If BlackRock does re-enter the mutual funds business in India, this time in partnership with Mukesh Ambani-owned Jio Financial Services, it will do so against the weight of history of the past two decades. BlackRock, the world’s largest asset manager, first entered India in 1997-98 in alliance with homegrown DSP Group, but left in May 2018, when the mutual fund was the ninth-largest in India. It isn’t alone. In the past two decades, at least 15 asset management firms of global repute—promoted by banks, insurance companies, investment banks—have walked away from the Indian mutual fund sector.
BlackRock’s parting of ways with DSP was seen less as a vote on the sector’s prospects and more as a strategic call—both partners wanted full control. But a run through the remaining names, and some of those experiences, reveals several underwhelming performances and expectations belied. The private sector was re-allowed into the sector in 1993. In the past 25 years, total assets managed by mutual funds in India have increased at a compounded annual rate of 17.6%—or effectively doubling roughly every four years.
Despite the churn, there are 43 fund houses in India today, up from 31 in March 2007 and 39 in March 2010. What is missing from that list is the biggest global names. Of the top 10 asset managers in the world, not one is in India today. Three have come and gone—Fidelity, JPMorgan and Goldman Sachs. And BlackRock is now preparing for its second act, in the backdrop of a maturing of the industry.
Homegrown advantage
For them, India is a relatively small market. Each of those top 10 asset managers manages more funds than the Indian mutual fund industry combined (currently about $540 billion). In its press release, BlackRock said its partnership with Jio “aims to transform India’s asset management industry through a digital-first offering and democratize access to investment solutions for investors in India”. It’s chosen a heavyweight partner, with recent history of disruption and broadening a market. Jio did that in mobile telephony and data access. JioCinema is trying to disrupt TV.
What Jio lacks is prior experience in retail fund management, which industry watchers say has many local nuances and an approach that transplants global templates doesn’t work. Of the top 10 fund houses in India today, eight are homegrown, either entirely or with foreign partners. Only two are foreign fund houses, Nippon and Mirae, and Nippon’s leadership status stems in part from it acquiring Reliance Mutual Fund.
Industry expansion
What would embolden the BlackRock-Jio combine, and also other relatively newer players, is the expansion the Indian mutual fund industry has seen in the past decade or so. One measure of that is the net resources mobilized by mutual funds—the difference between investor funds that came in and investor funds that flowed out in a given year. This is a better measure of industry growth as it adjusts for expansion due to an appreciation in asset prices.
In the last 11 years, the Indian mutual fund industry has not had a single year where net resources mobilized by mutual funds were negative. Also, the trajectory of net inflows has moved up. In the last 11 years, the median value of net resources mobilized is about ₹1.1 trillion. While that’s puny compared to the volume of assets large fund houses manage in foreign markets, it’s something that can’t be ignored.
Depth in expansion
There are several encouraging dimensions of that expansion. One, there’s greater investor participation. In the past 10 years, while assets have increased by about six times to cross ₹40 trillion, the number of investor folios—not necessarily unique—has increased from 43 million to 149 million. Two, there’s greater investor discipline. The number of systematic investment plans (SIPs) has doubled from 31 million in March 2020 to about 61 million in December 2022, and those assets from about ₹2.4 trillion to ₹6.7 trillion.
Three, mutual funds are going beyond the metros. The share of Mumbai and Delhi in total assets dropped from 56% in March 2015 to 38% in December 2022. The share of the next 13 cities also dipped marginally, while the share of remaining cities shot up from 14% to 36%. This has drawn BlackRock. Will it draw more foreign fund houses?
www.howindialives.com is a database and search engine for public data.