Why India’s asset managers are beating most of their global peers

Bloomberg Mumbai | Updated on December 18, 2019 Published on December 18, 2019

“Mutual funds have become an asset class of choice with policy makers pushing for the formalization of savings,” said Sundeep Sikka, CEO Reliance Nippon. File photo   -  KSL

Indian asset managers shares are trouncing global peers this year as domestic money managers benefit from the tectonic shift in savings from gold and real estate to stocks and bonds.

Reliance Nippon Life Asset Management Ltd and HDFC Asset Management Co, whose shares have more than doubled in 2019, are the third and fourth-best performers among 36 peers with a market value of at least $2 billion.

Retail investors piled into mutual funds after the government ban on high-value currency bills in 2016 hurt returns from gold and property. While total assets have more than tripled to $382 billion in the past five years, only 1.5 per cent of Indians own funds, suggesting a long runway for growth. Passive investing thats decimated fees for United States (US) managers is still to take hold in India.

“Mutual funds have become an asset class of choice with policy makers pushing for the formalization of savings,” Sundeep Sikka, Chief Executive Officer (CEO) of Reliance Nippon, said in an interview.

The decline in deposit rates has also made funds more popular than other financial products, he said.

The parabolic surge in Reliance Nippon and HDFC Asset is also down to the fact that the duo is Indias only listed fund houses. The shortage could ease after UTI Asset Management Co goes public next year.

To be sure, the two stocks have come off their peaks in recent days as above-average valuations deterred buyers. Problem is, theyre still expensive relative to history and trade at prices slightly above their 12-month targets.

That is as inflows to equity funds, the most profitable category for asset mangers, shrank to the lowest in over three years in November even as the main indexes hit new highs. The S&P BSE Sensex held at a record on Wednesday, and is set for the biggest annual gain since 2017.

“We are watching to see whether the slowdown continues for the next few months. If the manager has scale and sticky investors, this can be ridden out like in the previous cycles,” said Sikka

Industry bulls say domestic asset managers profits are growing as they expand. That is in contrast with many global peers, many of whom could become zombie firms unable to attract new flows, according to PGIM CEO David Hunt.

“India’s savings pool keeps getting bigger and the market is anticipating that a growing portion of it will go into mutual funds,” said Steve Hanke, professor of applied economics at Johns Hopkins University in Baltimore. The trend is in place and the trend is your friend.

Published on December 18, 2019
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