Washington: India’s asset management sector holds “vast” potential for foreign players, but pending reforms in the country’s pension market currently limit scope for foreign pension managers, a report says.
“Pending reforms in the pension market, the scope for the foreign pension managers is limited at present, but on the asset management side the potential is vast,” the report prepared by commercial service unit of the US Department of Commerce stated.
The report stated that the Indian financial sector may have come a long way but things are just getting started.
“The next 10 years will see more changes than the past 25 years. The buoyant economy is estimated to lead to a four-fold increase in India’s investable wealth, from $250 billion in 2007 to $1 trillion by 2012,” the report added.
About India’s financial asset management industry, the report stated it is expected to grow from the current $83 billion to $520 billion by 2012, it added.
“More than 20 foreign asset management companies are considering entry into the Indian fund market,” it stated. The asset management industry is expected to see a compound annual growth rate of over 20% in the 2007-13 period.
The Indian pension market is expected to grow to about $84 billion by 2025, though small at present, it said.
At present, foreign direct investment is not allowed in the pension fund industry, but the government is planning to introduce Pension Fund Regulatory and Development Authority (PFRDA) Bill in Parliament, it stated.
The Bill proposes to let foreign players hold up to 26% stake in Indian pension fund companies, the Department of Commerce report pointed out.
The PFRDA Bill is expected to be introduced in the budget session of Parliament, to begin in the first week of July. If the amendment to the Insurance Act allows insurance firms to bring up to 49% foreign investment, pension funds would also benefit to that extent, it added.
Besides, due to the slump in the economy, assets under management (AUM) in India fell to about $83 billion in March from over $92 billion a year ago. In May, there was a sharp rise taking the AUM to $134 billion.
“While equity-linked savings schemes and equity funds are likely to record the highest growth, other segments of the market also hold tremendous growth opportunities,” it said.
The report revealed the existing pension system left more than 88% of Indian workforce uncovered.
Recently, a new pension system has been introduced under which there would be compulsory annuitisation of about 40% of accumulated pension wealth on retirement.
Further, there would be multiple pension fund managers licensed by PFRDA to manage fund with an option to transfer accumulations from one fund manager to another.