Indian fund managers and brokerages face a severe shortage of analysts as talent is snapped up by big-spending foreign firms lured by a four-year bull run in the local stock market.
International financial firms are paying analysts twice as much as their domestic peers, people in the industry say, with smaller brokerages worst hit as they are squeezed by higher wage bills and falling commissions as Internet broking grows.
Foreign players come with a huge capital and a capacity to sustain losses for three to five years, said Nirmal Jain of India Infoline, a financial services firm.
Global houses such as Morgan Stanley, Lehman Brothers, Goldman Sachs and Credit Suisse have been ramping up operations in India, while others like German insurer Allianz have said they may launch asset management services in India.
Last month, JPMorgan hired equity analysts away from Citigroup and local brokerages Kotak Securities and Stratcap Securities.
Local brokerages are forced to pay top dollar to fight back.
India Infoline last month paid 440 million rupees ($10.8 million), nearly twice its January-March quarterly profits, in joining bonuses for four senior executives from CLSA.
Salaries for analysts with up to 10 years experience have nearly trebled in the last three to five years, said Vasudeo Joshi, head of institutional equities at Man Financial.
But that has not deterred foreign firms, for whom Indian analysts are relatively cheap as their salaries are below international levels.
Fund managers in India, on the other hand, are paid almost as much as their counterparts in Hong Kong.
Salaries of Indian bankers and fund managers have been on the rise for several years but the rate began accelerating last year.
LOWER THAN HONG KONG
Experienced analysts in India now earn 2-4 million rupees ($50,000-$100,000) a year, twice as much as they earned three years ago, but only a fraction of the compensation packages for senior analysts at major brokerage houses in Hong Kong, who make $400,000 to more than $1 million in some cases.
At the entry level, annual salaries in India have doubled to between 300,000 and 500,000 rupees in three years but are still far below Hong Kong, where the total compensation can be as much as $150,000-$175,000, industry players say.
Demand for analysts has soared in step with the stock market boom, which saw India's main index rise 73 percent in 2003, 13 percent in 2004, 42 percent in 2005 and nearly 47 percent in 2006. It is up 5 percent so far this year.
For the requirement of five people in the research industry, the availability is only two people, said a senior analyst, who resigned as head of institutional equities at a brokerage to join another company last month.
India had just 302 active chartered financial analysts as of May 1, according to the CFA Institute.
Everyone is looking for ready-made talent. There is very little fresh talent in the market today, so we have to make do with the available stock, said K. Sudarshan of EMA Partners, a placement agency.
The skills shortage is felt beyond the financial sector, even though India churns out 3 million university graduates a year. Software industry body NASSCOM says members face a shortage of qualified staff, pushing up wages by 10-15 percent a year.
Deepak Jasani of HDFC Securities says that to deal with the skills shortage, brokerages are offering higher salaries and employing fresh graduates and training them.
Some analysts say plum jobs are available only for sector specialists and some brokers complain analysts often fail to provide quality research to justify their cost.
The industry is quite volatile, it is a high-risk, high-reward game. In good times you will get much higher salary and higher compensation, but when the times turn bad you may find it difficult to sustain your job as well, Infoline's Jain said.
Analysts say smaller brokerages are also challenged by Internet broking, which accounts for 12 percent of market volumes but is likely to rise to a quarter in three years.
Wage inflation is on the rise but the commission rates are falling, so booking profitability for the second-tier and third-tier brokers is under pressure, said Man Financial's Joshi.
Commissions for trades over the Internet are much lower than traditional broking and competition is rising as many big firms are entering this market, brokers say.
Internet broking has doubled each year since the last few years while the market has been growing at 20 percent. The impact of it is seen but will be felt much more as it begins to gather momentum now, Jain said.