There is just no crisis in the industry. If you look at the track record of the Indian fund managers, some of them have done spectacularly well relative to expectations and relative to the market. They needed help only when there was a severe liquidity crisis for just 15 days and they stood like men through the entire process. If I look at average AUMs, FY 2010 has been the highest for the industry. In 2008, the average equity AUM was Rs 1,50,000 crore; in 2010 it was Rs 1,77,000 crore. And that was the period when the market actually went down. I don’t think this shows that the industry is in crisis.
My only problem is that the asset management industry allowed a lot of people to fire from their shoulders. The top 10 distributors make 30 per cent of the commissions and the total payout of distributor commission at the peak in 2008 was 25 times the profits the entire industry made. So here was a ship which was heading fast towards satisfying the narrow interest of the distributors. It certainly never helped a single investor. So the regulator made that ship change 90 degrees.
Is there a need for consolidation? I find that question premature as it is like asking my five-year old daughter to start dieting to keep fit. For the first time, the industry is going to knock on Rs 1,000 crore profitability and the number of people making money is three times the number of people not making money. I don’t think you can talk about any need for consolidation in such an environment.
There is an urgent need to increase penetration. The equity market penetration in this country is 1.2 per cent of the population and the mutual fund penetration is just 0.8 per cent. Even if I take the top 10 per cent of India, the industry has not even penetrated 10 per cent of that. When you have such humongous headroom for growth like my five year old daughter, I don’t think that’s when you talk about consolidation.
The decision to ban entry load was not driven by anybody else but the investor. It was driven by a need to be transparent to the investor. Regulators around the world do not work for high net worth individuals; they work for the retail investor. Indian investors are savvy. Look at bank depositors. Bank deposits offer zero entry load and most often bank managers throw the customers away. They say don’t put three-year money, put one-year money – everything to discourage the depositor. Yet, Indian investors queue up in front of banks to deposit money. The currency in this business is trust. One newspaper put out a list of the top 100 trusted consumer brands in India. There were just two from financial services – State Bank and LIC.
