'India beats China in regulations'

Q&A: Tim McCarthy

over cups of tea to know about his India plans. Excerpts:

Nikko AM is entering India at a time when the country is witnessing the fastest growth and large foreign fund inflows. What scope do you see for mutual fund business here?

It's true that India has registered its highest growth this year. In terms of growth, I think it still has a long way to go. Historically, the growth in mutual fund business picked up after demutualisation or with modern regulations coming into force.

Let's take an example of America. Mutual funds became popular in the US in 1975, but they began registering real growth since the 1990s.

The same is true for European economies too, the value of whose assets is more than their GDPs. In India, demutualisation materialised around 1999. I think there is a vast scope for the asset management business in this country to grow.

How do you see the two countries faring in terms of asset management business?

Modern regulations are vital for economic growth. Compare the growth of India and China after deregulation took place. In some sense, I am more curious about the regulations here than those of China.

In fact, India is ahead of China when it comes to the type of regulations. But, I think the Chinese made more money just because they had regulations in place earlier than India. Hence, they are seen ahead.

How do Japanese investors look at India as a global investment destination?

First of all, the appetite of a Japanese investor for India is much bigger than what is normally seen for other countries. For me, it is very easy to sell an India-focused product than a Chinese one.

The Japanese, mostly old investors, have reservations about investing into Chinese or Korean funds. But I don't find that for India. Mutual fund business is all about diversification.

If I put all my money into one specific country, the returns are restricted. That's why you spread into different countries. It's just like the best players from ten countries easily beating any good team, and by entering India, we are picking up another best player.

What are the sectors in India you find attractive for investments?

India is no more a developing country. I have stopped calling it so, with the rate of growth the country is witnessing. It is very difficult to say which sectors we will be investing in.

At a growth rate of 7 to 8 per cent a year, all the sectors have to scale up their operations. I will again compare China and India. Here, the growth has come from service sectors such as BPOs, call centres, outsourcing businesses, while the Chinese are stuck to manufacturing. India, which would enter the production scene much later, will have an edge over China.

At the end of the last century, the dollar dominated over 90 per cent of the production, while services trailed. At the end of this century, it is expected to reverse. That's why I see service economies benefiting more.

Don't you think you have delayed your entry into the mutual fund business here, as around 30 fund houses are already operating?

No, I don't think we are late here. Take the examples of European countries where 400 to 1,000 companies are doing business. Given the rate at which India is growing, we would not be late even after three years from now.

Here, the demographics are so powerful ... a good number of young population. You have got a growth rate of 7 to 8 per cent and, I tell you, it's going to be a long story.