E T
M! LIND B A R V E
managing director, hdfcamc
EXCLUSIVE Q&A
1^inksome °f
smaller fund houses have done good product differentiation, and we should respect them fo r it.
I don't think small means non-serious. At one point of time, our asset size was also?3,000- 4,000 crore
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Redemption Pressure is Easing Now
HDFC AMC, w ith a positive outlook over the medium-to-long term, hopes to add 4 lakh new customers w ith the
acquisition of Morgan Stanley MF which has a m ajority of folios from the retail segment, says Barve
s th e new y e a r begins, here is a th o u g h t th a t
is p ro b a b ly upperm ost in th e m inds o f m utu a l fu n d managers and m a rke t strategists.
W hen w ill the in d u s try s ta rt b u yin g again? In 2013,
m utual fu nds sold stocks w o rth ? 2 2,0 00 crore. Fils,
on the o th e r hand, have bo ug ht stocks w o rth
?1 4,0 00 crore. In d u s try executives have long com plained th a t red em ptions and th e slow do w n are
fo rc in g th e m to sell and book p ro fits . But w ith some
recent NFOs doing w ell, are th ing s changing now?
Milind Barve heads th e co u n try's largest m utual
fu nd, HDFC Asset M anagem ent. It re c e n tly p u rchased th e six schemes o f M organ Stanley Asset
M anagem ent and B arve s a ys th e y w ere attracted
by M organ's e q u ity fu nds and th e ir re ta il in ve sto r
base. In an exclusive in te rv ie w to Biswajit Baruah
and RSriram, Barve holds o u t a ra y o f hope fo r the
in d u s try by say ing th a t re d em ptions are slow ing
dow n. Edited excerpts:
A
What was the rational behind the acquisition of
Morgan Stanley Mutual Fund? How do you think
this acquisition will strengthen HDFC Mutual
Fund’s business?
The ra tio n a le behind acquiring M organ S ta nle y’s
M utual Fund schemes was its open-ended e q u ity
p o rtfo l io, w hich has an asset size o f a p p ro xim a te ly
?1,400 crore. It’s a sig n ifica n t am ount to acquire by
cu rre n t in d u stry standards, and m o re o ve r m ost o f
th e fo l ios are fro m th e re ta il segm ent. The assets
under m anagem ent com prise o v e r 40% e q u ity com pared to an in d u stry average o f 20-22%. We expect
to add a p p ro xim a te ly fo u r lakh new custom ers to
o u rfu n d w ith th is a c q u is itio n . M organ Stanley
w anted a fu nd house w hich can be a good hom e to
th e ir u n it holders. They also w an ted a fu nd house
th a t can act s w iftly and ta ke decisions q u ic kly in
th e acquisition process. We have closed th e deal
in record tim e.
What are the key challenges mutual fund
houses are facing in increasing the business,
especially building an equity AUM?
We have a p o sitiv e o u tlo o k on m arkets o v e r the
m e d iu m -to -lo n g te rm . One o f th e challenges th e in du stry isfa cin g is fre s h e q u ity in flo w s in to m utual
funds, w h ic h have been negative o v e rth e last 10
m onths. There has been an o u tflo w o f about
?1 0,0 00 cro re y e a r-to -d a te till N ovem ber 2013,
but in the recent past it has been com ing dow n.
H ow ever, th e to ta l m utual fu n d in d u s try assets are
at an a ll-tim e high w ith ? 8 .90 lakh crore assets u n de r managem ent, as m ost o f th e flo w s have come
in to liq u id funds. The concern is q u a lity in flo w s
have not come in to e q u ity o r lo n g -d u ra tio n debt
funds, th e y have come m a in ly in to liq u id funds.
W hen you see negative in flo w s in to equ ity m a rkets, it re a lly is a re fle c tio n o f re ta il in ve sto rs ’ outlo o k o n the m arket. Retail investors, in general,
have a v e ry sh o rt v ie w about e q u ity m arkets. They
look at th e pe rform an ce o f th e im m ediate past, and
e x tra p o la te it in to th e fu tu re , w h ic h m ay n o t a lw ays be the rig h t approach.
d
ON REALTY
There wi 11be pai n in the real estate sector, there
isd e fin ite ly oversupply in thecom m ercial
space.... the challenge isto see com pletion o f
projects on time. The pricing pow er is no longer
w ith the developers. Bu it’s been historically
proved that pricesdon’tta ke a b ig c u te ith e r.
Deepak Parekh said that consolidation in the
d
ON CONSOLIDATION
Post 2008, investors have
leaned tow ards largerfund
houses, especially tow ardstop
10 fund houses. In a way, m arket consolidation has been
done by investors themselves.
industry is inevitable with 44 mutual fund
houses operating for the same pie of business.
Do you share the same view?
