INDUSTRY PROFILE

FINANCIAL SERVICES INDUSTRY

KAVITHA JAGADISH

HR INTERN

AMRITA SCHOOL OF BUSINESS

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 INTRODUCTION

The financial services sector provides financial services to people and corporations. This segment of
the economy is made up of a variety of financial firms including banks, investment houses, lenders,
finance companies, real estate brokers, and insurance companies. This industry is leading the world in
terms of earnings and equity market capitalization. Large conglomerates dominate this sector, but it
also includes a diverse range of smaller companies. Companies in the financial services industry
manage money. For instance, a financial advisor manages assets and offers advice on behalf of a
client. The advisor does not directly provide investments or any other product, rather, they facilitate
the movement of the funds between severs and the issuers of securities and other instruments. This
service is a temporary task rather than a tangible asset.

IMPORTANCE & ROLE

The financial service sector is the primary driver of a nation’s economy. It provides the free-flow of
capital and liquidity in the market place. When the sector is strong, the economy grows, and
companies in this industry are better able to manage risk. The main strength of the financial service
sector is also important to the prosperity of a country’s population. When the sector and economy are
strong, consumer generally earns more. This boosts their confidence and purchasing power. When
they need access to credit for large purchases, they turn to the financial services sector to borrow. A
strong financial services sector can lead to economic growth while a failing system can drag down
nation’s economy. This can lead to to a recession. When the financial system starts to break down, the
economy starts to suffer. Capital begins to dry up as lenders tighten the reins on lending.
Unemployment rises, and wages may even drop, leading consumers to stop spending. In order to
compensate, central banks lower interest rates to try to boost economic growth. This is primarily what
happened during the financial crisis that led to the great recession.

BANKING FINANCIAL SERVICES

The banking industry is the foundation of the financial services group. It is most concentrated with
direct saving and lending, while the financial services sector incorporates investments, insurance, the
redistribution of risk, and other financial activities. Banking services are provided by large
commercial banks, community banks, credit unions, and other entities. Banks earn revenue primarily
on the difference in the interest rates charged for credit accounts and the rates paid to depositors.
Financial services like these primarily earn revenue through fees, commissions, and other methods
like the spread on interest rates between loans and deposits.

FINANCIAL INTERMEDIARIES

A financial intermediary is an entity that acts as the middleman between two parties in a financial
transaction, such as a commercial bank, investment bank, mutual fund, or pension fund. Financial
intermediaries offer a number of benefits to the average consumer, including safety, liquidity, and
economies of scale involved in banking and asset management. Although in certain areas, such as
investing, advances in technology threaten to eliminate the financial intermediary, disintermediation is
much less of a threat in other areas of finance, including banking and insurance.

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FINANCIAL INSTITUTIONS

A financial institution is a company engaged in the business of dealing with financial and monetary
transactions such as deposits, loans, investment, and currency exchange. Financial institutions
encompass a broad range of business operations within the financial service sector including banks,
trust companies, insurance companies, brokerage firms, and investment dealers. Financial institutions
can vary by size, scope, and geography. Virtually everyone living in a developed economy has an
ongoing or at least periodic need for the services of financial institutions. Financial intuitions serve
most people in some way, as financial operations are a critical part of any economy, with individuals
and companies relying on financial institutions for transactions and investing. Governments consider
it imperative to oversee and regulate banks and financial financial institutions because they do play
such an integral part of the economy. Historically, bankruptcies of financial institutions can create a
panic.

FINANCIAL MARKETS

Financial service market comprises participants such as commercial banks that provide various
financial services like ATM, credit cards, credit rating, stock broking etc. is known as financial
service market. Individuals and firms use financial services markets, to purchase services that enhance
the working of debt and equity markets.

FINANCIAL MARKETS

A financial market is a market in which people trade financial securities and derivatives at low
transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals,
which are known in the financial markets as commodities. The term market is sometimes used for
what are more strictly exchanges, organizations that facilitate the trade in financial securities. This
may be a physical location or an electronic system.

ROLE OF FINANCIAL MARKETS

Financial markets play many important economic roles. They enable individuals to achieve a better
balance between current and future consumption. Financial markets bring the borrowers in contact
with the lenders and in the process make both better off. Financial markets also allow efficient risk
sharing among investors. Risks are of two types: diversifiable and non-diversifiable. Diversifiable risk
can be eliminated by holding assets the returns of which are not perfectly correlated. Financial
markets not only help investors in diversifying some of the risk, but also offer a wide array of
financial instruments with very different risk return relationships. This enables individuals to choose
the risk profile of their investments according to their risk-tolerance levels. Investors who are
extremely risk averse whereas more risk-tolerant investors may elect to invest in speculative stocks.

