This document provides an overview of investment banking, equity research, and equity valuation models. It discusses the functions of investment banks in raising corporate finance. Equity research involves fundamental analysis, including economic, industry, and company analysis, as well as technical analysis based on supply and demand. Equity valuation models covered include the Capital Asset Pricing Model (CAPM), Dividend Discount Model (DDM), and price-earnings ratios, which relate stock price to earnings per share. The document aims to explain these key concepts in investment banking and equity analysis.

1. Submitted By:
1. Asutosh Biswal 12M0008
2. Md. Shafi 12M082
3. Swetha badigam 12M110
4. J.S Chaitanya 12M103
5. Seeta Rama Raju 12M095
6. Sai Shankar 12M107

2. Plan of presentation
1.
2.
3.
4.
Introduction to Investment Banking.
Functions of Investment Banks.
Essence of Equity Research
Equity Research
i.
ii.
Fundamental Analysis.
Technical Analysis.
5. Equity Valuation models
i. Capital Asset pricing model ( CAPM)
ii. Dividend discount model
iii. Profits/Earnings ratio’s

3. 1. Investment Banking:
Investment Banks are middlemen between a
company that wants to issue new securities and
the buying public.
So when a company wants to issue, say, new
bonds to get funds to retire an older bond or to
pay for an acquisition or new project, the
company hires an investment bank.
The investment bank then determines the value
and riskiness of the business in order to price,
underwrite, and then sell the new bonds.
When an investment bank underwrites stock or

4. Top Investment Banks

5. 2.Functions Of Investment Bank
Corporate Finance is the traditional aspect of
investment banks which also involves helping
customers raise funds in capital markets and
giving advice on mergers and acquisitions (M&A).
Sales and trading: On behalf of the bank and its
clients, a large investment bank's primary function
is buying and selling products. In market making ,
traders will buy and sell financial products with
the goal of making money on each trade.
Research
Investment Management: Global transaction
banking is the division which provides cash
management, custody services, lending, and

6. Functioning of investment banks in
raising corporate finance:

7. 3.Essence of Equity Research
It is the division which reviews companies and
writes reports about their prospects, often with
"buy" or "sell" ratings. While the research
division generates no revenue, its resources are
used to assist traders in trading.
All research groups, nonetheless, provide a
key service in terms of advisory and strategy.
There is a potential conflict of interest between
the investment bank and its analysis, in that
published analysis can affect the bank's profits
Investment banks match up buyers and

8. Research also serves outside clients with
investment advice (such as institutional
investors and high net worth individuals) in the
hopes that these clients will execute
suggested trade through the sales and trading
division of the bank, and thereby generate
revenue for the firm.
While the research division may or may not
generate revenue (based on policies at
different banks), its resources are used to assist
traders in trading, the sales force in suggesting
ideas to customers, and investment bankers by
covering their clients.

9. Equity Research
• Fundamental Analysis
The fundamental analysis is a method of finding
out the future price of a stock, which an
investor wishes to buy. The method for
forecasting the future behavior of investment
and the rate of return on them is clearly
through an analysis of the broad economic
forces, industry analysis, the company analysis
and ratio analysis.
• Technical Analysis
Technical analysis really just studies supply
and demand in a market in an attempt to

10. Equity research
Fundamental
Analysis
1. Economic Analysis
2. Industry Analysis
3. company Analysis
Technical
Analysis
1. The Market Discounts
Everything
2. Price Moves In Trends
3. History Tends To
Repeat Itself

11. Fundamental & Technical Analysis
1.Fundamental Analysis:
1. Economic Analysis: Natural resources
and availability of raw materials, inflation,
taxation Policies, Industrial productions ,
Rupee-Dollar Fluctuation etc…
2.Industry Analysis: Product Line, Raw
Material and Inputs, Demand and
Market, Government Policy with regard to
Industry etc..
3. Company Analysis : Earnings press

12. 2. Technical Analysis
Assumptions:
1. The Market Discounts Everything
2. Price Moves In Trends
3. History Tends To Repeat Itself
Basically Technical analysis if performed
taking into consideration various type of
charts like support & Resistance chart,
Moving average chart etc…

13. 5.Equity Valuation:
i. Capital assets pricing model
• CAPM gives the required return, k:
k  rf    E ( rM )  rf 


• If the stock is priced correctly, k
should equal expected return.
• k is the market capitalization rate.

14. ii. Dividend Discount Models (DDM)
V0 
D1
1 k

D2
1  k 
2

D3
1  k 
3
 ...
• V0 =current value; Dt=dividend at time t;
k = required rate of return
• The DDM says the stock price should
equal the present value of all expected
future dividends into perpetuity.

15. DDM Implications
• The constant-growth rate DDM implies that a
stock’s value will be greater:
1. The larger its expected dividend per share.
2. The lower the market capitalization rate, k.
3. The higher the expected growth rate of
dividends.
• The stock price is expected to grow at the same
rate as dividends.

16. iii.Price-Earnings Ratio and Growth
• The P/E looks at the relationship between the stock price and
the company’s earnings. The P/E is the most popular metric of
stock analysis, although it is far from the only one you should
consider.
• P/E = Stock Price / EPS
• For example, a company with a share price of $200 and an EPS
of 20 would have a P/E of 10 ($200 / 20 = 10).
• It tells that 1/10th times of current market price of a share is
companies earning .

17. Company “A”
Let current market
price(CMP) =200
EPS=20
Then, P/E=(200/20)=10
Interpretation=compan
y earning is 1/10th of
CMP i.e.=20
Company “B”
Let current market
price =200
EPS=40
Then, P/E=(200/40)=5
Interpretation=
company earning is
1/5th time of CMP i.e.
=40
Interpretation:- in company “A” P/E ratio is “10” and in company B P/E = 5
It describes that company B is having more income it means company have
invested in high risk assets. So, high P/E suggested that the firm has ample
growth opportunities.

18. Thank you