When the stock markets fall, analysts, experts and traders have a habit of resorting to cliches, and it is no surprise that their take on the short- and medium-term prospects for their own business is best described by a cliche.
Thus, while some say this is the worst of times because business is as bad as it is, others say it is the best of times because it costs less to expand—in terms of people and real estate—when things are bad.
Trading volumes in India’s stock markets are down 40% in March, from around Rs1 trillion in December as the Sensex, the benchmark index of the Bombay Stock Exchange, continues to exhibit volatile behaviour even as it has fallen 23% thus far this year.
Executives at some brokerages and human resources (HR) consultants say this could force some stockbrokers to lay off people, freeze recruitment, and pay out small bonuses if they do any at all. However, executives at most large stockbroking firms insist that nothing has changed and that it is business as usual.
Both sides would appear to be partially right.
While most people in the business are unwilling to talk about the number of pink slips that will be issued, some say the axe will likely fall first on the sales and marketing departments of brokerages. Over the past few years, as the stock market continued to march north, large brokerages expanded aggressively and opened branches across India. The fall in indices has made some of these branches unprofitable and employees manning these could be the first victims of the meltdown.
Even those who get to keep their jobs will not escape unscathed. The annual pay hikes for employees at brokerages, an average of 20% a year for the past several years, could come down to 10-15% in fiscal 2009, an HR consultant says.
A senior research executive in the portfolio management division of an Indian brokerage house says he is not expecting any bonus for the quarter ended 31 March.
“In the PMS (portfolio management services) division, incentives are given on the basis of returns generated in a portfolio scheme. We have hardly been able to generate decent returns this quarter,” adds the executive, who does not wish to be identified as he is not authorized to speak to the media. In each of the first two quarters of 2007-08, he lets on, he earned a bonus that was 100% of his salary.
Sampath Shetty, vice-president at staffing firm TeamLease Services Pvt. Ltd that recruits employees for some large broking firms and banks with broking arms, says brokerages are going slow on increasing their headcount. They are also getting rid of under-performers, he adds.
Puneet Singh, partner at Executive Access (India) Pvt. Ltd, a Delhi-based executive search firm, says international broking firms, which cater to institutional investors, are going slow on their hiring plans. The hiring plans of domestic institutional brokerages are on track, he adds. “At the same time, brokerages are becoming cost-conscious and have started looking at options to cut down resources in some way or the other.” Typical ways of doing this are by freezing recruitment or increasing the variable component of the compensation package (this means while the overall salary could remain the same, the share of the performance-linked bonus increases).
Large brokerages say the current volatility will not affect their growth. “When the market is on an upswing, we could hardly spend time on identifying good locations to open new branches or find talented people. The fall gives us the opportunity to aggressively focus on our expansion plans,” says Dinesh Thakkar, chairman and managing director of Angel Group which has stock and commodity broking arms. The group has 97 offices and 3,634 employees. According to Thakkar, his firm’s decision to expand in cities across Gujarat in 2001 (when the markets were at a low) was considered a risky bet. It paid off when the business cycle turned around in middle of 2003. His firm intends to open 100 new branches this year, up from the 75 previously planned. It recently hired 16 management graduates from various Indian Institutes of Management.
Shachindra Nath, group chief operating officer of Religare Enterprises Ltd, claims that his firm is largely insulated from daily market movements and that “broking is just one of the businesses” of the diversified integrated financial services house.
Religare sold shares to the public in October. It employs some 8,100 people across its various businesses in 416 cities.
Motilal Oswal Financial Services Ltd is looking to hire people for a 385-seat dealing room it recently opened in Mumbai. The firm sold shares to the public in August. It has more than 2,000 employees and has a presence in 425 cities.
Naresh Malhan, managing director at Manpower Services India Pvt. Ltd, a staffing firm, says the market slowdown will have an impact on new recruitment, but not immediately. “Volatility is inherent to the broking business and so, big players would wait longer and won’t show a knee-jerk reaction, especially at a time when the business is plagued by talent shortage,” he adds.
Still, Thakkar admits that small brokerages could be hit because their expansion plans are often contingent on income. “With a fall in income, they may not be adequately capitalized to carry on with the expansion plans.”