'No AMC business for Bajaj Capital now'

Bajaj Capital, one of the oldest financial advisory groups in the country, is now expanding its presence through freelance advisors. The Bajaj Group, which was started way back in 1965, stepped into the financial services industry by distributing fixed deposit products for the Oberoi Group. One of the first clients for its mutual fund distribution business was Kothari Pioneer, later on acquired by Franklin Templeton Investments (now FT Blue Chip Fund). Rajiv Bajaj, MD, Bajaj Capital, talks to Vandana about the company's plans. Excerpts:

How are you scaling up your operations after the group's demerger?

We have been riding on the bull run in the country's financial markets. To further cash in on the market boom, we have to spread out retail presence across the length and breadth of the country. Right now Bajaj Capital is present in 170 cities through 155 outlets, and we plan to increase it to 250 cities. So far, we have been growing through internal accruals.

Where do you see mutual fund distribution industry 12 months from now?

Distribution forms a major part of a mutual fund business. With assets under management (AUMs) increasing every month, I expect the mutual fund industry to grow by 50-60 per cent a year. The share of equity assets to retail assets will continue to grow, thus offering a lot of opportunities for distribution houses to expand and reach to untapped customers.

The Sebi has put up a proposal for scrapping entry load. What is your view on that?

We are going to keep our views in front of the market regulator. I think they should provide us a level playing field. There should be a differential entry load mechanism for all players, where customers can communicate directly with the distributors.

Even if it is implemented, there will be a small portion of investors going for direct route. In India, there are lot of people who still need financial advisory.

What are you doing to ensure penetration of mutual funds in smaller cities?

There are actually 250 cities in the country, which contribute to the total MF transactions. So we are first targeting these 250 cities. We would increase our reach through freelance advisors. We have 8,000 active advisors.

For smaller cities, where access is quite difficult, we are looking to acquire organisations that already have distribution networks. Reaching out to the rural areas is still not a priority for us. It is not viable at this point of time. We will do that through freelance advisors.

Financial advisory services are still not very popular with Indian investors due to rising management charges and fees. How are you going to tackle this problem?

Financial advisory services are still at a nascent stage in the country. People have not realised the value of having a financial advisor. Fee structure in India is lower than anywhere in the world. The main reason for these services not catching investors' fancy is low awareness levels. Indian consumers are changing very fast.

With growing disposable incomes, investors will not mind paying 0.5 or 1 per cent extra for better returns on their portfolio. The ratio of household savings to investments is still very meagre. So there is a lot of scope for us to create awareness and construct power portfolio for them

Are you planning to foray into institutional broking and AMC business?

We have already made our foray into retail broking last year with presence in 10 cities. And yes, we intend to start our institutional broking business very soon. By Diwali this year, we will be starting our online portal. However, going with our own asset management business is not on the cards right now.

How do you see the response to the forthcoming public issues vis-a-vis the current market slowdown?

We have a very selective view on the initial public offers (IPOs). I am of the view that in a bearish market no offers can sail through successfully. However, some good papers are always there which will keep attracting investors.

How has been the retail response to IPOs in recent times?

It has not been outstanding. It is just above average. Out of 10 million demat account holders in the country, only 10,000 or 15,000 retail investors are approaching the IPO market. This is a very minuscule portion. It is actually qualified institutional buyers (QIBs) and high networth investors (HNIs) who have been pushing the IPOs. The response from retail investors has always been lukewarm.

What's your take on the equity market?

We see markets being volatile for next 2-3 months. It may drop to 13,000-odd levels. The best option for retail investors at this point of time is to pan out their investments.

Are you planning to raise funds from the market?

We are not going for an IPO right now. There are no plans to raise capital from the market as of now.