After Goldman and Nomura, JP Morgan too exits from the Indian MF market. It again takes me to the question asked earlier – Why do foreign MFs remain laggards in Indian markets? They are mostly launched amidst huge hype but just can’t match to the Indian peers and former is soon absorbed with the latter.
JP Morgan obviously lost a huge AUM due to Amtek Auto losses:
On 22 March, Edelweiss Asset Management announced that it will acquire JP Morgan’s Mutual Fund business in India. Over the past six months the assets under management (AUM) of JP Morgan MF fell by nearly 50% from Rs14,683 crore as on June 2015 to Rs7,500 crore as on December 2015. JP Morgan MF, which started business in 2007, manages assets of approximately Rs2,300 crore under equity schemes. However, over the six months, the non-equity AUM of JP Morgan MF substantially after the Amtek Auto issue. Its AUM under debt and liquid schemes fell by 66% to just Rs3,968 crore as on December 2015 from Rs11,612 crore as on June 2015.
In August 2015, the fund house received a lot of flak for the way it handled the Amtek Auto fiasco. The fund house had imposed curbs on redemption in two of its schemes that had exposure to the Amtek Auto paper after the security was downgraded. In September, the fund house segregated the illiquid assets after approval from the unitholders. In December 2015, the fund house was finally able to sell the Amtek Auto bonds at a loss.
In October 2015, it was said that JP Morgan India was scouting for potential buyers and has appointed an investment banker for the same. Over the past few months, it was in the news that Tata MF, DHFL Pramerica Asset Managers, Reliance Capital and a large bank-controlled MF were among others who were eyeing the assets of the fund house.
The acquisition will take the total AUM of Edelweiss MF to approximately Rs8,757 crore. This transaction marks yet another exit of a foreign player from the Indian mutual fund business. Over the past few months, Goldman Sachs sold its mutual fund business to Reliance MF; Nomura Asset Managers sold 19.3 % of its 35% stake in LIC-Nomura MF to LIC Housing and KBC Asset Management (of Belgium) sold 49% stake in Union-KBC AMC to its Indian partner Union Bank. In August 2015, Deutsche Bank had sold its fund business to Pramerica Mutual Fund.
Frustrated by poor market prospects after 2009, a number of global players like Fidelity, Daiwa, Morgan Stanley, ING, PineBridge and Deutsche have already exited the Indian mutual fund business over the past few years. As on December 2015, 43 fund houses managed a total AUM of Rs13 lakh crore. However, the top 10 fund houses manage over 80% of the assets. And the top four fund houses—HDFC MF, ICICI Prudential MF, Reliance MF and Birla Sun Life MF manage nearly 50% of the industry assets.
This is actually not just limited to MF alone. Even banks, insurance etc we see similar story of foreign players struggling to make inroads in Indian market, leave capturing the same.
However, there is one area where foreign investors have succeeded broadly. It is the space of institutional investment space where foreign investors are seen as dominant compared to domestic ones. Why should this be?
One reason could be banking, insurance, MF requires much more than just a brand name and foreign capital. It needs fair bit of going out and selling your products to the people. For all you know, most Indian people may not even recognise these big foreign names. The FII business is much easier which requires clicking funds into and out of India and travelling to Mumbai/Delhi and meeting people who know your brand.
In all the hype around everything phoren just does not work in India when it comes to financial services business. This is ironic given how much weight and importance is given to .the foreign firms in the financial space…