The much-awaited HDFC Mutual Fund initial public offering is off the block when the markets are on a roller-coaster. The country’s second-largest fund house is confident of attracting a huge response from investors. Milind Barve, Managing Director, HDFC Asset Management Company, shares his views in an interview with BusinessLine . Excerpts:

What caused the delay in getting SEBI approval for the IPO?

The delay was largely due to an audit issue that cropped up. In a special audit done once in two years, an issue was raised on some routine things such as not publishing NAV on time and valuation not done on one investment in FY15 and FY16. It went for adjudication. There is a SEBI rule that puts an IPO on hold for 45 days after an audit issue is raised. Unfortunately, the audit issue came up in the midst of pre-IPO approval.

The second issue was on the private placement we did with our distributors. Again, SEBI took a view that it needs to be reversed. We had KKR (private equity company) which bought out all the distributors. This process took about 10 days.

Was there an issue on the front-running case?

That matter was closed in 2015. We have got a closure letter from SEBI. It was mentioned in the DRHP as we have to mention all the developments. There is a standard clause on the SEBI website which says ‘approval held up for examining past violation’. People did not know what was the past violation and they linked it to the front-running case.

Will the fund house get any money from the IPO?

The fund house will not receive any money from the IPO and it does not even require it. We have free net worth of over ₹2,000 crore and business is generating cash. Our return on equity is 40 per cent. The IPO is an offer-for-sale by the two existing shareholders.

Are you convinced on the IPO pricing, given investors’ bad experience with Reliance MF listing?

It will not be fair to compare our issue with others. If you see on business parameters it is completely chalk and cheese. We are almost ₹70,000 crore higher in AUM. Their equity AUM is about ₹92,000 crore and our’s is about ₹1.50 lakh crore. Our profits are higher by 40 per cent. We get our profit from asset management business and other income, which includes investments made from the capital. Our core operating profit from asset management is 92 per cent higher than Reliance MF. In FY18, we made an operating profit of ₹955 crore from our asset management business and there’s was ₹450 crore.

Are there enough opportunities in the market to deploy the steep increase in MF inflow?

We have prepared a coral list which tracks up to 380 stocks. Deploying equity inflows is not an issue as there are enough quality supply of papers. It includes new IPOs, disinvestment by the government, existing companies raising funds through follow-on issues and FIIs’ selling. All these create enough investment opportunities. Yes, last year the inflow was higher than the supply but that is okay. The market finds its own equilibrium and it is not completely out of sync.

Has the inflow slowed down with just 2 per cent growth in industry AUM in the June quarter?

The inflows had gone up to ₹2.4 lakh crore from ₹80,000 crore last fiscal with an element of demonetisation impact. The industry is probably reverting to a sustainable normal compared to the abnormal flow that happened in FY18. In the June quarter, the industry got ₹40,000 crore and if you extrapolate for a year it is ₹1.6 lakh crore. It is one heck of an amount. So, we may average $2 billion a month, which is close to $25 billion a year.

The best of FII investment was $29 billion in 2007. The current SIP inflow is ₹7,000 crore a month, which will become ₹9,000 crore a month. If this becomes true, about ₹1 lakh crore will come through SIPs alone. The average SIP now is ₹3,800 a month and is not coming from market-timers.

Do you expect mid-caps to recover?

It is not fair to come to a conclusion based on a three-month or one-year performance. If you consider their returns in three and five years, it is still strong. The market-cap does not decide the quality of a company. The price discovery in mid-caps is slightly inefficient since the free-float is less. Small amounts of buying and selling influence mid-cap stocks.

Are there concerns on economic growth?

The headline growth is still strong. The GDP growth is 7.3 per cent. Inflation is higher but is broadly under control. We are facing higher oil prices with a significantly stronger economic data than FY14 when reserves were weak, current account deficit was at 4.8 per cent, which is now at 1.5 per cent. We have relatively higher oil prices with stronger ability to handle it. There are no threatening headwinds.