Vasudev Jagannath quit as head of equity sales at CLSA in May to join Mumbai-based brokerage India Infoline, along with three colleagues. He's $22 million richer for the decision. |
"These are exciting times in India, especially in the financial sector,'' said Jagannath, 37, who worked for a decade at the Indian headquarters of CLSA, the Asian investment-banking arm of Credit Agricole. "The challenge of building a multi-services financial powerhouse and to own a stake in it was the charm of taking up this opportunity.'' |
|
JPMorgan Chase and Prudential also have had defections in the country. Domestic brokerages are winning staff with signing bonuses of $2.7 million and more, plus equity stakes. The competition is about to worsen as unlisted local brokers plan initial public offerings to fund expansion and as the large domestic companies enter the industry. |
|
The country's brokerage shares are surging. India Infoline has jumped 174 per cent this year, with almost all the increase coming after the announcement of its new hires in May. JM Financial, which lured five sales traders from JPMorgan in August, has risen 92 per cent in 2007. The benchmark Sensitive Index has rose 12 per cent this year. |
|
Tata Group, with interests in steel, automobiles and software, and Aditya Birla Group, whose main businesses are in commodities, say they may start brokerage and other financial services. |
|
The chase for talent in finance and trading is one of the most intense in India, where high-skilled labour is in short supply. Professional wages will rise 14.5 per cent this year after climbing 14.4 per cent in 2006, according to human-resources firm Hewitt Associates. |
|
"There is a dearth of people everywhere, but the pressure is more in industries such as banking, financial services and information technology,'' said E Balaji, executive director at Ma Foi Management Consultants, the country's largest human resources services provider. "The shortage here is more severe. We see big attrition and wage escalation.'' |
|
Edelweiss Capital, 20 per cent owned by UK-based private equity firm Greater Pacific Capital, and Religare Enterprises, the financial services company founded by the owners of drugmaker Ranbaxy Group, both are awaiting regulatory approval to sell shares. |
|
Motilal Oswal Financial Services, the number two Indian broker in Asiamoney magazine polls last year, sold shares last month and surged 18 per cent on its September 11 debut. |
|
Indian firms are also increasing their participation in IPOs as new listings rise to a record. Three of the top five brokerages managing new share sales so far this year were local firms. Among them is Kotak Mahindra Capital, which broke off its partnership with Goldman Sachs Group in 2005. Last year, only one of the top five was Indian. |
|
The Sensex has almost doubled in the past two years, driving daily trading volumes to records. While there is no official data on the split of equity trading volumes between international and domestic firms, data from the exchange show about 40 per cent of trades are executed on a same-day basis, indicating they were routed through local brokers. |
|
"Local brokers get the benefit of the retail play,'' said A Balasubramaniam, who manages $6 billion of assets at Birla Sun Life Asset Management in Mumbai. "This business is set to grow. Retail participation in stock investments is at a nascent growing stage and has huge opportunities.'' |
|
His fund own shares of Infoline and Reliance Capital, which runs the country's largest money manager. He also bought shares of Motilal Oswal in its August share sale. |
|
The country in May became the third emerging stock market after China and Russia to surpass $1 trillion in value as the economy grows at its fastest pace since independence 60 years ago. |
|
Experienced local traders were attracted to domestic firms because they get the chance to guide the destiny of the company and share its profits, said Ma Foi's Balaji. |
|
"Either you can be a small fish in a big pond or a big fish in a medium-to-small pond," he said. "Indian financial services companies are maturing. They're becoming larger and now have the ability and willingness to pay big money.'' |
|
Lehman Brothers Holdings, the fourth-biggest US securities firm, is fighting back via acquisition. It bought the institutional broking business of Mumbai-based brokerage firm Brics Securities last month. It will take over Brics's 40-member institutional broking team, consisting of sales, trading and research professionals, New York-based Lehman said on August 14. The acquisition helped Lehman speed up its expansion plans in India, said Tarun Jotwani, chairman and chief executive officer of Lehman Brothers, India. "To organically build the business here it would have been a slow process to find and train the right talent pool,'' he said. "It probably would have taken a couple of years.'' |
|
Still, companies such as Goldman Sachs and Merrill Lynch & Co retain control of the bulk of the institutional broking and mergers and acquisitions advisory businesses in India. Nine of the top 10 advisers for mergers so far this year were non-Indian firms, according to data compiled by Bloomberg. UBS AG and Goldman Sachs occupy the top slots. |
|
Lehman's Jotwani estimates 75 per cent of the institutional business is controlled by foreign brokers. |
|
Infoline's Jagannath and his three former CLSA colleagues were given signing bonuses of Rs 11 crore ($2.7 million) each. |
|
Jagannath, who spent five years in New York for CLSA before returning to Mumbai, was given the option to buy 2 million warrants at Rs 440 each, according to a statement made by India Infoline to the Bombay Stock Exchange. At today's value, his stake in the company is valued at Rs 168 crore. Subtracting his purchase price for the warrants and adding the $2.7 million initial bonus, he's ahead by $22 million. |
|
"Here they are owners of equity,'' said Nirmal Jain, chairman of India Infoline, and the man who made the hires. "In foreign firms they hit the glass ceiling: there isn't enough freedom to do things your way. Here the decision making is left to them.'' |
|
The CLSA quartet now own about 18 per cent of Infoline, Jain said. CLSA spokesperson Simone Wheeler said it has filled the vacancies internally. JPMorgan's head of equity sales at its India unit Sameer Lumba and four others quit the US securities firm last month to join JM Financial, the former partner of Morgan Stanley in India, to set up its institutional broking business. Randolf Clinton, managing director of Asia ex-Japan cash equities at JPMorgan in Singapore, declined to comment on the departures. |
|
The $24 billion Aditya Birla Group in July hired its new CEO and, a month later, its deputy CEO from Prudential to lead its planned financial services expansion. Prudential spokesman Chad Tendler said the search for a new CEO of its Asian funds management business is underway. |
|
The $25 billion Tata Group said in June it would create a new company, Tata Capital. It will enter areas such as capital market services, merchant banking, housing finance, private equity investments, assets and vehicle financing and retail finance. |
|
"The risk may be higher but the reward is phenomenal'' for those joining local firms, said Jayesh Shroff, who helps manage about $6.4 billion of assets at SBI Funds Management in Mumbai. With more growth to come, "the trend should continue,'' he said. |
|
|
|