, included in the prospectus.
● The lead manager shall satisfy himself that the issue is fully subscribed before
announcing closure of the issue.
● In case there is a devolvement on underwriters, the lead manager shall ensure that the
underwriters give a letter or acceptance for the amount of devolvement within 60 days
from the date of closure of the issue and pay the amount of devolvement within 90 days
from the date of closure of the issue.

Advertisements

Once SEBI information Ent card is issued no advertisement relating to the issue shall be released
without giving "Risk Factors" in respect of the concerned issue.

40
No advertisement should include any issue slogans or brand names for the issue except the
normal commercial name of the company or commercial brand names of its products already in
use. The advertisement shall also not make use of models/celebrities, etc.

Post issue obligations

Within 7 days from the date of closure of the issue, lead manager shall confirm to SEBI that the
issue is subscribed to the extent of at least 90%.

The lead manager shall ensure that the 45 days compliance report is submitted to SEBI before
the close of the next working day, without fail.

Lead managers responsible for past issue activities shall maintain close co-ordination with the
registrars to the issue and arrange to depute its officers to the offices of various intermediaries at
repair intervals alter the closure of the issue."

As regards handling of stock invests by the registrars, lead manager shall ensure compliance with
the instructions contained in SEBI circular No. PMD/Cir 11006/92 dated November 2, 1992
addressed to the registrars to the issue.

In case of delay in refund, lead manager shall ensure that the issuer pays interest for the delayed
period as per provisions of the Companies Act, 1956.

The lead manager shall be responsible for ensuring despatch of refund orders / allotment letters /
certificates by registered post only.

41
Pre-Allotment

● Follow-up and procure application forms.

● Segregate cash and stock invest applications and process them separately on the
computer.
● Tally with bank schedule and obtain final certificates.
● Validate and reject invalid applications (minor, multiple, odd lot and withdrawals).
● Group valid applications category wise.
● Invert application number and serial listing of each category.

Prepare basis of allotment and get the approval of stock exchange for the basis of allotment.

Process of Allotment

If the issue is subscribed fully of up to 90% of the offer, all the applicants would get full
allotment."

In the event of over subscription, the basis of allotment is decided in consultation with the
regional stock exchange where it is listed.

First all multiple applications and bunched applications with the same cheque are eliminated by
checking the names, age, address etc. The valid applications are then processed for allotment.
First, they are grouped into individual categories of size of 100,200.... etc., shares.

The application number are than inverted. Thus, the number bearing 5621231 will become
1321265, and then the numbers to be allotted will be chosen by the last digit. If say 2 out of 10
are allotted, these two numbers are 4 and 6 and all applications with last digit 4 and 6 are picked
on the computer.

1.8.6 POST ALLOTMENT SERVICES

42
 ● Make allotment as per basis approved
● Tally control figures
● Print share certificates / refund orders and mail
● Submit Statements / register to government bodies and Companies
● Pay brokerage and send statements to brokers.
● Pay Underwriting commission
● Assist in obtaining listing permission.

Preparation of final list of shareholders

After the basis of allotment is finalised there will be a draw of lots for the successful applicants
to be selected. The list of successful applicants and their classification into categories of shares
applied are submitted to the stock exchange. The drawal of lots and preparation of successful list
of applicants has to be done before a public representative, as per the SEBI guidelines.

After issue services

● Receive transfer request and information. Examine validity of transfer deed.

● Prepare transfer register and get them approved by company.
● Endorse share certificates
● Make entries in members register.
● Post share certificate to transferee.
● Submit periodical statements to company.
● Post annual reports / dividends / notices etc.

Prepare annual return.

43
44
 CHAPTER 2

RESEARCH AND METHODOLOGY

Research methodology is a way to solve the research problem systematically. It includes the
methods required for systematic analysis and logical interpretation of empirical evidence. So,
it covers the scope/population of the study, sample size, selection of sample, source of data
collection, tools and techniques used for the analysis, interpretation and presentation of data
and limitations of study

2.1 OBJECTIVE OF STUDY:-

1. To examine the role of merchant banking in promoting capital market in India.

2. To study the rules and regulations of SEBI for merchant bankers as issue managers.
3. To evaluate the performance of the merchant bankers.
4. To study the marketing aspects of the merchant bankers relating to the issue.
5. To study the effectiveness of pricing of the ‘issues’ (as determined by issuing company
and the merchant banker).
6. To make appropriate recommendations to merchant bankers for improving their
performance.

