If there are opportunities, open for further acquisitions: Ravi Menon, CEO, HSBC Asset Management

Surabhi |Suresh P. Iyengar | | | Updated on: Dec 27, 2021

Ravi Menon, CEO, HSBC Asset Management (India) Pvt Ltd

HSBC AMC chief on the acquisition, competition, market volatility, and NFOs.

The mutual fund industry has been in a consolidation mode with the entry of new players. Last December, market regulator SEBI allowed loss-making entities to launch mutual fund companies provided they had a net worth of at least ₹100 crore. This paves the way for nimble new-age fintech firms to enter mutual fund business. With steady growth in assets under management and bullish sentiment, smaller players found it the right time to cash out by selling their business. In a third such deal in the industry, HSBC Asset Management acquired L&T Mutual Fund to move up the ladder to the twelfth position. Ravi Menon, CEO, HSBC Asset Management (India), spoke to BusinessLine on the way ahead. Excerpt:

Will you be open to further acquistions with a few more fund houses scouting for a suitor?

The key pillar of our global strategy is to grow the wealth management business in Asia. The move to acquire L&T Mutual Fund is a clear reflection on the execution of that strategy. If there are future opportunities, I'm sure we will continue to look and review them. And if it makes absolute sense to our shareholders and investors, we will look into it.

How do you see competition from new entrants?

Entry of more players will increase demand as each one will reach a new set of investors. No one has got access to the entire universe. On the other hand, competition will bring down the pricing because it is a tool people use to attract fresh investors. New players will bring in new technology to serve investors better. In this industry, the total expense ratio (TER) has been coming down even without these tools. To some extent, it is also regulatory driven. The regulator's prime objective was to reduce the cost of access. Globally too, the cost is coming down for investors led by market forces, regulation or new technology platforms. And that's precisely what we are used to, in our global consensus. And there is no part of the world where pricing in this business is going up. New players will widen the market and cause pricing pressures, which is good for the investors. And we, as incumbents in the business space, have to be flexible to capture the upside and reduce the cost. In the last five years, TERs have been on a secular decline and asset under management is on upside. Given the size of India economy, the demand captured by the industry is just the tip of the iceberg. So maybe margins are declining, but the pie is growing.

Do you expect market volatility to scare away investors?

The growth in this industry in the last few years is a testimony that mutual fund investors are geared to face volatility. The SIP numbers are growing by the day. In fact, it acted as a counter-balance when foreign investors booked profit. So, there is no reason to believe why that should stop unless another asset class suddenly starts becoming more attractive. In fixed income, things have been muted, because of the low interest-rate environment. But this will reverse as rates are an upward bias. Given the positive experience over the last two years, mutual fund investors have been well rewarded despite volatility in the market. Going forward, returns may perhaps be more muted. And as long as that realisation is there, there will be less reason for any disappointment.

How do you the markets going ahead?

I think equity markets will be the most attractive asset class on a return, basis not just in India but even globally. In India, the track record of corporate results over the last nine months has been satisfactory. There will be a significant improvement in December results. Unlike pre-Covid, the growth has been wide spread. There have been many corporate rating upgrades that have not happened in a long time. The more interesting part of the story is the fair bit of deleveraging, which has occurred in corporate India over the last few years. The earnings growth of Indian companies have been exceptionally robust. Following this, stock prices have moved ahead in anticipation of further earnings growth. There will be a disappointment if the earnings do not catch up. With a deleveraged balance sheet and overall demand in the economy coming back, it will be an interesting time. I am optimistic about the equity markets.

Why there have been no new fund offers from HSBC Mutual Fund?

In the last three years, we had more than nine NFOs. We were the first to do an NFO entirely through the digital mode post-Covid. Our Climate Change Fund, a global feeder fund, raised over ₹680 crore. I particularly like that one because it is just not investing, but it was also investing in an area that everyone should be fully conversant and knowledgeable. We are excited about this kind of fund. The plan in 2022 will be to continue to have new funds which meet target audience requirements.

Published on December 27, 2021
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