SESSION ON FINANCE

Career Focus Workshop-2010

 Finance Opportunities…
• Investment Banking
• Private Equity
• Hedge Funds / Prime Brokerage
• Mutual Funds
• Insurance
• Corporate Finance
• Project Finance
• Retail Banking
• Private Banking/ Wealth Management
• Credit Rating Agencies
 Career progression
• Investment Banking
– Analyst
– Associate
– AVP
– VP
– SVP
– MD

• Retail Banking
– Area Manager
– Branch Manager
– Zonal Manager
– National Manager
 Investment Banking
• M&A, IPO, Bond Offerings
• Equity Research/ Fixed Income Research
– High Yield, High grade
• Trading
– Equities, bonds, derivatives, commodities, currencies
– Proprietary
• Institutional sales
• Treasury operations – overlap with i-banking
– Trading
– ALM
 Terms to remember

 IPO
 Market Capitalization
 P-E Ratios
 Dividend Yield
 Fundamental Analysis
 Technical Analysis
 Stock Split
 Rights Issue
 Bonus
 Merger & Acquisition
 Leverage
 Margins – Gross, Operating, Net
 Cash Flow
 IRR
 ALM – Asset Liability Management
• Bank takes 3 years fixed deposit (Rs 100)
• Lends for 3 years (Student Loan=100)
• After 1 year, student prepays
• A and L mismatch after 1 year

What will the bank do with the surplus funds?

Interest rates have gone down

ALM manages the gaps in the Balance

Sheet
 Private Equity
• Investment in privately held asset classes
• Investment in publicly held asset classes with intention to
take them private
• Terms to remember:
– LBO
– MBO
– Angel Investor
– Venture capital
– Mezzanine capital
• Prominent companies :
– KKR, Blackstone, Carlyle
 Hedge Funds
• Similar to mutual funds

• Caters to more sophisticated clientele

• Higher risk profile

– Amaranth, LTCM
– Short selling, trading in derivatives, using leverage

• Not registered with SEC

– Limited number of investors
– High level of interest in the Indian stock market
 Hedge fund - Strategies
– Event driven
– Global convertible bond-arbitrage
– Equity market-neutral
– Long/short equity
– Global macro
– Commodity/Currency trading
 Mutual Fund
Structural Framework

Shareholders

Board of directors

Investment Principal
Administrator Transfer agent Custodian Accountant
advisor Underwriter
 Mutual Funds: Terms
• Open-end fund
• Closed-end fund
• NAV
• Load fund / No load fund
• Schemes
– Equity
– Debt
– Money market
• Turnover ratio
 Mutual funds
• Money Market: High quality, short-term securities.
Determined by short-term interest rates.

• Growth: Common stock of well established cos.

Invest for long-term capital gains.

• Aggressive
Growth: Common stock of small companies, or
companies in new industries.
Higher degree of risk than growth fund.
 Mutual funds

• Income: Corporate, government, or municipal debt

Periodic interest payments
Varying degrees of risk
1. Credit quality 0f the debt issuer
2. Maturity of the debt instrument
3. Prevailing interest rates
• High Income: Junk bonds.
High degree of risk
Risk of loss of principal

• Balanced: Both growth and income

 Mutual funds in India
• LIC Equity Fund - Growth

• Can Emerging Equities - Growth

• HDFC Top 200 - Growth

• Principal Large Cap Fund - Growth

• Birla Advantage Fund - Growth

• Prudential ICICI Technology Fund - Growth

• SBI Magnum Sector Umbrella - Contra - Growth

• Sahara Infrastructure Fund - Growth

• Reliance Growth - Growth

• ING Vysya Midcap Fund - Growth

 Insurance
• Work Profiles

– Actuarial
– Administration
– Finance & Accounts
– Human Resource
– Internal Audit
– Investment & Risk Management
– Legal & Compliance
– Marketing
– Operations
– Sales
– Technology
– Underwriting
 Insurance

• Actuary

– Professional statistician

– Evaluates medical records and applications to determine longevity

– Predicts probability of future events based on past data

– Role in premium pricing

 Insurance
LIFE INSURERS:
1. ALLIANZ BAJAJ LIFE INSURANCE CO. LTD.
2. TATA AIG LIFE INSURANCE CO. LTD.
3. BIRLA SUN LIFE INSURANCE CO. LTD.
4. AVIVA
5. HDFC STANDARD LIFE INSURANCE CO. LTD.
6. ICICI PRUDENTIAL LIFE INSURANCE CO. LTD.
7. ING VYSYA LIFE INSURANCE CO. PVT. LTD.
8. LIFE INSURANCE CORPORATION OF INDIA.
9. MAX NEW YORK LIFE INSURANCE CO. LTD.
10. METLIFE INDIA INSURANCE CO. PVT. LTD.
 Insurance
NON-LIFE INSURERS:
1. BAJAJ ALLIANZ GENERAL INSURANCE CO. LTD.
2. ICICI LOMBARD GENERAL INSURANCE CO. LTD.
3. IFFCO TOKYO GENERAL INSURANCE CO. LTD.
4. NEW INDIA ASSURANCE CO. LTD.
5. RELIANCE GENERAL INSURANCE CO. LTD.
6. TATA AIG LIFE INSURANCE CO. LTD.
7. UNITED INDIA INSURANCE CO. LTD

REINSURERS:
1. GENERAL INSURANCE CORPORATION OF INDIA.
 Corporate Finance
 Capital Budgeting Decision
 Identification of new investment opportunities

 Estimation of current and future cash flows

 Expenditure control and project Execution
 Capital Structure Decision
 Sources of Finance ( Equity / Debt / Loans)
 Dividend Decision
 Working Capital Management
 Corporate Valuation & Restructuring
 Investment of free cash
 Hedging – derivative instruments
 Project Finance
• Typically for large capital intensive projects
– Infrastructure
– Public services
– Industry
• Project’s cash flow is used for repayment
• Assets held as collateral
 Retail Banking
• Mass-market
– Savings and checking accounts
– Home loans
– Personal loans
– Vehicle loans
– Insurance – Bancassurance
– Credit Cards
• Securitization
– Bonds
• Ginnie Mae, Freddie Mac, Fannie Mae
– MBS (Mortgage Backed Securities)
– CMO (Collateralized Mortgage Obligation)
• Class A, Class B, Class Z
– CDO (Collateralized Debt Obligation)
 Private Banking
• Advisory Services to HNIs

– Financial planning
– Investment management
– Credit facilities
– Taxation
– Legal issues
 Credit Rating Agencies

 Creditworthiness of a corporation or country

 Financial History
 Probability of default
 Assets and liabilities
 Corporate Credit Ratings
▪ Bonds
▪ High-Yield/ High Grade
 Sovereign Credit Ratings
▪ Risk of investing in a country
 Personal Credit Rating
 Standard & Poor’s, Fitch, Moody’s
▪ ICRA (Moody’s) , CRISIL (S&P)
 Some Questions to think about…

• Profile – M&A, Corporate Finance, Retail?

– Why?
• CV, Know Yourself
• Where do you think the stock market is headed?
– Reasons behind rise of the Sensex?
– High Valuations? – KKR, Flextronics?
• ET, BW Online, Indian Business Journals
• Components of BS, PL, CF
– Ratios
• Valuation methodologies