2.2 COLLECTION OF DATA

Data collection plays a very crucial role in the statistical analysis. In research, there are different
methods used to gather information, all of which fall into two categories, i.e. primary data, and
secondary data. As the name suggest, primary data is one which is collected for the first time by
the researcher while secondary data is the already collected or produced by others.
The data collection is classified into two types are:-
• Primary data
• Secondary data

45
1. Primary Data
Primary data is data which originate for the first time by the researcher through direct efforts
and experience specifically for the purpose of addressing his research problem. Also known as
the first hand or raw data. Primary data collection is quite expensive, as the research is
conducted by the organization or agency itself, which reacquires resources like investment and
manpower. The data collection is under direct control and supervision of the investigator.
The data can be collected through various methods like surveys, observations, physical testing,
mailed questionnaires, questionnaire filled and sent by enumerator, personal interviews,
telephonic interviews, focus groups, case studies, etc.

2. Secondary Data
The secondary data are data which collected from information which is used by other. It is not
direct information. This information is already collected and analyze by other and that
information is used by other.
The secondary data can be both qualitative and quantitative. Secondary data provide basis for
the researcher’s study.
Secondary data can be obtained from two different research stands:
Quantitative: census, housing, social security as well as electoral statistics and other related
databases.
Qualitative: semi-structure and structure, interview focus, group’s transcripts, field notes,
observation records and other personal, research- related documents.
A clear benefit of using secondary data is that much of the background work needed has been
already been carried out, for example: literature reviews, case studies might have been carried
out, published texts and statistic could have been already used elsewhere, media promotion and
personal contacts have also been utilized.
This wealth of background work means that secondary data generally have a pre-established
degree of validity and reliability which need not be re-examined by the researcher who is

46
 re-using such data.
Furthermore, secondary data can also be helpful in the research design of subsequent research
and can provide a baseline with which the collected primary data results can be compared to.
Therefore, it is always wise to begin any research activity with a review of the secondary.
Secondary data are those which have already been collected and analyzed by someone else.
There are two major sources of secondary data. They are published and unpublished sources.
A. Published Sources
Generally, published sources are international, national, government, semi-government, private
corporate bodies, trade associations, expert committee and commission and commission reports
research reports.
B. Unpublished Sources
There are certain records maintained properly by the government, agencies, private offices and
firm. These data are not published.
The secondary data are collected from following:
• Company’s annual report
• Company’s website
• Manual
• Newspaper

The present study is based on secondary data. Data have been collected from the offer
documents/ Red Herring Prospectuses of the issuer companies, BSE official Directories, SEBI
Annual Reports, SEBI Bulletins, Handbook of Statistics on the Indian Securities Market of
SEBI, Annual Reports of RBI, Reports on Currency & Finance, RBI Handbook of Statistics on
Indian economy, Prime Directories, Economic Survey and NSE’s Indian Securities markets- A
Reviewed.
A good amount of data has also been collected from different journals like Capital Market
Review, SEBI Bulletin, Dalai Street, Chartered Financial Analyst, Portfolio Organizer,
Economic &Political Weekly, Economic Survey, Chartered Accountant and Finance India etc.
Various financial newspapers, press notes, publications of various merchant bankers have also
been consulted. Besides this, the websites of SEBI, NSE, BSE, RBI and several other agencies

47
has been searched for getting the latest data and information related to the study.

2.3 TOOLS AND TECHNIQUES USED FOR ANALYSIS

In the present study, statistical tools such as average, percentage, rate of return, standard
deviation, coefficient of variation and simple regression analysis have been employed for the
analysis of data and to draw meaningful conclusion there from. Several analytical tables and
charts have been constructed for the effective presentation of the results of analysis.

2.4 PERFORMANCE OF UNDERWRITING OF PUBLIC ISSUES

Under this part of the study, pattern of underwriting of public issues has been analyzed. The
offer documents of companies stated the actual amount underwritten by different merchant
bankers in a issue. Year wise total amount and percentage of this amount to total amount
underwritten has been found for individual merchant bankers in the category of Indian and
foreign based merchant bankers. The merchant bankers have been ranked on the basis of total
amount and proportion of total amount underwritten during the period under review.
Rights issues have not been considered for this purpose as only a few of the rights issues
have been found to have underwritten during the period of study.

2.5 PRESENTATION OF DATA

In the present study, the data has been presented in the following ways:

(a) Tabular Form

Simple as well as two-way frequency tables along with percentage and average have
been prepared to analyze the data relating to the primary market and performance of
merchant bankers in the management of public issues.

