On Monday DSP Group announced that it has bought out BlackRock’s 40% stake in DSP BlackRock Investment Managers, the joint venture between both companies. This means Larry Fink’s global heavyweight BlackRock is exiting the Indian mutual funds (MF) space. Or is it? Analysts and experts say it is only a matter of time before BlackRock returns to Indian MFs in a big way.
Over the past few weeks, the word on the grapevine was that BlackRock was trying to buy out DSP’s stake in the company. Hemendra Kothari, promoter of DSP Group, has now confirmed the rumours. “BlackRock has been trying to convince me to sell DSP Group’s stake for the past few months as they wanted to hold an absolute majority in the company. But given our experience of over 150 years in the business, we wanted to remain a stakeholder,” he said, adding that both players parted ways on amicable terms.
Although Kothari said that BlackRock did not indicate to him that they wanted to re-enter India soon, the latest buzz on the street is that IDFC, which is reportedly looking to sell its asset management company and broking arms, could be on BlackRock’s radar. An industry expert who wished to remain anonymous said, “IDFC MF’s assets under management (AUM) are over Rs 70,000 crore, at around 6-8% of that could value the company at over Rs 6,000 crore. BlackRock could be looking at picking up IDFC’s stake in the MF.” However, BlackRock, in reply to an email query, denied showing interest in IDFC’s MF assets.
With BlackRock there is an expectation that they want to come back in a more significant way.Ashok Wadhwa, group CEO, Ambit Holdings
BlackRock is the latest in a long list of international players who have exited the Indian MF market over the last decade; the other names on the list include Nomura, which sold its stake to LIC; Standard Chartered, which sold its stake to IDFC; Fidelity, which sold its stake to L&T; and JP Morgan which sold its stake to Edelweiss. But Ashok Wadhwa, group CEO at Ambit Holdings, says there is a difference between the earlier exits and BlackRock’s. “All the earlier exits were either smaller players who wanted to get out of the market or global companies who left for their own strategic reasons. With BlackRock there is an expectation that they want to come back in a more significant way,” he said, adding that he expects the Indian MF industry to grow at the same pace that it has seen in the past two-three years over the next five years as well.
The Indian MF industry has seen more than 200% growth in average AUM in the past five years, from 7 lakh crore as on March 31, 2013, to 22 lakh crore as on February 2018, according to data from Association of Mutual Funds in India (AMFI).
“I am very confident and very excited for the mutual fund business in India,” said DSP Group’s Kothari, who hopes DSP Mutual Fund, which is how the new company will be known, will triple its average AUM in the next five years.
DSP BlackRock’s performance over the last five years justifies Kothari’s big bet on Indian MFs. Its average AUM of Rs 32,342 crore for the Jan-March period in 2013 grew to Rs 86,325 crore as average AUM for the same period this year.
The current activity in the industry is indicative of the changes that it could see in the coming days. Also more foreign players are expected to enter the MF industry. “Most MF houses have similar schemes now. In the next phase, we will see more sophisticated products coming to India, with higher risk and high possibility of outperformance,” Prakash Diwan, a market expert, said.
Ajay Bagga, executive chairman of OPC Asset Solutions, echoes Diwan’s views. “The Indian MF market is now becoming a serious one, with more and more savings being directed to MF investments instead of fixed deposits. Going forward we may see more Japanese players entering the market as there is a huge pool of savings there. The Vanguard Group is another international player that has reportedly been looking at entering India,” he said.
The penetration of MFs in India still has a long way to go, with total AUM to GDP ratio standing at around 10%, significantly below the global average of around 55%, according to analysts.