Reliance Capital Asset Management has sold 26 per cent stake to Nippon Life Insurance Company in a deal signed in Mumbai on Thursday for Rs 1,450 crore. This values the company at Rs 5,600 crore.

According to BL Research Bureau data, at Rs 1,450 crore for a 26 per cent stake, the deal values Reliance Mutual Fund at 6.8 per cent of its assets under management (as of December 2011 quarter).

Industry experts unanimously agree that the current valuation is fairly priced. “The valuation is fair for a lot of reasons. Their leadership, retail investor spread, high equity allocation and the fact that the deal is happening at the worst of times, all call for a fair valuation,” said Mr Dhirendra Kumar, CEO, Value Research. Equities constitute a significant portion — about 40 per cent — of the mutual fund house's assets under management.

Mr Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global Securities, concurs on the valuation, but adds that the money is going into Reliance Capital Asset Management as a whole, and that its mutual fund arm may not be a direct beneficiary. “The overall market mood is subdued. So, by selling stake, the company will be able to get new inflow as the mutual fund business is not picking very much.”

Reliance Mutual Fund is the second largest asset management company in the country with a total asset base of Rs 82,305 crore at the quarter ending December 2011. The current market share of the company is around 12 per cent, down from 14.5 per cent for the quarter ending March 2011.

In the last calendar year, Reliance Mutual Fund lost about 20 per cent of its AUM owing to poor equity market performance. At the beginning of the year, the AUM of the fund house stood at Rs 1 lakh crore.

This is the second investment by Nippon Life Insurance in the Anil Ambani-promoted Reliance Capital group. Last year in March, Nippon Life Insurance bought 26 per cent stake in Reliance Life Insurance for Rs 3,062 crore, making for a valuation of Rs. 11,500 crore for the latter.

(This article was published on January 19, 2012)
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