(b) Bar Charts

Bar charts have been constructed to present the number of issues floated, amount raised

48
 through public issues and the average return obtained by investors through different
merchant bankers (lead managers) at different points of time covered by the study
(c) Pie Chart

Pie charts have been prepared to show the amount of public issues underwritten by
various categories of underwriters and by Indian and foreign based merchant bankers,
percentage of amount of equity issues managed by Indian and foreign based merchant
bankers etc.

2.6 LIMITATION OF THE STUDY

The followings are the limitations of the present study:

1. The study is based on secondary data. So, the limitations of secondary data may also
creep in and have an impact on the present study also.
2. Merchant bankers perform a variety of functions. The present study is limited to the
role of merchant bankers in the management of public issue only.
3. The study covers the public issues of equity and debt in India. Private Placement and
Euro issues have not been covered by the study.
4. All the figures have been taken at current prices. The impact of price level accounting
has not been taken care of

49
 CHAPTER: 3

LITERATURE REVIEW

There are no, of study Have Been done on merchant Banking

A Few of literature are Form of banking where the bank arranges credit financing, but does not
hold the loans in its investment portfolio to maturity. A merchant bank invests its own capital in
leveraged buyouts, corporate acquisitions, and other structured finance transactions. Merchant
banking is a fee based business, where the bank assumes market risk but no long-term credit
risk. A common form of banking in Europe, merchant banking is gaining acceptance in the
United States, as more banks originate commercial loans and then sell them to investors rather
than hold the loans as portfolio investments, A banque d'affaire is a French merchant bank,
which has more powers than its British counterpart. The Gramm-Leach-Bliley Act allows
financial holding companies, a type of Bank Holding Company created by the act, to engage in

50
merchant banking activities.

Okay so you want to accept credit cards from your customers, and are interested in establishing
a merchant account. Whether you own a brick-and-mortar retail store, mail order outlet. or
internet shopping operation, there are a few things to consider when choosing a credit card
processing provider.

First of all, you should make a list of several providers that offer the features you want, and then
compare the variable fees that may differ depending on the company you deal with. These fees
include things like set-up, cancellation, and monthly minimum, and may be negotiable based on
your unique circumstances.

Once you have determined what your business will be charged for its merchant account, it's
often a good idea to do a few sample calculations to work out your total credit card processing
costs during a good, bad, and average month.

Finally, you should read and double-check the contract including small print and detailed terms.
Don't sign anything until you are confident that you understand all the fees, minimums,
termination clauses, and other details. It's important to keep in mind that merchant account
providers won't go over every single point with every single customer, and that it is ultimately
your responsibility to read and understand the terms.

1) There’s more to it than what management enacts ( 2001)

Abstract
Although companies manage project portfolios concordantly with project portfolio theory, they
may experience problems in the form of delayed projects, resource struggles, stress, and a lack of
overview. Based on a research project compromised of 128 in-depth interviews in 30 companies,
we propose that a key reason why companies do not do well in relation to project portfolio
management (PPM) is that PPM often only covers a subset of on-going projects, while projects

51
 that are not subject to PPM tie up resources that initially were dedicated to PPM projects. We
address and discuss the dilemma of wanting to include all projects in PPM, and aiming at
keeping the resource and cognitive burden of doing PPM at a reasonable level.

Keywords
Managing programmes
Managing projects
Organization

2) Indian stock market (2006)

Amity college of commerce and finance

Stock market is one of the most vibrant sectors in the financial system, marking
important contribution to economic development . stock market is a place where buyers
and sellers of securities can enter into transactions to purchase and sell shares, bonds,
debentures etc. in other words stock market is a plate form for trading various securities
and derivatives. Further it performs an important role in enabling corporate,
enterpreneurs to raise resources for their companies and business ventures through public
issues. Today long term investors are interested to invest in the stock market rather than
invest anywhere. The Bombay stock exchange (BSE), the national stock exchange (NSE)
and the Calcutta stock exchange (CSE) are the three large stock exchanges of Indian
stock market
The main objective pf present study is to present review of literature related to Indian
stock market to study the Indian stock market in depth. The study would facilitate the
reader to know the past, current and future trend or prospects of Indian stock market. The
study would provide guidelines to investor to maximise profit with minimize risks. High
degree of volatility in the recent times in the Indian market has led to more development
in the future.

