Mumbai: Vasudev Jagannath quit as head of equity sales at CLSA Ltd, a global financial brokerage and investment banking firm based in Hong Kong, in May to join Mumbai-based brokerage company India Infoline Ltd, along with three colleagues. He’s $22 million (Rs89 crore) richer for the decision.
“These are exciting times in India, especially in the financial sector,” said
Jagannath, 37, who worked for a decade at CLSA, the Asian investment-banking arm of Credit Agricole SA. “The challenge of building a multi-services financial powerhouse and to own a stake in it was the charm of taking up this opportunity.”
Gung-ho: Brokers rejoice after the Sensex crossed the 16,000 mark in Mumbai on Wednesday. Domestic brokerages are winning staff, attracting them with signing bonuses of $2.7 million or more, plus equity stakes. The competition is likely to intensify as unlisted local brokers plan IPOs to fund expansion.
JPMorgan Chase & Co. and Prudential Plc. also have had defections in India. Domestic brokerages are winning staff, attracting them with signing bonuses of $2.7 million or more, plus equity stakes. The competition is about to worsen as unlisted local brokers plan initial public offerings (IPOs) to fund expansion and as India’s largest companies enter the fray. Indian brokerage shares are also surging. India Infoline’s shares have jumped 174% this year, after the announcement of its new hires in May. JM Financial Ltd, which attracted five sales traders from JPMorgan in August, has risen 92% in 2007.
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% this year, after climbing 14.4% in 2006, according to human resources firm Hewitt Associates Llc.
“There is a dearth of people everywhere, but the pressure is more in industries like banking, financial services and information technology,” said E. Balaji, executive director at Ma Foi Management Consultants Ltd. “The shortage here is more severe. We see big attrition and wage escalation.”
Edelweiss Capital Ltd, 20%-owned by UK-based private equity firm Greater Pacific Capital Llc., and Religare Enterprises Ltd—the financial services company founded by the owners of drug maker Ranbaxy Group, both are awaiting regulatory approval to sell their shares.
Motilal Oswal Financial Services Ltd, the No. 2 Indian broker in Asiamoney magazine polls last year, sold shares last month and surged 18% on its 11 September debut.
Indian firms also are increasing their participation in IPOs. Three of the top five brokerages managing new share sales so far this year were local firms. Among them is Kotak Mahindra Capital Co. Last year, only one of the top five was an Indian company. The Sensex index has almost doubled in the past two years, driving daily trading volumes to records.
“Local brokers get the benefit of the retail play,” said A. Balasubramaniam, who manages $6 billion of assets at Birla Sun Life Asset Management Co. Ltd in Mumbai. “This business is set to grow. Retail participation in stock investments is at a nascent growing stage and has huge opportunities.”
In May, India became the third emerging stock market after China and Russia to surpass $1 trillion in value as the economy grows at its fastest clip since independence.
“Either you can be a small fish in a big pond or a big fish in a medium-to-small pond,” Balaji 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 Inc., the fourth biggest US securities firm, is fighting back via acquisition. It bought the institutional broking business of Mumbai-based brokerage firm Brics Securities Ltd last month. 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. Inc. 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 are in the top slots.
Jagannath was given the option to buy two million warrants at Rs440 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 Rs168 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, India Infoline chairman. “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.”