By Abhay Singh and Shailendra Bhatnagar , Bloomberg

Behind frosted glass in rooms off-limits to anyone who isn’t 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 the New Delhi suburb of Gurgaon; its clients are Wall Street banks halfway across the globe.

“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, founder and chairman of NoonMark Advisors LLC, 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 Inc., Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and UBS AG are among the firms staffing units in Bangalore, Hyderabad, Mumbai and New Delhi. They’re tapping analysts who in the U.S. 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 its unit in Gurgaon in 2003 and is based on Jersey in the U.K.’s Channel Islands. Its MBA graduates with three years of experience cost the company about 1.7 million rupees ($43,282) a year in salary, benefits and other perks, co-founder Joel Perlman says.

Research Conundrum

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

“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 subprime meltdown and departures of chief executive officers Charles Prince at Citigroup and Stan O’Neal at Merrill Lynch & Co. On May 1, 1975, trading commissions that had been 75 U.S. cents a share were deregulated — and have since fallen to less than a penny a share, according to Integrity Research Associates LLC, which tracks Wall Street research. In the 1990s, electronic trading kicked in.

Eliot Spitzer

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 percent 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 Ltd. The Bermuda-based research firm employs 2,100 people; 650 of them do financial analysis, and most of those are in India.

‘People Like Us’, Amba Research, Irevna, Pipal Research Corp., 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.”

U.S. and European banks aren’t bragging about their India connection. Many decline even to discuss it or to credit Indian analysts for their contributions.

“Our recognition stops at our client,” says Sushma Madhusudhana, 29, another vice president of fixed income and credit research at Amba, who declines to say who those customers are.

Shopping in India

One reason for the secrecy: Investment firms and brokers may be afraid they’ll be cut out of the equation as clients shop directly in India, says Manoj Jain, Pipal’s 39-year-old founder.

“If it happens that their clients know that such a thing can be done out of India, there is a possibility that these firms can get bypassed,” he says.

Already, Boston-based Fidelity Investments, the world’s largest mutual fund manager, and others are starting their own Indian research centers. Fidelity has more than 5,000 people in three cities: Bangalore, Chennai and Gurgaon. While most employees do computer-related and back-office work, 29 are involved in research, spokeswoman Anne Crowley says. “They don’t pick stocks or follow companies but rather focus on broader research trends,” she said in an Aug. 29 e- mail. “This allows us to tap into additional talent pools around the world.”

Goldman Sachs has 2,000 people in Bangalore. It won’t say how many work in research. Citigroup has more than 20,000 employees in India — half in banking and half in call centers, transaction processing and other back-office jobs. Four hundred are in investment research. Morgan Stanley set up its center in Mumbai in 2003. Its 900 workers help the New York-based firm’s investment management division with accounting, compliance support and fund administration. Analysts provide company and industry research and build earnings models. JPMorgan, which has 9,000 people in India who work in Mumbai and Bangalore, declined to comment.

Stumbling Block

Distance can prove a stumbling block. At Pipal’s glass-and- red-stone office in Gurgaon, Saurabh Srivastava leads a team of 10 analysts who pore over the profits of Canadian Imperial Bank of Commerce, uranium producer Cameco Corp. and two dozen other Canadian firms. The project, although he declines to say so, is for Goldman Sachs.

“Whenever a company announces earnings, we have to come out with an update in four days,” says Srivastava, 29, referring to one of the reports he generates for Goldman Sachs.

Goldman Sachs confirms its work with Pipal. Yet after 2 1/2 years, it says, it’s pulling the plug. The reason: Customers want more contact with the people writing the analysis, Edward Naylor, a Goldman Sachs spokesman in Hong Kong, says.

“Investing clients’ direct access to analysts who have deep knowledge and insight of industries, companies and valuations is core to our research,” he said in a Nov. 7 e-mail.

‘Tough to Do’

The reports Goldman Sachs issues are co-branded with Pipal but don’t say the analysts are based in India. Goldman Sachs didn’t cover the Canadian companies that Pipal started tracking for it. Now, Goldman’s U.S. analysts will begin following the Canadian companies.

Pipal, Amba and the others aren’t certified to provide investment ratings, and their research can’t advise clients to buy, sell or hold a stock, says Mohan Alexander, managing director of Amba. Because of such limitations, Alexander, 47, says he doesn’t see Indian firms moving beyond basic research anytime soon for its clients that sell securities.

“If I’m sitting in Bangalore and covering Coke, for example, I can write about it, I can put a valuation matrix and all those details in there, but the things I won’t understand is what are the traders talking about,” he says. “There are a lot of nuances on a day-to-day basis. That part is tough to do.”

Fewer Junior Analysts

NoonMark’s Green, the customer for Copal’s pitch books, worries that, ultimately, banks may be shortchanging themselves. As work moves to India, Wall Street will need fewer junior analysts, undermining the foundation of investment banking.

“If you don’t hire analysts, you are not training the next generation of leaders of your firm,” Green, 44, says.

For now, India’s young research industry rises and falls on the fortunes of Wall Street. Pipal got its start in 2001, when investment banks were reeling from the Internet bust and the Spitzer campaign against analysts who talked up questionable, mainly dot-com, stocks. Pipal’s Jain, an electronics engineer who was born in New Delhi and was working as a consultant in Chicago for McKinsey & Co., saw a role for a company to take over some of Wall Street’s suddenly unglamorous research commitments.

Eliot Spitzer’s action separated broking and banking, margins were thin and their biggest customers — the hedge funds.

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