Foreign mutual fund houses continue to exit the Indian asset management space and Goldman Sachs Asset Management (GSAM) is the latest player to sell its domestic asset management business to Reliance Capital Asset Management (RCAM). The acquisition price is Rs 243 crore and the deal is valued at 3.4% of GSAM’s average assets under management.

According to a release issued by RCAM, the boards of both companies have already approved the transaction and the acquisition is expected to be completed in this fiscal, subject to necessary regulatory approvals. “The transaction will add over half a percent in our market share. We will ensure that we maintain seamless continuity for all GSAM India fund investors across all schemes. Going forward, we would be willing to consider more such acquisitions that add to our strength and complement our portfolio”, said Sundeep Sikka, chief executive of Reliance Capital Asset Management.

With this buyout, Goldman Sachs Asset Management will be third foreign player to exit  mutual fund operations in the current calendar year. Earlier, Pramerica Asset Management bought assets of Deutsche Asset Management Company (AMC), and just a few days ago — in the first week of October — Belgian-based KBC Asset Management sold its 49% stake in mutual fund business to its partner Union Bank of India.

The primary focus of GSAM is to manage exchange traded funds (ETFs) and the company currently manages 12 mutual fund schemes, including 10 ETF schemes, and is the largest ETF provider in the country.

GSAM India is currently the exclusive fund manager for central public sector enterprises (CPSE) ETF and manages assets worth R2,172 crore for the scheme. According to the data from the Association of Mutual funds in India, average assets under management of GSAM for the July-September quarter stood at Rs 7,132.05 crore. In March 2011, Goldman Sachs Asset Management had acquired assets of Benchmark Mutual fund for more than Rs 130 crore.

Market participants said this deal would add value to the business of RCAM. “I think they have paid such high valuations only because of track record of schemes of Goldman Sachs. With this move, Reliance gets to manage current CPSE ETFs and further benefit from participating in the follow-on offer of CPSE ETF,” said the CEO of a top fund house. Typically, in the Indian mutual fund industry, equity assets are valued in the range of 4-6%, while debt assets are valued in the range of 1-2%.

According to Amfi, average AUMs of Reliance Mutual Fund stood at Rs 1.52 lakh crore for the July-September quarter. “We feel this business is best positioned to achieve long-term success under the direction of an asset manager with an established onshore franchise. We are deeply encouraged by the growing investor demand and government support for the burgeoning Indian ETF industry”, said Sanjiv Shah, co-chief executive officer of GSAM India.

CEO-SPEAK
* We will ensure that we maintain seamless continuity for all GSAM India fund investors across all schemes
* Going forward, we would be willing to consider more such acquisitions that add to our strength
* The transaction will add over half a percent in our market share and complement our portfolio

Retain ‘equal-weight’ on SKS Microfinance with target price of R480 per share. SKS’ Q2FY16 profit after tax (PAT) of Rs 779 million (up 37% y-o-y) was 18% ahead of our estimate and Bloomberg consensus. PBT growth was 78% y-o-y. The effective tax rate was 23% (minimum alternate tax) from near zero levels last year – SKS did not account for MAT credit benefit in the P&L. Higher revenues, reflecting higher than expected AUM growth, drove the beat. Operating efficiency improved. SKS raised its FY16 PAT guidance ~23%, from Rs 2.35 billion (provided with FY15 results) to R2.9 billion (up 55% y-o-y). Asset quality was stable.

Funding costs for SKS have been falling. With spreads being capped at 10% for MFIs, lending rates have been declining. In late September, SKS cut interest rates 125 bps to 20.75%, effective October 1 (cumulative cut of 380 bps since October 2014). According to the results press release, its marginal cost of funds is 11.2%.

The cost-to-AUM ratio improved q-o-q to 7.6% from 8.5% (10.0% in Q2FY15). The cost-to-income ratio improved to 47% from 52% (58% in Q1FY15). SKS has completed its Smart TAB project, enabling its loan officers to carry out all their activities on tablets. This compares to our estimate and Bloomberg consensus for FY16 of Rs 2.5 billion. We will revisit our estimates after further discussions with management.

LIC’s partnership with Nomura began in January 2011 with a tenure of five years after which both partners are free to decide the future course of action. (Reuters)

Japanese fund house Nomura may become the 10th foreign asset management company to exit the crowded Indian MF market in the past seven years if it calls off the five-year joint venture with state-run insurance giant LIC as is widely speculated.

With the exit of Goldman Sachs India AMC, which sold its business to Reliance Capital today, there are 43 MFs in India managing a tad over Rs 13-trillion worth of assets.

The reports about Nomura planning to call of its JV with the mutual fund business of LIC comes on a day when the Wall Street major sold its entire business to Reliance Capital Asset Management (RCAM) for Rs 243 crore, making the American fund house the seventh one to leave the country.