Keywords:- securities, derivatives, NSE, BSE, public issue, minimum risk, maximise
profit.
As a part of the process of economic liberalization, the stock
market has been assigned an important place in financing the Indian corporate sector.
Besides enabling mobilizing resources for investment, directly from the investors,
providing liquidity for the investors and monitoring and disciplining company
managements are the principal functions of the stock markets. The main attraction of the

52
 stock markets is that they provide for entrepreneurs and governments a means of
mobilizing resources directly from the investors, and to the investors they offer liquidity.
It has also been suggested that liquid markets improve the allocation of resources and
enhance prospects of long term economic growth.
Stock markets are also expected to play a major role
in disciplining company managements. In India, Equity market development received
emphasis since the very first phase of liberalization in the early 'eighties. Additional
emphasis followed after the liberalization process got deepened and widened in 1991 as
development of capital markets was made an integral part of the restructuring strategy.
Today, Indian markets conform to international standards both in terms of structure and in
terms of operating efficiency.

3) Project Portfolio Management in the Public Service:

Paulo Rafael Minetto Maceta (2007)

Abstract: This study explores the recent use of Project Portfolio Management (PPM)
methodologies in the public service. A literature review was conducted to identify the
characteristics of public the public service. A literature review was conducted to identify the
characteristics of public and other relevant aspects of the topic.

Keywords: Project Portfolio Management, Public Service, Literature Review

Private and public organizations aim to grow, and, for this, is necessary to
coordinate changes and the organization's strategy. Projects are responsible for organizational
changes and the strategies’ implementation are done through the projects execution (Rwelamila
and Purushottam, 2012). Lee et al (2008) defined a project portfolio as a set of projects that will
be implemented within a central coordination. The portfolio management conducts the projects
of an organization to ensure that the right set of projects will be done through the allocation of
the necessary resources to them. The project selection and resources’ allocation must be
reviewed and amended periodically to reduce project costs, minimize the risks to which the
organization is exposed and optimize benefits the proper projects’ execution (Dettbarn Jr. et al,
2005). Furthermore, the portfolio is a way to keep the organization focus on the long term
(Munson and Spivey, 2006), making the long term clearer for the organization (Miller and Evje,
1999).

53
 The literature review is not based only in a single methodology, it can be
done using different methodologies as bibliometric, content analysis and semantic analysis.
Randolph (2009) exhibited the goal of a literature review as a way to understand the academic
literature of a research area, the qualitative and quantitative data’s extraction, the integration
and generalization of the findings and the trend´s analysis.

4) The role of banking portfolio in transmission from current crises to banking crises

Knedlik, Tobias
Ströbel, Johannes (2003)

abstract:
This paper evaluates the potential effects of the Basel II accord on preventing the transmission
from currency crises to financial crises. By analyzing the case study of South Korea, it shows
how mismatches on banks' balance sheets were the primary cause for such a transmission, and
models how Basel II would have affected those balance sheets. The paper shows that due to
South Korea's positive credit rating in the months leading up to the crisis, the regulatory capital
reserves under Basel II would have been even lower than those under Basel I, and that therefore
Basel II would have adverse effects on the development of the crisis. In the second part, the
article analyses whether the behavior of rating agencies has changed since their failure to predict
the Asian crisis. The paper finds no robust econometric evidence that rating agencies have
started to take micromismatches into account when assigning sovereign ratings. Thus, given the
current approach of credit rating agencies, we have reservations concerning the effectiveness of
Basel II to prevent the transmission from currency crises to banking crises, both for the case of
South Korea and for potential future crises.

5) Merchant Banking Past and Present: Indian Scenario

Shreyas B. S.
Master of International Business, Bangalore University, Karnataka, India
Abstract
Merchant banking covers wide range of financial activities and in process include a
number of different financial institutions. Merchant banks are popularly called
“Accepting and issuing houses”.The merchant banking services were first ushered by
foreign banks, namely “the National Grindlays Bank” in 1967 and the “City bank”in
1970.During such stage the need for specialized merchant banking services was felt
in India with the rapid growth and size of the issues made in the primary market. It
was only in 1992 after the formation of Securities and Exchange Board of India,
which defined a set of rules and regulations for merchant banking activity in spite of
the fact that it was introduced two decades ago. The research paper has given an
overall view of merchant banking in past as well as present with respect to India.

54
 Merchant banking is one of the oldest and specialized financial intermediaries in the
primary market. Currently merchant banking activity has developed rapidly in the
Indian capital market with more than 1450 merchant bankers and more than 930 has
registered with SEBI. Merchant banking in India has a very bright future in the
coming years and has all potential in competing with International countries.
Keywords: Merchant banking, SEBI, Capital market, Regulations, Growth

Keywords: Merchant banking, SEBI, Capital market, Regulations, Growth

The financial system of a country is a complicated and integrated set of sub systems of
financial institutions, markets, instruments and financial services which facilitate the
transfer and allocation of funds efficiently and effectively. Indian financial system consists of
bothorganized and unorganized segments. The formalfinancial system comes under the
purview of Ministry of Finance, Reserve Bank of India, Securities and Exchange Board of
India and other regulatory bodies. Merchant Banking has its origin in the trading methods of
countries in the late eighteenth and early nineteenth century when trade-taking place was
financed by bill of exchange drawn by merchanting houses, as merchants were merely
financing their own activities.The role ofmerchant banking is wide ranging and they can now
provide most of the financial services required by a company, touching almost all aspects of
establishing and running of industrial units on sound financial footing.Merchant banks are
popularly called “Accepting and issuing houses”.Merchant banking is one of the oldest and
specialized financial intermediaries in the primary market.

