Mumbai: Seven firms plan to offer new mutual funds, braving choppy stock markets, after receiving in-principle approval from the Securities and Exchange Board of India, or Sebi.
Nineteen firms had applied to the capital market regulator for approval to sell mutual funds, seeking to tap rising incomes and potential savings in the world’s second fastest growing major economy.
Sebi has given approval to Nikko Asset Management, Goldman Sachs Asset Management, Indiabulls Financial Services Ltd, Religare Securities Ltd, Shinsei Bank Ltd, Dawnay Day International Ltd and Matrix Financial Services, according to the regulatory body’s website. Approval for the remaining 12 is pending.
Private equity firm New Silk Route Advisors spent about Rs200 crore last month to buy Dawnay Day AV Financial Services, including UK-based Dawnay Day International’s 50% stake, chairman and managing director Alok Vajpeyi’s 25% holding and a further 25% owned by an employee trust, Mint reported on 21 August.
India has 35 asset management companies offering more than 950 mutual fund schemes and managing assets worth Rs5.44 trillion as of August, according to the Association of Mutual Funds in India, or Amfi, an industry body.
“The basic economic force driving this is that the number of households invested in the capital markets continues to remain small,” said Amfi chairman A.P. Kurian. “Also, the proportion of savings invested remains little.”
The total assets under management of mutual funds represents 12.5% of India’s gross domestic product, compared with 40% for Brazil and 60% for the US, according to data provided by Mumbai-based Crisil Ltd, a unit of global rating agency Standard and Poor’s.
Still, India’s mutual fund industry is growing at one of the fastest rates in the world, along with those in China and Brazil. Total assets under management have expanded five-and-a-half times since August 2002.
Total assets under management in the country are estimated to grow 33% annually to reach $440 billion (Rs19.6 trillion) by 2012 , according to a survey by consulting firm McKinsey and Co. Retail investment in mutual funds is estimated to grow between 36% and 42% annually through 2012, while institutional investments will likely increase by between 25% and 33%, the report said.
Equity market returns have shrunk this year, with the Bombay Stock Exchange’s bellwether Sensex index declining more than 28% since January after rising more than 45% in each of the previous two years. Assets under management have declined from Rs.5.48 trillion in January, according to Amfi data.
A faster Sebi approval process will see at least four new asset management companies starting operations this fiscal year, twice the number in each of the past two years.
Edelweiss Asset Management Co. Ltd started its operations a week ago; Goldman Sachs Asset Management Ltd, India Bulls Ltd and Religare Securities Ltd will launch new schemes by year-end.
The new entrants remain unfazed by the fact that foreign institutional investors have pulled out a net $6.9 billion this year from equities after investing a net $17.2 billion in 2007. India’s economic growth slowed to 7.9% for the quarter ended June, compared with 9.2% a year ago. “Any time is a good time (to start a mutual fund),” said Mumbai-based Gagan Banga, chief executive officer of Indiabulls Ltd, which wants to launch its mutual fund plans by November. “It’s for the long term and we are going to leverage our footprint in the financial services business.” Independent industry trackers such as Dhirendra Kumar, CEO of New Delhi-based Value Research, however, say that mutual funds hitting the market now will take longer to break even.
“Many firms broke even in 2-3 years during the bull run,” said Kumar. ”These people (the new entrants) won’t be so lucky.... their break-even will get elongated to, say, 10 years.” Industry observers also say that some new money managers might have to keep their focus narrow.
“To become a retail player, you need to have deep pockets and patience,” cautions Hemant Rastogi, CEO of Wise Invest Advisors. “It might be possible that some of these new entrants may become niche players,” he added, citing the example of Benchmark Asset Management Ltd, which has only exchange-traded funds.
Religare insists that it won’t restrict itself to any niche. While only insititutional firms can set up mutual funds, barriers to entry in the industry are low, with only Rs10 crore in minimum net worth required to start an asset management company, according to the Sebi regulations.
“We want to hit 100 cities in the first two years and get up all products so that anyone can buy what he requires,” said Saurabh Nanavati, CEO of Religare’s mutual fund unit, to be launched with the Netherlands-based insurance company Aegon NV.
Sanat Vallikappen contributed to this story.