The market is abuzz with talks that Nomura India AMC is unlikely to renew its five-year contract with LIC and is planning to completely exit its mutual fund business here. The Japanese firm holds 35 per cent stake in LIC-Nomura MF, which had an AUM of a little over Rs 11,157 crore as of September- end, making it the 19th largest player in terms of AUM.

Nomura is unlikely to renew its contract with LIC in its mutual fund venture, when the five-year term comes to an end early next year, according to sources. Both LIC as well as Nomura declined to comment on the media reports.

Since 2008, a number of global MFs have exited India. While StanChart India AMC sold its business to IDFC in 2008, Fidelity sold its mutual fund to L&T Finance in 2012, and HDFC MF acquired Morgan Stanley’s fund business here in 2013. In the same year, SBI Mutual Fund bought Daiwa AMC.

Last year saw Birla SunLife acquiring ING Mutual Fund, Kotak MF buying out PineBridge Mutual Fund and Pramerica is in the process of taking over Deutsche Bank’s MF business.

Early this month, state-run Union Bank of India agreed to buy out the 49 per cent stake in the Belgian fund house KBC from its mutual fund business here Union-KBC Mutual Fund.

Making its first-ever buyout, RCAM has decided to acquire all 12 onshore schemes of Goldman Sachs AMC with total assets base of Rs 7,132 crore. The deal will make Reliance MF the exclusive fund manager for Government’s ambitious Central Public Sector Enterprises (CPSE) Exchange Traded Fund.

LIC Mutual Fund has been in existence for the last 25 years. LIC’s partnership with Nomura began in January 2011 with a tenure of five years after which both partners are free to decide the future course of action.

“Most of the funds managed by them (LIC-Nomura MF) are performing extremely well and looking at the wide experience of their fund managers, it will only get better from here,” the sources said

LIC Nomura’s funds have been performing well in comparison to the peers. In the past, the 1-year G-sec funds have been able to deliver around 15 per cent returns and the MF’s investments are in high-quality corporates, thanks to its strong in-house research team.

“Our performance has been consistent and competitive, which are reflected in our AUM growth,” LIC Nomura MF Chief Investment Officer Saravana Kumar told PTI today.

“The equity scheme has been delivering a CAGR of 15.8 per cent for the past three years, while our tax plan scheme has generated 18.7 per cent CAGR during the same period against the Sensex’s return of 11.7 per cent in the same time-frame,” Kumar added.

This growth came in even as the fund house didn’t launch a single product between 2009 and 2012.

Justifying the decision, Kumar said “this was a calculated decision as we wanted to improve the investment performance of our existing products.”

LIC Executive Director Saroj Dikhale took over as the Chief Executive of LIC Nomura MF this July. Its AUM rose to Rs 11,157 crore as of end September from Rs 9,313 crore in March 2015.

Domestic financial institutions and mutual funds today pitched for rationalisation of tax provisions to improve ease of doing business in the country.

Domestic market participants on Wednesday asked the government to restore the rebate on securities transaction tax (STT) to traders, make uniform KYC norms mandatory for financial products and deepen retail participation in the market.

In a meeting called by the finance ministry to get their views on how to further improve ease of doing business, the market participants also sought measures to deepen of the domestic bond market.

“We have asked for restoration of rebate on STT, which was available till 2007-08,” said DK Aggarwal, head of SMC Investments & Advisors Limited. Before it was removed, traders were able to deduct STT paid from their income tax dues on income from securities business. Now, STT paid is allowed as a deductible expense. Removal of the tax benefit has hurt the businesses of traders as it reduced their liquidity, Aggarwal said.

The meeting, which was attended by representatives of revenue department, Sebi and RBI, also discussed integration of various segments of the market.

Economic affairs secretary Shaktikanta Das said the market participants suggestions would be considered by the government. Concerted steps were required by the authorities to increase retail participation in the financial market, said Ashish Kumar Chauhan, Managing Director & Chief Executive Officer of the Bombay Stock Exchange.

The ministry held a similar meeting with foreign portfolio investors on Tuesday.

Mphasis reported 15.30 per cent increase in consolidated net profit at Rs 184.72 crore for the July-September quarter of the current fiscal.

Shares of IT firm Mphasis surged over 13 per cent after the company posted 15.30 per cent increase in consolidated net profit for the quarter ended September 30.

The scrip jumped 13.60 per cent to touch an intra-day high of Rs 475 on the BSE.

On the NSE, it climbed nearly 13.62 per cent to Rs 474.

Mphasis reported 15.30 per cent increase in consolidated net profit at Rs 184.72 crore for the July-September quarter of the current fiscal.

Its net sales were at Rs 1,557.46 crore for the second quarter of 2015-16, up 6.30 per cent from Rs 1,464.87 crore in the year-ago period.

“We are delivering to our plans of growing Direct International business faster than the market. These results reflect excellent overall performance,” Mphasis Chief Executive Officer Ganesh Ayyar said.