The to p fiv e fu n d houses c o n trib u te 50% to to ta l
m utual fu nd in d u stry's AUM, a n d th e to p lO fu n d
houses co n stitu te 80% o f th e to ta l in d u stry size. Very ofte n th e re is debate o f large versus sm all fund
houses, but fa c t o f th e m a tte r is th a t custom ers are
m a kin g th e choice. Post 2008, investors have
leaned to w a rd s la rg e rfu n d houses, especially to w ards th e to p 10 fu n d houses. In a w ay, m a rke t conso lid a tio n has been done by investors them selves.
HDFC as a brand is o u r biggest asset, com bined w ith
good pe rform an ce and a vast d is trib u tio n ne tw o rk,
becomes a fo rm id a b le com b in atio n.
Are you open to more acquisitions of asset
management companies (AMC), if it comes
on your way?
We are open to m ore acquisitions, bu t a tth e p re sent m om ent n o t m any sellers are com ing o u t in the
open. If you look a tth e h is to ry o f th is in d u stry, no t
m any deals have happened in th e past, considering
th e num ber o f players op era tin g in th e sector.
We have seen Fidelity, Morgan Stanley, Daiwa
exit mutual fund business. Are Indian markets a
difficult proposition for foreigners?
Each o f the above named sellers has had its ow n
reasons to e x it India. A t th e same tim e , w e have had
a num ber o f global names w h o have bought large
stakes in Indian AM C s.Therefore, it w ou ld no t be
correct to generalise. Besides, w e have a gre at e x am ple o f Franklin Tem pleton, w hich has managed
to b u ild a rob ust business in India. H aving said
th a t, one cannot deny th a t post 20 0 8 th e re has
been a preference by investors to w a rd s strong er
local brands w hich is a na tura l phenom enon in
m ost m arkets.
Market regulator Sebi has expressed its
discomfort over non-serious play ers in the
mutual fund industry. What is your view?
I th in k some o f th e sm aller fund houses have done
good pro d u ct d iffe re n tia tio n , and w e should re spect th em fo r it. I d o n 't th in k sm all means nonserious. A t one p o in t o f tim e, ou r asset size was also
?3,0 0 0 -4 ,0 0 0 crore.
Sebi has also expressed its dissatisfaction over
the mutual fund industry not spreading beyond
top cities. What steps have you taken to reach
out to investors in tier-ll and -III cities?
Liquid funds have assets under managem ent o f app ro xim a te ly ?2.40 lakh crore w hich comes fro m the
to p cities, as corpo rate headquarters are situated in
these cities. M utual funds are a push category and
no t a pull product w he re people come and ask fo r
schemes. The c o u n try ’s lite ra cy level is low, and in
financial products lite ra cy level is even lower. We
are ta k in g th e In ve sto r education and awareness
in itia tiv e by Sebi v e ry serio usly to reach tie r-ll and
tie r-III tow ns. It's a m onum ental ta s k fo r the industry , but I am sure w ith tim e and e ffo rt we w ill be able
to achieve th is goal.
An interesting trend has been observed in the
markets. At the time when Fils have been big
buyers into the market, mutual funds have
turned net sellers. Are these redemption
pressures or profit-booking?
Yes, th e re have been red em ptions in th e industry.
Most o f th e tim es w hen MFs sell, its due to red em ptio n s but at tim e s also to book p ro fits , ye a r-to -d a te
o u tflo w s have been a p p ro xim a te ly ?10,00 0 crore
in e q u ity fu n d s . C u rre n tly ,th e re isa v e ry high core la tio n betw een m a rk e ts p ik e s a n d redem ptions.
In any particu lar m onth, w hen we see a sharp spike
in m arkets, red em ptions escalate; on the o th e r
hand, when m arkets are stable to negative, red e m p tio n s a re low er.
Some of the leading fund managers are saying
that Indian economy and corporate earnings
have bottomed out and they expect a market
rally up to the elections. What is your view?
Most o f th e fin a n cia l ja rgon used by fu nd m anagers
d o e s n o t mean m u c h to re ta il investors. Investors
o n ly see past pe rform an ce o f th e ir funds. I th in k we
should s triv e harde r to get custom ers to in ve st in
m arkets w here th e re is s ig n ifica n t value. It’s human
nature th oug h not to take risk, especially when p e rceived ris k is high. Retail in ve sto rs are no t as w ell
in form ed as In s titu tio n a l investors.
Do you think Indian markets have run ahead of
the economy?
In th e last ye a r o r so, m arkets have been v e ry edgy
and have reacted sh a rp ly on n e w s flo w . H aving
said th at, I w o n 't say th a t m arkets are c u rre n tly e x pensive, if you look at va lu a tio n s th e y are s till qu ite
a ttra c tiv e , even th oug h th e y are tra d in g at an a lltim e high, its P/E m u ltip le is not at an a ll-tim e high
and, in fact, below its lo n g -te rm average. We hope
in ve sto rs w ou ld focus on th e sim ple concept o f
low P/E investing.
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