Employees own more than 6% of Nippon India MF, says CEO Sundeep Sikka

Our strength has always been in the retail segment and that will remain our focus area, said CEO Sikka

Nippon India Mutual Fund (NIMF), which recently got re-branded from Reliance Nippon Life MF, has given sizeable ownership to employees through employee stock options to ensure continuity, as it looks to regain its market share. In an interaction with Jash Kriplani, Sundeep Sikka, executive director and chief executive officer, shares why he thinks brand change can help future growth. Edited excerpts:

What led to market share loss in the debt segment?

In the debt segment, we have lost substantial money; around Rs 50,000 crore. This has been because of two reasons. One is what was happening with our former group, which had led corporate treasuries to stop investing in our debt schemes. Also, the debt crisis had caught the entire mutual fund industry unawares. Institutional investors were either moving out of the mutual fund industry or gravitating towards certain fund houses. However, we are confident that with the change in name, change in brand, and pedigree of Nippon Life, there will be a lot of re-aligning of debt portfolios. We are confident that we will be able to get back most of the lost asset base. Over the last month, we have been seeing positive momentum. At the same time, we don’t want to just look at getting a higher asset base but focus on what is right from a business perspective.

After the rebranding and dropping ‘Reliance’ from the name, how confident you are of regaining market share? 

The growth of the company happened because of the Reliance name, especially in the retail segment. Along with that, our ability to execute in small cities and towns played an important role. We are seeing institutional investors coming back after the change in brand. Also, feedback from retail investors and distributors is positive. However, we want to focus on profitable growth, rather than market share. Getting the right investor mix will be important, and not just focusing on institutional money for higher asset size. Institutional investors, which account for half the industry assets, are already well-aware of Nippon’s name. High net-worth investors are also familiar. Independent financial advisors catering for the retail segment have received the rebranding well. In some pockets of retail investors, it could take some time, but we are confident of regaining market share post-rebranding.

Any programme to ensure employee retention after Nippon Life’s takeover?

As this transaction took place, 6.2 per cent of the company was given across all levels and all function of employees in the form of employee stock options, which can be vested over a seven-year period. This has been done to ensure long-term commitment and aligning interest of all the stakeholders.

Both from your and industry’s perspectives, what is the road ahead to resolve the situation on some of the troubled debt exposures?

We want to do things that are within our control, rather than wait for intervention from the regulator or the government. That is the reason we felt it was prudent to sell the underlying equity collateral in the case of our Essel Group debt exposures. Also, we didn’t want to take an equity view (i.e. view on the share price of the collateral) for fixed income investment. 

The collateral was for the purpose of protecting capital, and to that effect, we exercised our right on the collateral. Similarly, we acted in the case of our exposure to Morgan Credit, where YES Bank shares were placed as collateral. In the case of Dewan Housing Finance (DHFL), we have moved court. The situation on DHFL is evolving with every passing day and with every new development. Part of the Anil Dhirubhai Ambani Group exposure has been secured with Reliance General Insurance shares and we are working on the remaining part with other MF co-lenders. From our perspective, it’d be important to stay agile and nimble-footed when dealing with some of these credit exposure to safeguard unitholders’ interests. 

There have been concerns about some equity scheme performances among distributors. What is the way forward to improving this aspect?

The market breadth has been getting quite narrow over the last few years. Mostly four-five stocks have contributed to the spike in frontline indices like the Nifty. So, there have been some equity schemes that have not done well. However, most retail investors coming through systematic investment plans (SIPs) are not looking at one or two-year performances, but they are looking at longer periods, where the majority of our schemes are doing well. We want to focus on consistent performance and not expose investors to high levels of volatility. 

How will the overseas business grow following Nippon Life’s takeover?

We are working on joint initiatives with Nippon Life to get a higher share of overseas money into India, which can add to our profitability and help de-risk our business model from a pure-play mutual fund business. The Indo-Japan Emerging Technology and Innovation fund is a case in point. The fund closure is in December and it has commitments for $200 million so far.

Do you see any headwind for industry flows?

Over the last two years, when we were losing market share, retail and SIP assets cushioned the fall. Two years back at the time of our listing, we had 2.1 million SIPs, which are now at 3.2 million. The retail asset base also grew during this period. This shows the maturity of retail investors as this was also a period when we were facing challenges as a company. However, if returns disappoint over the next two-three years, the overall industry flow can come under pressure.   

What will be your strategy in penetrating markets beyond the top-30 cities (B30) and other smaller markets?

Our strength has always been in the retail segment and that will remain our focus area. Apart from playing a role in financialisation of savings, we have observed that assets sourced from smaller markets, or smaller investors in larger markets for that matter, tend to be stickier and more profitable over the long run. While we believe both digital and high-touch distribution models would co-exist in the B30 markets, assets that are advised through IFAs or other intermediaries tend to have longer investment periods. We will focus on a mix of both digital and high-touch channels in these segments.