6) The initial listing performance of Indian IPOs

Chandrasekhar krishnamurthi (2010)

ABSTRACT
Describes the environment for making initial public offerings (IPOs) in India and the process
itself; and discusses the applicability of various research explanations for underpricing to the
Indian Market. Suggests that it will be greater for new firms and issues managed by reputable
merchant bankers; and analyses 1992‐1994 data on 386 IPOs to assess their performance. Shows
that issues with high risk and/or smaller offer prices are more underpriced; and that returns are
strongly correlated with subscription levels. Discusses the underlying reasons for this and the
implications for public policy.

7) Portfolio management and profitability in Early- Nineteenth century

banking

55
Donald R. Adams, Jr.
The Business History Review

Abstract
Notwithstanding the importance of maintaining soundness, commercial banks in early
ante-bellum America still strove to maximize profits, according to Professor Adams, who cites
Stephen Girard's conservative private bank as an example. Using internal data from Girard's
bank, of the kind that is seldom available for banks, he shows that a flexible policy of shifting
from government and quasi-government securities, as they became scarcer, to business debt, both
long- and short-term, kept bank profits from declining. So long as Girard lived, his bank
remained fully competitive with the growing number of chartered institutions.

The Business History Review is a quarterly journal of original research by leading historians,
economists, and scholars of business administration. The journal began publication in 1926 as
the Bulletin of the Business Historical Society and adopted its current name in 1954. The
primary purpose of BHR, as stated when it began publication, is to "encourage and aid the study
of the evolution of business in all periods and in all countries." Issues contain articles,
announcements, book reviews, and occasionally research notes. Special issues or sections have
been devoted to subjects such as business and the environment, computers and communications
networks, business-government relations, and technological innovation.

8) Under-pricing in Initial Public Offerings: The Indian Evidence

T P Madhusoodanan , M Thiripalraju (2001)

Abstract
Underpricing in the initial public offerings (IPOs) is a well documented phenomenon in the
stock markets. In this paper T P Madhusoodanan and M Thiripalraju analyse the Indian IPO
market for the short-term as well as long-term underpricing. They also examine the impact of
the issue size on the extent of underpricing in these offerings and the performance of the
merchant bankers in pricing these issues. The study indicates that, in general, the underpricing
in the Indian IPOs in the shortrun was higher than the experiences of other countries. In the
long-run too, Indian offerings have given high returns compared to negative returns reported

56
 from other countries. The study also reveals that none of the merchant bankers showed any
better pricing capabilities.

9) Merchant banking operations of south-east bank limited

Chaudhary maruf ahmed (2007)

The analytical presentation of the report is based on my internship experience. The management of
Southeast Bank Limited has assigned me in the project named Merchant Banking operation of Southeast
Bank Limited: A New Dimension' after official correspondence with SEBL and the organization l work in
Bay Leasing Investment Ltd. Southeast Bank Limited started its operation in mid-1995 and has since been
able to establish the one of the largest network of 85 branches among the first generation banks in the
private sector. I was assigned to work in SEBL Merchant Banking Wing, Dhaka. The Period I worked there
is from January 15, 2015 to April 30, 2015. A great deal of learning and on the job experience was gained
by working in different department of the branch. The staff and the management were extremely
cooperative and friendly to me. Corporate Branch concentrates on the full services of consumer banking
such as, merchant bank wing and remittance. The procedure of the banking operation is major fact for
the success of the bank in this competitive market. SEBL provide better and quick service to its clients.
Continuous improvements gaining the competitive edge, increase market share, higher profit none of
these things are possible unless they can find new way of getting closer to the customers. SEBL various
departments like, merchant bank wing, General Banking, Foreign Exchange, credit Management works as
a team for the success of the organization. Thus by providing a various type of distinctive services
Corporate Branch, SEBL is playing a vital role.

