Dealers turn to stock market; distributors worried

Pooja Sharma

New Delhi

November 8th, 2007

A dealer cribbing about margins is common to all in the IT Industry. But for
a change there is another tier of the channel that is facing a slowdown, despite
the festive season. The sudden inclination of dealers to invest in the stock
market has become a cause for worry for distributors.

According to the distributors, with dealers heading towards the stock market,
the IT market has been partially hit. This has resulted in less of liquidity
with the partners causing delay of payments and cheque bouncing. Elaborating on
this, Ajay Bhatnagar, Esys, Lucknow said, "Partners are still in business
but 20-30 percent of their investment is going towards stock market. As a result
we are facing problems as far as releasing of payments is concerned and few
cheques are bouncing as well. Besides they are not ready to maintain stock in
bulk."

He further added that these dealers are businessmen as well and they have to
keep the business momentum going. "Since investing in shares is the easiest
way to double the money one has, traders are bound to take that route. Once the
market hits back and shares don't pay well, they will return to the main
business," opined Bhatnagar.

On the other hand, PS Neogi, President Redington India Limited suggested,
"While we are not in a position to confirm with authenticity about money
being invested outside the IT business, the fact is that over the past few
months we have experienced a gradual decline in the capital and liquidity
available in the channel. This has resulted in delayed realization of payments
for us and the frequency of defaults and delinquency has displayed an unhealthy
upward trend." He further added that this phenomenon exhibits a spurt
whenever there is a sharp movement in the stock market or in the real estate
segment, but it was difficult to draw a direct correlation.

However according to Neerav Bansal, Marketing Head for Haryana region, Ingram
Micro, "It is true that partners are drifting towards the share market but
this has affected the IT market only to a limited extent." On the other
hand, Kolkata based Distributor, VK Bhandari, MD, Supertron, said, "As far
as Kolkata market is concerned dealers are drifting towards the stock market but
that has not been the sole reason behind the slowdown. The festival season and
Puja holidays also affected the IT Business in the last quarter."

Anil Jagasia, CMD, Savex Computers added, "The number of dealers
investing in stock market is not very large and it is only about to five to
seven percent of dealers who are investing in stock markets. However, this trend
is not exclusive to the IT space because 30 to 35 percent of the diamond traders
would invest stock markets. I do not think it will slow down the IT market
completely."

Why partners are drifting:


Rise in stock market is not the only reason why dealers have suddenly shifted
their focus towards investing in shares. Low margins have forced them to opt for
shortcuts to double their investments. Talking about this Rajiv Khanna,
President Jalandhar Computer Dealers Association (JCDA) said, "Earlier with
festive season around we did not mind shelling out huge sums say Rs10 lakh to
buy fresh stock and keep it intact. But nowadays the trend has changed and
dealers are finding it better to invest in the stock market because the profits
they earn there is much more when compared to the low margins they earn through
selling the IT products."

He further elucidated that apart from the stock market, dealers are now
getting into all sorts business like that of property dealing, export and even
distribution of luggage in search for higher margins. "The distributors
always create a monopoly leaving us with no choice but to look for greener
pastures," he added.