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BlackRock’s India exit: Morningstar explains why investors need not panic after stake sale to DSP

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Published: May 14, 2018 4:10:39 PM

After the world’s largest asset manager BlackRock Inc’s exit from India’s mutual fund industry by stake sale to DSP Group, Morningstar advised investors to not panic, and not make any decisions in haste.

Morningstar said that the  DSP group has a good legacy and they will do well even without BlackRock,.

After the world’s largest asset manager BlackRock Inc’s exit from India’s mutual fund industry by stake sale to DSP Group, Morningstar advised investors to not panic, and not make any decisions in haste. Morningstar said that the  DSP group has a good legacy and they will do well even without BlackRock, just like L&T AMC has done very well after the exit of Fidelity. BlackRock said it sold its stake in the joint venture because it could not integrate DSP BlackRock onto its technology and operating platform since it was a minority stakeholder, according to a Reuters report.

Morningstar has broken down its analysis of DSP’s business into two parts- the team, and AMC. According to the firm, roughly 60-70% of the team’s compensation is variable in nature. While computing the variable portion, the fund’s performance (1- and 3-year time frame) is given more importance than factors such as growth in assets and the fund company’s profitability, Morningstar added in its report. Morningstar explained that DSP BlackRock has a solid team in place. “What stands out is how different investment styles have been allowed to exist and thrive,” said the report.

Coming to its AMC business, DSP BlackRock Investment Managers is one of the best asset managers in the country. Taking stock of the various positives observed in the past from this fund house Morningstar said that when other companies over a decade ago were launching funds to grow their AUM, DSP refused to join that race. “At one time, they stopped accepting fresh inflows into DSP BlackRock Microcap Fund given its large asset size. The move to benchmark its funds against a more competitive Total Return Index was also an investor-friendly move,” observed the firm’s report.

Taking stock of the firm’s technology in place, Morningstar said that DSP will not be constrained by BlackRock’s exit. “But the fund house has worked hard to ensure that processes are homegrown and in place. And while they leveraged the BlackRock technology and processes, they adapted and evolved from it,” Morningstar noted.

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