Indian minds keeping Wall Street afloat

Behind frosted glass in rooms off-limits to anyone not cleared for access, analysts at research firm Copal Partners calculate company valuations, compile industry data and write case studies of past mergers.

Their specialty is pitch books, the reports that investment banks use to win M&A deals.

The Copal team is working in an office building in Gurgaon; its clients are Wall Street banks.

"Copal does some of the things that we would do ourselves, but frankly we don't have all the time in the world," says Stephen Green, chairman of NoonMark Advisors, a privately-owned New York investment bank that uses Copal's merger, company and industry analysis. "You have a need to constantly keep your cost structure down."

Wall Street, which got hooked on shipping its back-office work to India earlier this decade, is taking the next step "" outsourcing investment research. Citigroup, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Morgan Stanley and UBS are among the firms staffing units in Bangalore, Hyderabad, Mumbai and New Delhi. They're tapping analysts who in the US and Europe would cost firms 200,000-400,000 euros ($290,000-$580,000) a year and instead are paying a quarter to a third of those sums.

The banks are also relying on firms like Copal, which set up a unit in Gurgaon in 2003. Its MBA graduates with three years of experience cost the company about Rs 17 lakh ($43,282) a year in salary, benefits and perks, co-founder Joel Perlman says.

The recent turmoil on Wall Street is likely to accelerate the desire of investment banks to outsource research, predicts Christopher Gentle, the London-based head of financial services research at Deloitte & Touche.

"There will be a greater and greater focus on cost and on making sure that you have the best people doing the best activity," he says. "This will be a catalyst for a greater move offshore."

The research conundrum at investment banks started long before the sub-prime meltdown and departures of chief executive officers Charles Prince at Citigroup and Stan O'Neal at Merrill Lynch. On May 1, 1975, trading commissions that had been 75 US cents a share were deregulated and have since fallen to less than a penny a share, according to Integrity Research Associates. In the 1990s, electronic trading kicked in.

A 2003 deal with former New York Attorney General Eliot Spitzer and other regulators delivered another blow. Firms agreed to separate their banking and research arms and shelled out $1.4 billion to settle charges that bankers were swaying analyst coverage to reap lucrative underwriting fees.

Before 2000, investment banking paid for as much as 40 per cent of research budgets, according to Integrity. Now, it no longer picks up the costs of research departments.

Wall Street's plight is India's opportunity, just as software companies, computer service providers and generic drug makers have discovered in their industries. "It's almost a no-brainer these days," says Marc Vollenweider, 42, CEO of Evalueserve. The Bermuda-based research firm employs 2,100 people; 650 of them do financial analysis, and most of those are in India.

Amba Research, Irevna, Pipal Research, Copal and Evalueserve say they can do what Wall Street's junior analysts do. Amba, which is based in New York and has about half of its 550 employees in Bangalore, says it's even testing strategies and models for quantitative hedge funds. For other hedge fund clients, Amba does everything except give advice on the size and timing of an investment, co-founder Anand Aithal says. Hedge funds account for about two-thirds of Amba's 75 customers.

"At the end of the day, it's people like us who are going to be running Wall Street,'' says Pavan Kaur, 32, a vice president of fixed income and credit research at Amba. " It's our calls, our analysis.''

India's expanding role in global finance is an incentive for Saurabh Srivastava, 29, to stick with Pipal. In one project, he and 10 analysts pore over the profits of Canadian Imperial Bank of Commerce, Cameco Corp and two dozen other Canadian firms. The project, although he declines to say so, is for Goldman Sachs.

The New York firm issues reports that are co-branded with Pipal but don't say the analysts are based in India.

Now, Goldman's US analysts will begin following the Canadian firms and Goldman will end the project with Pipal, Edward Naylor, a Goldman Sachs spokesman in Hong Kong, says.

For another client, a midsize US investment bank that Srivastava also declines to name, he tracks Indian firms. He sends information to a senior analyst at Pipal's client. He doesn't see that person's final report.

"I could have worked for any of these banks straight from campus," Srivastava says. Instead, he likes the variety at Pipal. Still, " I don't know whether I'll be happy being an analyst all my life,'' he says.

Like software and computer companies before it, Wall Street first embraced India for its skilled technicians.

Now, as banks and brokerages head to the country for its financial analysts and hedge fund researchers, Srivastava may have no reason to leave his New Delhi suburb for the next challenge he craves.