Keywords
Merchant banking; Southeast Bank Limited

10)Portfolio Management and Profitability of Commercial Banks (2005)

57
 Abstract:
Banks optimally invest to earn profit as they consider the associated risks with such
portfolio management. Portfolio management is a medium by which the banks hold
investment due from other banks, purchase Government securities and invest in
subsidiaries. This paper investigates the effect of banks’ portfolio management on
profitability. Five commercial banks that arem listed on the Ghana Stock Exchange
were randomly selected for the study. Data on the total market value of Government
securities, investment in subsidiaries and due from other banks were collected from
the Bank of Ghana and the Ghana Stock Exchange between 2008 and 2017. As panel
study, we regress portfolio management on profitability. The findings show that
holding of government securities and investing in subsidiaries have a significant
positive effect on the profitability of banks in Ghana. The findings also show that
non-performing loans have a significant negative effect on the profitability of the
banks. Therefore, it is recommended that banks should develop a balance between
holding government securities and investing in subsidiaries to improve upon its
profitability. The banks should also double their efforts to reduce their
non-performing loans by enhancing the skills of its officers, strengthening its due
diligence procedures and intensify monitoring activities.
Keywords: Portfolio Management, Performance, Investment, Banks, Profitability

58
 CHAPTER NO 4 - DATA ANALYSIS AND INTERPRETATION

QUESTION 1:
Graph 1

Purpose of Investment Percentage %

Liquidity 9.1%
Return 76.4%
Tax Benefits 12.7%
Other 1.8%

59
INTERPRETATION:
This sample shows that the number of peoples and their basic purpose of investment, there are
76.4% people who invest for returns, 12.7% peoples have investments purpose of Tax Benefits,
9.1% peoples are invested for Liquidity and 1.8% people’s purpose of investment is Other than
above.

QUESTION 2:
Graph 2

60
 Table 2

Awareness about merchant Percentage

banking
Yes 63.6%
No 21.8%
Maybe 14.5%

INTERPRETATION:

So as per these samples we get to know that, 63.6%% peoples are aware of merchant banking
and 14.5% of people have little knowledge they know about operational activity related to
merchant banking, and remaining 21.8%% peoples are not aware of merchant banking they don’t
know about merchant banking.

QUESTION 3:
Graph 3

61
 Table 3

Purpose of Investment Percentage %

ICICI BANK 32.1%
SBI BANK 32.1%
Tax Benefits 32.1%
Other 3.7%

62
INTERPRETATION:
As per this sample, 32.1% peoples are thinking the SBI Bank is provide maximum services,
32.1% peoples think ICICI Bank provide maximum services, 32.1% peoples think that tax
benefit and 3.7% people think or had selected other options

QUESTIONS 4:
Graph 4

Table 4

Financial services of Percentage

merchant bank
Yes 60.7%
No 39.3%

63
INTERPRETATION:

Merchant bank provide so many services. Financial services are one of the best services provide
by merchant bank. Study shows that, 60.7%% of peoples are take financial services from
merchant bank, and 39.3%% of peoples are not using financial services from merchant banking.

QUESTIONS 5:

Graph 5

64
 Table 5
Choices Percentage
Yes 69.6%
No 30.4%

INTERPRETATION:

As per this sample consist 69.6% peoples are satisfied with the services provided by merchant
bankers and other there are 30.4% peoples who are not satisfied with services provided by
merchant bankers.

QUESTION 6:
Graph 6

65
 Table 6

Situation in Private Sector Percentage

Good 53.6%
Normal 46.4%
Bad 0%

INTERPREATION:

As per this sample shows that, 46.4% peoples thinking that merchant bank have position are
Normal in private sector, 53.6% peoples are thinking that merchant banking having position is
Good and remaining 0% peoples are thinking merchant bank position is Bad in a private sector.

66
QUESTIONS 7:

Graph 7

Table 7

Situation in Public Sector Percentage

Good 26.8%
Normal 64.3%
Bad 8.9%

INTERPRETATION:

As per this sample shows that, 64.3% peoples are thinking that the merchant bank having a
Normal position in public sector, 26.8% peoples are thinking that merchant bank have a position
is Good in public sector and remaining 8.9% peoples are thinking is merchant bank in public
sector having a Bad position.

67
QUESTIONS 8:
Graph 8

Table 8

Type of security Percentage

Bank security 32.1%
Shares 41.1%
Gold 17.9%
Other 8.9%

INTERPRETATIONS:

68
This is shows that, 41.1% peoples are approaches for Shares security deposit with the merchant
banking, 25.0% peoples are approaching a Bank Security for deposit with the merchant banking,
7.1% peoples are approaches Gold security deposit with merchant banking and 33.9% peoples
are approaches for Other Security deposit with merchant banking.