INDIAN FINANCIAL MARKET

It comprises of primary market, FDI, alternative investment options, banking and insurance and the
pension sectors, asset management segment as well. With all these elements in the Indian financial
market, it happens to be one of the oldest across the globe and is definitely the fastest growing and
best among all financial markets of the emerging economies. The history of Indian capital markets
spans back 200 years, around the end of the 18th century. It was at this time that India was under the
rule of the East India Company. The capital market of India initially developed around Mumbai; with

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 around 200 to 250 securities brokers participating in active trade during the second half of the 19th
century.

CLASSIFICATION ON MONEY MARKET & CAPITAL MARKET

MONEY MARKET CAPITAL MARKET

DEFINITION
A random course of financial institutions, bill brokers,
A kind of financial market where the company or
money dealers, banks, etc., wherein dealing on short government securities are generated and patronized
term financial tools is being settled is referred to as
with the intention of establishing long term finance
money market. to coincide with the capital necessary is called
capital market.
MARKET NATURE
Money markets are informal in nature. Capital markets are formal in nature.
INSTRUMENTS INVOLVED

Commercial Papers, Treasury Certificate of Deposit, Bonds, Debentures, Shares, Asset Secularization,
Bills, Trade Credits. Retained Earnings, Euro Issues.
INVESTOR TYPES

Commercial banks, non-financial institutions, central Stockbrokers, insurance companies, commercial

bank, chit funds. banks, underwriters.
MARKET LIQUIDITY

Money markets are highly liquid. Capital markets are comparatively less liquid.
RISK INVOLVED

Money markets have low risk. Capital markets are riskier in comparison to money
markets.
MATURITY OF INSTRUMENTS

Instruments mature within a year. Instruments take longer time to attain maturity.
PURPOSE SERVED
To achieve short term credit requirements of the tradeTo achieve long term credit requirements of the
trade.
FUNCTION SERVED

Increasing liquidity of funds in the economy. Stabilizing economy by increase in savings

RETURN ON INVESTMENT ACHIEVED
ROI is usually low in money market. ROI is comparatively high in capital market.

MONEY MARKET

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Money market is a market for securities with short term maturities up to 1 year. Banks, non-banking
financial companies and acceptance houses make up the money market. It facilitates the transactions
for short term funds, and maintains appropriate liquidity in the market.

MONEY MARKET INSTRUMENTS

Financial instruments with short term maturity up to 1 year is used as tools for raising capital by the
issuer are known as money market instruments. There are various types of money market instruments
as follows.

1. Treasury Bills (T-Bills)

Treasury bills are issued by the Reserve Bank of India on behalf of the Central Government for
raising money. They have short term maturities with highest up to one year. Currently T-Bills are
issued with 3 different maturity periods, which are 91 days T-Bills, 182 days T-Bills, 1 year T-Bills.

2. Commercial Papers

Large companies and business issue promissory notes to raise capital to meet short term business
needs known as commercial papers. These firms have a high credit rating, owing to which
commercial papers are unsecured with company’s credibility acing as security for the financial
instrument.

3. Certificate of Deposits

COD’s are financial assets that are issued by banks and financial institutions. They offer fixed interest
rate on the invested amount. The primary difference between a COD and a fixed Deposit Is that of the
value of principal amount that can be invested.

4. Banker’s Acceptance

A financial instrument produced by an individual or a corporation, in the name of the bank is known
as banker’s acceptance. It requires the issuer to pay the instrument holder a specified amount on a
predetermined date, which ranges from 30 to 180 days, starting from the date of issue of the
instrument. It is secure financial instrument as the payment is guaranteed by a commercial bank.

CAPITAL MARKET

The capital market is a market which deals in long term loans. It supplies industry with fixed and
working capital and finances medium term and long term borrowings of the central, state and local
government. The capital market deals in ordinary stock and shares and debentures of corporations,
and bonds and securities of government.

IMPORTANCE OF CAPITAL MARKET

The capital market plays an important role immobilizing saving and channel is in them into
productive investments for the development of commerce and industry. As such, the capital market
helps in capital formation and economic growth of the country. The capital market acts as an
important link between savers and investors. The savers and lenders of funds while investors are
borrowers of funds. The savers who do not spend all their income are called surplus units and the
borrowers are known as deficit units. The capital market is the transmission mechanism between

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 surplus units and deficit units. It is a channel through which surplus units lend their surplus funds to
deficit units.

INDIAN CAPITAL MARKET vs. GLOBAL CAPITAL MARKET

Capital market is a market for both debt and equity securities in India. It is the market where business
enterprises, including companies and government, can raise long term funds. The capital market is a
market where the money is provided to the borrowers for more than one year. The Indian capital
market includes both the stock or the share market and the bonds market. Share or sock market is the
market where equities are traded, whereas, the bond market is the market where debt securities are
traded. The capital market is regulated by Securities and Exchange Board of India (SEBI) or US
Securities and Exchange Commission (SEC) that overlook the market in their jurisdiction ensuring
that the investors are protected against fraud apart from other duties. The regulatory bodies lay down
specific rules and regulations that must be adhered to safeguard the investor’s interest.

