India is a Tough Place to Make Money

By Valueresearch; Jan 11, 2011

Edgar will never forget his first distributor meet in the country. In order to get a first-hand impression, he decided to attend a large IFA meeting hosted by a competing firm. While he was surprised to note the portfolio manager himself take the stage to explain details of the new product, nothing prepared him for what followed.



The enthusiasm was something he had never witnessed in his entire career in any of the other countries. The barrage of questions, the aggressiveness of the distributors, the amount of animation and energy in the room, the directness of the questions and the very volume of the questions took him by surprise. He recollects how the portfolio manager was floored up on the stage.

He walked away with a lot of excitement and one learning: If you can tap into the energy and enthusiasm of the distributors and satisfy their desperation to really understand the product, half the battle is won.

The regulatory changes have made it all the more difficult for asset management companies to make money in India. So even though you are a prominent player in Asia, India will be tough.
If you take a 3-year view of the market place, the changes being brought about are ensuring that the industry is moving in the right direction. What India needs is a stable and professionally run asset management business. The overall direction of these changes is good.

India is a tougher place to make money than most other markets. One has to be clever and innovative and competitive to stay ahead of the game. We are very focused on India and are willing to invest to do well.

In the past, it was easy for the West to club, say, China, India and Brazil in one category and say that they have great growth stories. But that is a very naïve way of looking at it. The markets are structured differently. The consumers in each of the geographies differ and the competition in India is very stiff. This is a tough market.

When we started off in China, we sold Chinese expertise to foreigners. All clients were European. It was tough to sell China at that time. Now our clients are all Asian. That is a radical shift. It is somewhat similar in India where we manage much more Indian assets for clients outside India than within the country. That will change too.

You may have to wait a while before you make the business lucrative especially since you do not have a huge distribution network.
That is right. If you are associated with a local player or have a local brand which has been built and developed over generations, then you automatically have a better business proposition and brand recall.

We have no plans to be the Top 3 or 5 in terms of asset under management. Local players have a significant advantage in the way they do business and we do not want to compete on that level.

We are not a big player but we are looking to grow. And we sincerely believe that there is a lot more growth to come. There may be a lot less players coming in now, as it was years ago, but those who are here are here for the long term. They are the ones who are prepared to live with low, or probably no, financial return for a while. One will start to make money when the market really begins to develop, which for me is distribution becoming much bigger and broader than what it is today. That is when one can look at the returns, which is over the long run.

So players like us would have to show that we are committed and give investors reason to believe that we fulfil a purpose by being here. That we add value to the existing product line available in the country.

How do you plan to add value?
It’s a very simple business - asset management. Investors give us money and we hope to outperform the benchmark. So the first step is in improving the performance of the products we have in the market already.

We should be performing adequately well to keep us ahead of the game. If we fail in performance, why should any distributor recommend our funds? That is the best test, if you are producing what you should be producing, then distributors will be eager to sell your product.

However, after the crash, large distributors have realized the need for investment managers to understand the risk profile of the product and the importance of working within the risk parameters specified. So it’s not just a return game anymore. The more relevant issue is what risk is being taken to give that return.

The second step is to widen the product range and bring in products that people want but are not getting.

Regulations in this country demand a world class service at a low cost. What is your vision for India?
We are one of the largest investment players in the Asia Pacific region where we have a massive footprint. Australia and Japan are the very mature markets. The top four regions for growth in this geography are China, India, Indonesia and South Korea. We need to increase our footprint in India and that will require investment on our part.

We are hiring new people, upgrading the skills of the ones we have, we are growing and we are looking at the performance of existing products as well as plan to bring in more products. In India we don’t yet have the massive distribution network that we have in the other countries, where the asset management business is concerned. That too is an area we are looking at.

Right now we do not have plans for hundreds of offices across the country hoping to carry our message across. As we evolve, we will take a call whether we need to expand physically or work with more distributors. Whoever we are working with must have access to our information and products.

This AMC has seen so many changes of ownership. What will the latest move bring to it?
Because of our global exposure, there is a constant sharing of learning on all levels. We apply all our global knowledge to the Indian set up. For instance, we have learned a lot in China which we could use in other markets. Or, to cite another example, we could send someone over to Brussels to learn from the structured products team there or one of them could move to another country for a few months to develop individual expertise and exposure to another market. I remember 10 years ago when our office in Indonesia would use a 26kbps modem. Our European office would wonder why it takes two weeks to download a 50 page presentation. Until they themselves visited the office in Indonesia, they would not understand.

It would have been easy for us to have lost a lot of people in this transition, but we did not. Because they have bought into the fact that BNP Paribas is a serious player that plans to grow its business sensibly over the years. On top of it, we have also been able to attract new people. India is an interesting place to be in but will require a lot of hard work and investment. We are prepared to put in both.

An historical perspective
The mutual fund started off as ABN AMRO Mutual Fund.

A change in ownership took place after a consortium of Royal Bank of Scotland, Fortis and Santander took over the Dutch bank ABN AMRO late 2007. In tune with the global structuring of ABN AMRO, Fortis went ahead with the takeover of ABN AMRO’s asset management business. After the takeover, the AMC was renamed Fortis Investment Management (India) Pvt. Ltd.

Fortis was then sold to BNP Paribas in Europe. After the French bank acquired the global banking and financial services divisions of the Netherlands-based Fortis Group in May 2009, it led to a problem in the asset management business in India where BNP Paribas was partner with Sundaram Finance (Sundaram BNP Paribas Mutual Fund). Capital market regulator Securities and Exchange Board of India (SEBI) bars firms from owning stakes simultaneously in two rival asset management or mutual fund companies. So Sundaram Finance acquired BNP Paribas’ 49.9 per cent stake in the AMC and the fund house is now Sundaram Mutual Fund. While Fortis Mutual Fund is now BNP Paribas Mutual Fund.