QUESTIONS 9:

Graph 9

Table 9

Choices Percentage

Yes 857.%
No 14.3%

69
INTERPRETATIONS:

As per this sample consist of 85.7% peoples thinking they are satisfied with the timely services
provided by merchant bankers and 14.3% peoples thinking they are not satisfied with timely
services provided by merchant bankers.

QUESTIONS 10:

Graph 10

70
 Table 10

Security margin Percentage

Yes 64.3%
No 35.7%

INTERPRETATIONS:

So as per this sample shows that, merchant banking plays an important role for the day to day
life. As per the responders, 64.3% peoples are satisfied with security margin charges by merchant
bank and 35.7% peoples are not satisfied with security margin charges by merchant bank.

QUESTIONS 11:

Graph 11

71
 Table 11

Management of portfolio Percentage

Self 46.4%
Depends on the company portfolio 42.7%
Other 10.7%

INTERPRETATIONS:

Most of the responder’s as per this sample, 42.7% peoples are Depends on the company portfolio
for their own portfolio management, 46.4% peoples are managing their portfolio by Self and
10.7% peoples are thinking that they manage portfolio by other way.

QUESTIONS 12:

72
 Graph 12

Table 12

Choices Percentage
Yes 58.9%
No 41.1%

INTERPRETATIONS:

Merchant banking provides so many services. One of the services is portfolio management
discussing in this study. Study shows that, 58.9% peoples are approaches portfolio management
services of merchant banking and 41.1% peoples are not using the portfolio management
services of merchant banking.

73
QUESTIONS 13:

Graph 13

Table 13

Type of portfolio Percentage

Equity 55.4%
Debt 8.9%
Balanced 35.7%

INTERPRETATIONS:

74
There are three types of portfolio we discussing in this study I.e. Equity, Balanced, & Debt. As
per this sample consists of 55.4% peoples preferred Equity type of portfolio, 35.7% peoples are
preferred Balanced type of portfolio and 8.9% peoples are preferred Debt type of portfolio.

QUESTIONS 14:

Graph 14

Table 14

Experience of portfolio management Percentage

Earned 57.1%
Faced loss 7.1%
No profit/loss 35.7%

75
INTERPRETATIONS:

Many peoples are engaged with so many different services of merchant banking and they all
have so many different experiences with the same. As per the responder, peoples were
experienced 35.7% No Profit/Loss situation about portfolio management services of merchant
banking, 57.1% peoples are earned from their experienced and 7.1% was experienced Loss
situation in portfolio management services of merchant banking.

QUESTIONS 15:

Graph 15

Table 15

Choices Percentage
Yes 85.7%
No 14.3%

76
INTERPRETATIONS:

IPO stands for the Initial Public Offer, which play an important role for a company to raise funds
from market. As per this sample consists of 85.7% peoples are aware about for IPO and they
heard about company’s IPO and remaining 14.3% peoples are not aware about IPO and not even
heard about company’s IPO.

QUESTIONS 16:

Graph 16

Table 16

77
 Choices Percentage
Yes 57.1%
No 42.9%

INTERPRETATIONS:

So as per this sample, 57.1% peoples are interested in IPO and they have interested in taken part
of company’s IPO and 42.9% peoples are not shown their interest in IPO and they are not taken
any part in company’s IPO.

QUESTIONS 17:

Graph 17

78
 Table 17
Risk in issue management Percentage

Something that has happened or a current 32.1%

problems
Something that hasn’t happened yet but has 30.4%
some probability of occurring
Potential future fund 17.9%
None of the above 19.6%

INTERPRETATIONS:
So as per the above sample or pie chart we can see that 32.1% people thing that if something
happened or a current happened in issue market, and 30.4% people think that if something hasn’t
to market but yet there are probability of occurring downward or risk in market, and there are
17.9% people think there are potential fund is more risky, and some 19.6% people think none of
the above option

QUESTIONS 18:

Graph 18

79
 Table 18

Growth in portfolio Percentage

Yes 73.2%
No 1.8%
Maybe 25%

INTERPRETATIONS:

So as per the above sample or pie chart we can see that 73.2% public think that there will be
growth in portfolio management as there is great future ahead. There are 25% public think that or
they are not sure about that and 1.8% people think that there will no future of market they think
there is no future.

