Mumbai: As they steadily downgrade price estimates on the company shares they track, equity-market analysts are keeping fingers crossed about their own future.
After a five-year bull rally during which the Sensex soared more than seven times, trading volumes surged and brokerage earnings—and employee salaries—jumped, the broking industry is coming to terms with a plunge in fee income, job losses and cuts in pay and perks.
The market peak in January is already a fading memory after six months of turmoil and many shares are down by half.
The Bombay Stock Exchange’s benchmark Sensitive index (Sensex) has lost more than 27% since scaling a peak of 21,206.77 on 10 January, and according to Bloomberg estimates, trading volumes are down 46% this year.
On Thursday, the Sensex closed 15,087.99, down 334.32, or 2.17%.
“We are like spring shoots,” says Nimesh Mistry of MF Global Sify Securities India Pvt. Ltd, part of US-based MF Global Securities.
When the markets are bullish, trading volumes rise and brokerages hire an army of highly paid analysts to crunch numbers, track price movements, study business fundamentals and produce research reports on companies and industries. When the tide turns, these analysts have to “either adapt to new conditions or leave their job”, Mistry says.
Tough times may also mean “making a conscious effort to cut down travel and entertainment bills, client expenses and other discretionary expenses,” says Saurabh Gurnurkar, an analyst at Kotak Securities Ltd in Mumbai.
Analysts employed here by Wall Street firms fear for their jobs as part of global cutbacks. And those employed with domestic brokerages say they expect loss of bonus and significant cuts in their compensation if the market slump stretches on.
Adapting would mean, “forgetting all about that fat bonus cheque, tracking more sectors and sometimes taking up additional work to make up for an employee who left recently,” said a senior analyst at a large foreign brokerage who did not wish to be named.
When there is a lull, “recruitment and hiring gets hit first,” said Apurva Shah, head of equity research at Prabhudas Lilladher Pvt. Ltd. If bad times continue, “you end up with pay cuts, while some lose jobs,” he said.
According to analysts who survived the 2001-02 stock-market slump after the dotcom bubble went bust, many brokerages had then announced pay cuts ranging from 25% to 50% across the board.
Shah is hopeful things won’t be that bad this time. “We are now facing a bad market, not a disastrous one,” he said.
“There was a clear slump in 2002,” said Amitabh Chakraborty, president of equity research at Religare Securities Ltd.
Big foreign institutional brokerages shut shop in India and “apart from analysts, many highly paid executives across the board got fired from brokerages,” he said.
The current scenario is not quite as bad, but brokerages may be forced to take such measures if the markets remain in the grip of the bears.
“Many banks have started shedding their front-end sales teams. If things come to the 2002 level, obviously there will be an impact,” he added.
Typically, an analyst with two to three years’ experience takes home Rs20-25 lakh a year. Those who have been around for five years earn around Rs40 lakh or more.
Analysts often move up the ladder to other operations such as investment banking or private equity. Some shift to knowledge-driven back-office operations, while others move to mutual funds and insurance companies.
Samir Bimal, country head of private banking business at ING Vysya Bank Ltd, also a chartered financial analyst, said many such analysts who had moved to KPOs (knowledge process outsourcing firms) are “now coming back to equity research”.
There is a huge difference in the pay packages offered to analysts by domestic and foreign brokerages. The annual pay of senior analysts at top foreign brokerages run into crores of rupees. And these “analysts at foreign institutional brokerages face higher risk” of losing their jobs, said Chakraborty of Religare Securities.
Entry-level positions, mostly as research associates, are often filled by fresh business school graduates who earn Rs8-5 lakh per year. During the bull rally, some domestic brokerages recruited key staff from large foreign securities houses such as CLSA Asia Pacific Markets, HSBC Securities and JPMorgan Chase, which are also high pay masters.
“Some of these bets paid off, while some have not,” said the head of the India institutional desk at a US-based brokerage who did not want to be named.
One success story is that of India Infoline Ltd, which won business from some large foreign funds, helping swell its institutional volumes to around Rs300-400 crore, he said.
Infoline had offered a sign-on bonus of Rs44 crore last year to recruit four key members from CLSA—Bharat Parajia, H. Nemkumar, Vasudev Jagannath, and Aniruddha Dange—to start an institutional broking business.