A global capital market is the interlinking of various investments exchanges around the world that
enable individuals and entities to buy and sell financial securities on an international level. The
interlinking of these various exchanges results in the emergence of an informal, but never the less
structured global capital market. Stimulated by the decoupling of exchange controls and foregoing of
adjustable peg exchange rates from individual capital markets, in addition o technological advances
that have facilitated the movement of capital around the world, investors have increasingly sought
investments in multiple currencies.

PRIMARY MARKET

A primary market is a source of new securities. Often on an exchange, it’s where companies,
governments, and other groups go to obtain financing through debt-based or equity based securities.
Primary market are facilitated by underwriting groups consisting of investment banks that set a
beginning price range for a given security and oversee its sale to investors. Once the initial sale is
complete, further trading is conducted on the secondary market, where the bulk of exchange trading
occurs each day.

INITIAL PUBLIC OFFERING (IPO)

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the
public in a new stock issuance. Public share issuance allows a company to raise capital from public
investors. The transition from a private to a public company can be important time for private
investors to fully realize gains from their investment as it typically includes share premiums for
current private investors; it also allows public investors to participate in the offering.

RECENT IPO’s

IPO Name Listing Offer Current % Holding Listing Listing

Date Price Price Change Period Price Price
(Days) Change
%
Macrotech 19/04/2021 486.00 599.80 -2.57 11 37.57 436.00
Developers Ltd
V- Marc India 09/04/2021 39.00 39.55 -4.70 21 -14.95 46.50
Ltd

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Barbeque Nation 07/04/2021 500.00 629.90 -0.84 23 28.59 489.85
Hospitality Ltd.
Nazara 30/03/2021 1101.00 1749.70 -2.25 31 -12.08 199.00
Technologies Ltd
Kalyan jewelers 26/03/2021 87.00 61.35 -0.49 35 -17.04 73.95
India Ltd.

SECONDARY MARKET

The secondary market is where investors buy and sell securities they already own. Though stocks are
one of the most commonly traded securities, there are also other types of secondary markets. For
example, investment banks and corporate and individual investors buy and sell mutual funds and
bonds on secondary markets. Transactions that occur on the secondary market are termed secondary
simply because they are one step removed from the transaction that originally created the securities in
question.

IN India National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are the most popular
stock markets. Majority of trading takes place in these two exchanges. There is a third stock exchange
Metropolitan Stock Exchange (MSEI) earlier it was known as MCX-SX. It is less popular compared
to other two exchanges.

The BSE is Asia’s oldest stock exchange established in 1875. On the other and NSE was founded in
1992 and commenced in 1994. Though, BSE is oldest NSE has pioneered many initiatives in the
Indian stock markets like de-materialization security trading, trading in derivative instruments.

CORPORATE ACTIONS

When a publicly traded company issues a corporate action, it is doing something that will affect its
stock price. If you are a shareholder or considering buying shares of a company, you need to
understand how an action will affect the company’s stock. A corporate action can also tell you a great
deal about a company’s financial health and its short term future.

STOCK SPLIT

It is also called as bonus share, divides the value of each of the outstanding shares of a company. A
two for one stock split is most common. An investor who holds one share will automatically own two
shares, each worth exactly half the price of the original share.

DIVIDEND

A company can issue dividends in either cash or stock. Usually they are paid out at specific periods,
usually quarterly or annually. Essentially these are a share of the company profits that are being paid
to owners of the stock.

RIGHTS ISSUES

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A company implementing a rights issue is offering additional or new shares only to current
shareholders. The existing shareholders are given the right to purchase or receive these shares before
they are offered to the public.

SPIN-OFF

A spin-off occurs when an existing public company sells a part of its assets or distributes new
shares in order to create a new independent company.

Often the new shares will be offered through a rights issue to existing shareholders before
they are offered to new investors. A spin-off could indicate a company ready to take on a new
challenge or one that is refocusing the activities of the main business.

GROWTH OF FINANCIAL SERVICES INDUSTRY

The growth of financial service industry is at present is nearly 8.5% per year. The rise in the growth
rate suggests the growth of the economy. The financial policies and the monetary policies are able to
sustain a stable growth rate. The reforms pertaining to the monetary policies and the macroeconomic
policies over the last few years have influenced the Indian economy to the core. The major step
towards opening up of the financial market further was the nullification of the regulations restricting
the growth of the financial sector in India. To maintain such a growth for a long term the inflation has
to come down further.