80
 CHAPTER 9

FINDINGS AND SUGGESTIONS

Time and again the Merchant Banking Industry in India witnessed, experienced and
underwent significant changes, The very purpose for which these firms are commenced
their services should be taken care of and they should mould their policy decisions and
activities to move in tune with the main objective of Investors’ protection and to create a
healthy environment in capital markets. No doubt, Merchant Banking firms are subject to a
host of control measures, regulations and rules framed and guided by SEBI. To some
extent, frequent changes and / or amendments to policies and control measures, though
needed for smooth working of the securities Industry, proves to be detrimental to the very
existence of the Merchant Banking system in the country. The SEBI's Act, 1992 confers
power upon SEBI to supervise and control the affairs of the Merchant Banking firms in
India. It exercises control over the all activities of the Merchant Banking firms through
different measures. Assessment of the Merchant Banking firms performance is beset with
many difficulties on account of the diverse commercial objectives that influence their
performance. Notification of Merchant Banking Regulations and amendments to it from
time to time by SEBI brought the Merchant Banking Industry to a new dimension.

The various studies which had been undertaken in India for evaluating the
performance of Merchant Banking firms and the implications of these on securities
Industry. No single study has been emerged so far pertaining to the evaluation of Merchant
Banking firms and in-depth study on their activities as well as operational and financial
performance in the light of changing regulatory environment. Hence, the Research Study

81
captioned “Merchant Banking in India- A study with Special Reference to Evaluation of
Functions and Performance", is an attempt in the direction of penetrating in to the subject
and to emerge with truth and illuminating comments.

This concluding Chapter, besides, covering various issues related to role, responsibilities
and future trends of Merchant Banking Industry, also covers the opinions and remarks
made by the industry professional in the field about the Merchant Banking. Last but not
least, this Chapter also covers the conclusions drawn and possible suggestions, based on the
study, were made with the objective of smooth functioning of the Merchant Banking
system in the country. In recent past, the small investor has turned his back on the primary
capital market. Issue after issue as failed to capture his imagination, rekindle his
enthusiasm, and reinforce his faith. He has lost ail hopes of appreciation of his investment.
And this when all these years millions have though capital market, ate capital market and
dreamt capital market. It needed an extraordinary effort and skill the drive the small
investor away! High premiums, false premiums and gray market operations. The professed
protector of his interests first laid down the dictum of propionates allotment, then of
minimum subscription, all working against his interests. This would make an observant
student of the stock market infer that there is some game plan afoot to dethrone the small
investor from his pre- eminent position in the capital market. In the traditional Indian
market.

82
 CHAPTER 10

CONCLUSION
From the above discussion it is clear that portfolio functioning is based on market risk, so
one can get the help from the professional portfolio manager or the Merchant banker if
required before investment because applicability of practical information through
technical analysis can help an investor to reduce risk. In other words, Security prices are
determined by money manager and home managers, students and strikers, doctors and dog
catchers, lawyers and landscapers, the wealthy and the wanting. This breadth of market
participants guarantees an element of unpredictability and excitement. If we were all
totally logical and could separate our emotions from our investment decisions then, the
determination of price based on future earnings would work magnificently. And since we
would all have the same completely logical expectations, price would only change when
quarterly reports or relevant news was released“I believe the future is only the past again,
entered through another gate” –Sir Arthur wing Pinero. 1893

If price is based on investors’ expectations, then knowing what a security should sell for
become less important than knowing what other investors expect it to sell for.

A Casino make money on a roulette wheel, not by knowing what number will come up
next, but by slightly improving their odds with the addition of a “0” and “00”. Yet many
investors buy securities without attempting to control the odds. If we believe that this

83
dealing is not a ‘Gambling” we have to start up it with intelligent way I can conclude from
this project that portfolio management has become an important service for the investors
to identify the companies with growth potential. Portfolio managers can provide the
professional advice to the investors to make an intelligent and informed investment.
Portfolio management role is still not identified in the recent time but due its
expansion of investors market and growing complexities of the investors the services of
the portfolio managers will be in great demand in the near future
Today the individual investors do not show interest in taking professional help but
surely with the growing reputation and awareness regarding portfolio’s manager’s people
will definitely prefer to take professional helps
.

CHAPTER 11
BIBLIOGRAPHY

1. WWW.GOOGLE.COM

2. https://shodhganga.inflibnet.ac.in/bitstream/10603/3566/13/13_chapter%206.p

df

3. WWW.ECONOMICSTIMES.COM

4. WWW.IPO.COM

5. WWW.MONEYCONTROL.COM

84
6. WWW.SEBI.GOV.IN

7. WWW.NSEINDIA.COM

8. WWW.GREYMARKET.CO.IN

9. WWW.BSEINDIA.COM

10. WWW.RBI.ORG.IN

11. WWW.IPOGUIDE.IN

85