Trying to get in on what has been a rush of overseas money into the country, Indian money managers are starting to offer their own niche investment vehicles to foreigners wanting to buy into the Indian growth story.
This shift, away from just offering a few generic funds, is also taking advantage of the so-called FII, or foreign institutional investor, route.
Arms of Kotak Mahindra group, UTI Asset Management Co. Pvt. Ltd, ICICI Bank Ltd and brokerage firm First Global Stockbroking Pvt. Ltd are among the early movers in this emerging category.
Kotak Mahindra’s Uday Kotak
UTI International, a wholly-owned subsidiary of UTI Asset, is set to launch The Rainbow Fund under the FII route. FIIs are typically international institutional investors, registered with the Indian market regulator Securities and Exchange Board of India (Sebi), to participate in equity markets in the country.
“The new fund will be a multi-class open-ended fund, with more flexibility to diversify across the Indian equity market,” explains Gajendra Kothari, the business development executive of UTI International in London.
While this will be the fourth fund from UTI International, the Rainbow Fund is the first overseas fund from UTI that is being registered as an FII sub-account. UTI’s other three funds—UTI India Fund Ltd, UTI India IT Fund Ltd and UTI India Pharma Fund Ltd—are all managed under the offshore investment route. Under the offshore route, fund managers have to open a feeder fund in India, which serves as a vehicle for buying into Indian mutual funds.
But “when fund sizes become larger, it’s best to buy equities directly through the FII, rather than use the offshore route to invest in Indian mutual funds,” says Anup Bagchi, head of global private banking, ICICI Bank. “It’s difficult to tailor your investments towards specific sectors and assets through the offshore route.”
ICICI Bank’s India Optima Fund, managed by ICICI International, an arm of ICICI Bank Ltd, has registered this fund as a sub-account with Sebi, under its FII account. Bagchi says that while the Optima Fund is a small fund investing in Indian mutual funds, ICICI International plans to roll out two more funds, including one infrastructure fund.
Some fund managers claim that Indian asset management firms will have an advantage of knowing the Indian market well compared to the traditional FIIs.
“We compete directly with many large international asset managers who have India-focused funds. However, what differentiates us from the rest is the ability to offer a diverse pool of specialized funds that focus on a select class of Indian equities,” maintains Paul Parambi, the head of international business at Kotak Mahindra.
Kotak Mahindra (UK), the international subsidiary of India’s financial boutique house Kotak Mahindra group, is the first Indian company to take the direct FII route to invest foreign money in India. The UK-based firm, regulated by UK’s Financial Services Authority, currently has seven fund managers based in Dubai, who manage $2 billion (Rs7,940 crore) worth of Indian equity assets.
“In Australia,” says Parambi, “3,000 retail investors poured in $75 million to our offshore fund, which got listed in the bourses in that region. This shows the kind of high interest in India funds.”
Kotak has also raised money from institutional clients in the UK, US, West Asia and other regions. “Our objective is to become the dominant asset manager for international funds investing in India,” he said. “We are now in the process of designing a low-risk product for investors to invest in Indian assets. We are also planning to set up a team of fund managers in Singapore.”
First Global also holds an FII licence from Sebi, apart from similar licences owned by Kotak, UTI and ICICI. “We are currently in the process of raising an overseas fund. This fund will invest in Indian equities through the FII route,” says Shankar Sharma, managing director of First Global. “Ultimately, everybody wants to be a (financial) supermarket. That too, a global one.”
Several Indian brokerages and fund houses that Mint talked to say they are also evaluating the prospects of adding more international funds to their business. While the number of funds from Indian fund houses under the FII route is fast increasing, not surprisingly, most of these funds are registered under umbrella firms in Mauritius, the favourite tax haven of all international institutional investors in India.