Mumbai: Indian fund industry could see revenues shrink by almost a fourth in 2009 given sharp drop in profitable equity assets and a pause in flows but may avoid major consolidation, a top Bharti AXA executive said on Wednesday.
While break-even for new players may take a couple of years more, it won’t prompt sell-outs or exits as India’s potential long-term lure remained intact, said Sandeep Dasgupta, chief executive of Bharti AXA Investment Managers.
“Players who have come in have built certain level of expertise, they have hired people, they have gone through the motions of getting licenses,” he told Reuters in an interview.
“Would they, in light of what has happened in the last one year, suddenly change their mind? Very unlikely,” he added.
India’s 35-member mutual funds industry is reeling under the impact of more than 50% drop in its once high-flying stocks in 2008 and almost 7% so far this year.
Their assets have shrunk by a tenth but more ominously equity assets, which earn a fee of about one percent as compared to 5-25 basis points earned in many bond funds, have halved.
Incremental flows into stock funds have paused too as investors turn risk-averse in a sagging Indian economy, which is expected to expand at its slowest pace in six years in 2008/09 with analysts predicting further slowdown next year.
“We have taken a pause for maybe one to one-and-a-half years, (but) we are still in growth phase. And that belief is there across all sponsors,” Dasgupta said.
“So the players who have come in even later, I don’t think they are going to leave in a hurry,” said Dasgupta, whose firm has expanded branch network to 53 after a launch in July.
“It might delay your payback period by may be 1-2 years but I think everybody believe that the real growth will happen in emerging market, including India and China, and that belief is very strong,” he added.
Firms such as South Korea’s Mirae Asset and Pioneer Global, a unit of Italy’s UniCredit have joined money managers like Franklin Resources and JPMorgan in India.
More than 20 are said to be still seeking an entry, lured by India’s savings rate of more than 32%, much of which is in low-yielding bank deposits, an emerging middle class and the world’s second largest population.
“Ultimately we all believe that this is an industry which will grow,” Dasgupta said, adding players looking to grow through acquisitions may find it tough to get a willing seller.
“On paper it might look that consolidation will happen but I am not very sure whether large consolidation will happen at this stage,” he said, adding his firm was hopeful of more than tripling client base to 50,000 in the next one year.
The fund house, owned 75% by French insurer AXA with the remainder held by India’s Bharti Enterprises, currently manages about Rs2 billion through six funds.
The firm plans to launch its first set of long maturity bond funds soon and is exploring options to offer a couple of globally-invested funds in the second half, Dasgupta said, adding a few equity funds are also planned if markets revive.