There is scope for 100 more AMCs to come: Sundeep Sikka
Indian Mutual Fund
Even though Reliance Mutual Fund has lost the top position in terms of assets under management (AUM) to HDFC Mutual Fund, it still remains the most profitable fund house in the country. In an interview with Chandan Kishore Kant and Jinsy Mathew, Chief Executive Officer Sundeep Sikka says the fund house is not concerned about the ranking and is trying to increase the share of retail money in its total AUM. Excerpts:
After remaining at top for almost five years, how has life
changed for you after being dethroned by HDFC MF in mid-last year?
There is an obsession with AUM and that is where one gets de-focused when we
talk about mutual fund industry. It is not so that only No. 1 gets money and
No. 2 does not. Going by that logic, if only No. 1 has to get the money then
there would have been no industry anywhere. I think that's not the right way to
see it. We, as a fund house, have been focused on adding more and more retail
investors and creating wealth for them. What we did in the last 5-7 years has
resulted into one of the largest retail bases with around 70 lakh investors,
which includes 20 lakh investors through Systematic Investment Plans (SIPs). As
long as we are able to keep getting new retail investors to the industry, there
is nothing to do with the ranking.
Would you blame the banks and corporates, which had their
liquid investments in Reliance Mutual Fund, for pulling you one notch down?
It's not the question of blaming anyone. Seventy per cent of industry's assets
are institutional while rest is retail. Institutional money will continue to be
a function of liquidity in the economy. Ultimately that money parked with
mutual funds has to be used for projects as and when the capex is there.
Liquidity will have an impact on the AUM of the industry, but that is not our
core focus. Our liquid money, as a percentage of our total AUM, is at an all
time low. We are trying to replace corporate money with retail investors. Sixty
per cent of the Indian household savings is with the banks. It's going to
change. When will it change? I don't know but what we are trying to do is to be
ready to grab the opportunity whenever this change happens.
The industry is passing through one of the toughest phases.
With investors fleeing and market conditions continue to remain poor, how
things would pan out for the Indian mutual fund industry?
We should stop seeing the industry from a quarterly or half-yearly perspective.
A lot of things are being done from a long-term perspective, say 5-10 years. We
need to focus and launch simple products for investors so that the household
savings in India can be moved into mutual funds. As an industry, we are at a
very nascent stage, with less than 2 per cent of the population investing in
mutual funds. This industry has potential to become five-ten times bigger in
the next 10 years. There is a clear slowdown in the industry. In the last 2-3
years, because of market conditions, investors have not made money. Since 2008,
it has taken lot for the industry to reconcile and get used to new business
models. And the new business models are bit more expensive because we have seen
a break down in the distribution network. What I mean is the link between the
AMCs and the investors, lot of distributors are out of the industry which has
pushed up cost of acquisition (of investors). From longer term point of view,
volumes will compensate the falling margins and we need to have volumes as it
is becoming a low margin game.
Your deal of selling 26 per cent stake to Nippon Life is
being opposed by trade union in the Employees Provident Fund Organisation
(EPFO). What went wrong?
We have applied to EPFO as we planned to get Nippon Life as a partner. Nippon
will be taking 26 per cent stake. We are in line with the rules and regulations
and one would appreciate the fact that this is the largest FDI deal in the
sector. We are in the process of taking those approvals. Deal was finalised,
MoU was signed and share holding will change only after getting approvals from
all the concerned authorities. I am sure we will see the deal getting cleared.
Competition Commission of India (CCI) already has cleared this and I don't see
any problem from EPFO.
This year has witnessed several deals in the mutual fund
space. Is there scope for more mergers and acquisitions?
India has yet to see the potential of asset management space. A lot of foreign
players are seeing much more in India than may be the industry itself. Every
new foreign player coming in clearly explains that their global footprint is
incomplete without India. So in India where 2 per cent of the population is
investing in mutual funds far less than what they put in bank deposits, I
believe there is a scope for 100 more AMCs to come. Every AMC will need to
develop its niche and work out its business model. Industry is going to become
far more bigger from here. It's too early for us to discuss about the number of
players, as right now industry can grow manifolds from here.
What is needed then for the industry during such times?
The industry has changed a lot from 2008 till now. Every shareholder and the
management has to sit down and work out its own business plan. This industry
definitely requires lot of patience from sponsors than what it used to have
earlier. For a long term point of view it will be profitable but it will
require lot more investment. Mutual fund sector needs shareholders' patience,
long term vision and execution capabilities to be successful. This industry is
going to be big and profitable in times to come in the long run.
What is Reliance MF doing in such tumultuous times?
We are not looking at the short-term period of one or two quarters. We will
keep investing in this time too. We are investing heavily on technology to
increase our reach and reduce our transaction costs. We will keep investing for
future. Short term cycle should not impact the long-term vision. There can be
problems in short-term, but that does not stop us from investing for long-term.
We are getting ready for the big opportunity, whenever it comes, and we are
investing in all respect of our business.
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'I made my money by selling too soon.'
Website: http://indianmutualfund.co.cc/
Blog:http://indianmutualfund.wordpress.com/
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