Brokerages squeeze out jobs

The below reproduced article has appeared in the Economic times (Mumbai edition) on 28th March 2008 – Again this article only confirms what I had predicted in my earlier article titled “Kindly Bear with Me” regarding how this so called new leveraged finance whiz kids risk losing their jobs…. Q.E.D

MUMBAI: The year would have been much better for Naveen Khadilkar (name changed), had he not lost his job months before his marriage. The 26-year-old, who worked as a relationship manager with a Mumbai-headquartered brokerage, walked into office last week only to be told that his services had been terminated.

But Naveen is not the only one who is bearing the brunt of a bear run in the market. If market sources are to be believed, top brokerages have already begun downsizing staff (or stalling new recruitment) to reduce costs in what has been a nightmarish quarter. Following the market crash in late January, most retail brokerages have been hit by a double whammy of bad debts and a sharp drop in daily turnover.

Last year, many brokerages had expanded their branch network, hoping that they could get private equity investors to pay more for a wider presence. But uncertain market conditions are forcing many brokerages to have second thoughts on the need for so many branches and staff. “Underperformance” is cited as the most common reason given for laying off people.

“This is a normal trend and it doesn’t have anything to do with the current market conditions. Employees who have not done well even after giving adequate training and support are asked to leave at all times,” said Indiabulls Securities CEO Divyesh Shah.

Lacklustre market and lack of interest on the part of investors to participate in daily proceedings have put a question mark over earnings for most broking firms. The business model of most broking firms (and also fund houses) is highly correlated to general market conditions. Indian financial services institutions are expected to do better in times of good markets. Pursuant to the fall, brokerages are focusing more on distribution of insurance products to make up for losses in equity broking.

More than specific functionaries like dealers and research analysts, it is relationship managers who are finding the future of their jobs up in the air. A mid-size brokerage could have anywhere between 500 and 1,000 relationship managers in its rolls. The job profile of relationship managers includes marketing and selling of financial products, client servicing, acquiring new clients, garnering more business and advising HNIs on their long-term and short-term investments. Relationship managers are paid in the range of Rs 5-12 lakh depending on their experience and performance. They are bound to stiff and at times impossible-to-achieve targets.

“We set stiff internal targets for our relationship managers, but at the same time, we do not hesitate to revise them (targets) when markets are down,” said India Infoline vice-president (strategy & planning) Harshad Apte. “And as far as laying off underperformers are concerned, we do that even in the time of good market conditions. In fact, the bad market is the best time to test your relationship managers,” Mr Apte added.

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