When Invesco decided to sell 60% stake to the Hinduja group earlier this month, it didn’t surprise anyone. That’s because only a handful of foreign fund houses have been able to grow in the country even though the Indian mutual fund industry has already topped Rs 50 trillion (Rs 54 trillion in FY24).
Sample this: Among the top 10 players, only two foreign fund house – Nippon India and Mirae Asset – figures in the list. Worse still, among the top 20 players, only six make the cut. Besides, Nippon India and Mirae, the list includes HSBC, Franklin Templeton, Canara Robeco and Invesco. In other words, while around Rs 52 trillion is managed by the top 20 players, only one-fifth of the asset under management is with foreign players, with the exception of one joint venture, according to data from Value Research.
Over the last decade, the likes of Goldman Sachs, Nomura, Fidelity and many more have shut shop in India. In fact, the country’s first private sector fund house – Kothari Pioneer – was a joint venture between Pioneer of US and Kothari. In less than a decade, it was acquired by Franklin Templeton.
Fund houses that Financial Express spoke with, pointed to several reasons for the foreign mutual fund companies exiting India. These reasons include the long gestation period, distribution capabilities, and the need for customised domestic products.
“The Indian mutual fund industry is mainly a domestic proposition wherein foreign asset managers need to adopt the policy of global perspective and local expertise. Indians are savers rather than investors with an assured returns mindset,” said Avinash Satwalekar, president at Franklin Templeton Asset Management (India), which is among the oldest foreign fund houses in India having been in the country for nearly 3 decades.
Most domestic mutual funds are subsidiaries of large banks. Their vast network of branches and customers help distribute the mutual fund products efficiently. However, foreign fund houses do not have this luxury.
Satwalekar said that mutual funds are a push product as they are market linked owing to which they are largely distributor dependent for sales.
“Most top foreign players have built their business leveraging the strong brand presence of their parent Indian companies as well as a captive distribution network,” Satwalekar said.
In its release announcing the sale of 60% stake, Invesco Asset Management India’s CEO Saurabh Nanavati said that a strong domestic partner will significantly increase their ability to expand into more Indian cities and towns, which are driving industry growth.
However, not everyone shares a similar way. Hitesh Thakkar, acting CEO at ITI Mutual Fund said that though having ready distribution channel helps in quick penetration, it is not an entry barrier.
He said India presents a huge opportunity for mutual funds owing to the low penetration, young population with rising disposable incomes, tax efficiencies, good inflation adjusted long term performance besides availability of technology and digitisation support to improve reach.
Ganesh Mohan, CEO at Bajaj Finserv Asset Management said a differentiated approach is essential to attract investors because the market is already cluttered with multiple mutual fund options.
Satwalekar too highlighted that top 10 players control around 80% of the AUM while the bottom 16 players hold only 1%. Moreover, the fund houses said the gestation period for a new player in Indian mutual fund industry can be as long as a decade.
While there have been several exits, some players are looking for potential opportunities to re-enter the market given the growth potential. This time though, many are looking to partner with a domestic grown-brand.
BlackRock, which had exited Indian asset management industry in 2018, has re-now partnered with Mukesh Ambani’s Jio Financial Services. BlackRock, which is among the world’s largest asset managers would be hoping for a better result this time around as the industry has seen several changes over the years.
“India’s digital economy has grown rapidly during last few years. This helped many existing players to cater investment from smaller towns in spite of not having presence,” Thakkar said.