The long-term opportunity for the Indian MF industry is not under question: Lester E Gray & Rajiv Anand

Last Updated: Tue, May 01, 2012 05:11 hrs

Even as the mutual fund sector copes with a tough time, a new foreign fund house, Schroders, the largest asset management company in Britain, has bought 25 per cent stake in Axis AMC. Lester E Gray, chief executive officer of Schroders (Asia Pacific) and Rajiv Anand, CEO, Axis AMC, talk to Chandan Kishore Kant & Jinsy Mathew on how they expect the partnership to help them grow here. Edited excerpts:

Schroders had a preference to enter India on its own. Why the partnership route?

Gray: We have been eyeing the Indian market for seven to eight years and were trying to determine the right way to enter this market. When we started looking at establishing the business in India, we came up with a view that the best way is to find a strong domestic partner. Since 2005, we looked at the various opportunities but none really worked for us. Having exhausted these, we decided in 2007 to look at doing a slow and progressive organic build-up in India.

Around that time, we had the financial global crisis and then there were some fundamental rule changes in the mutual fund space in India. A combination of these made us step back and reconsider the strategy and we decided our initial views were the right ones and this is a market best tackled with a strong domestic partner. So, we pulled back from establishing our own operations in India. We believe the long term prospects for the asset management industry in India are very positive. However, we do recognise that right now the markets are difficult and challenging. In some respects, it is not that much different to a number of asset management markets around the region. Many of these have not grown at all over the past couple of years, so India is not unique in that respect.

At a time when the domestic fund market is struggling and recently Fidelity exited India, was it the right time for inking the deal?
Gray: It was the right time because it was when the right partner was available. We are not timing the market that we are thinking Indian markets are about to take off. That’s not the case. Each company has its own strategy for entering or exiting the market. Schroders had been looking for an entry in India for many years. We understand the drivers in the market and the challenges here; that’s why we entered this market with a strong domestic partner. So, when Fidelity made public that they were leaving, it did not change our view even for a minute. They had their own reasons for exiting and we have ours for entering this market. History will tell who got the decision right. We are not short-term optimistic that things are going to change immediately but we do believe that over time, India will become an important asset management market.

Do you plan to further up your stake in Axis AMC?
Gray: We very much hope the business relationship develops and is successful. Over time, if there is an opportunity to increase the stake, which makes sense to both shareholders, we will be very open to that.

With Schroders in, how does business change for Axis MF?
Anand: Strategically, what we have been trying to do in the past couple of years is build up a local franchise, local products, build relationships with banks, distributors and financial advisors. Now, the opportunity we are looking to target is two-fold. First, Indian investors investing offshore will be an opportunity, which today is small but will grow in the years to come. The entire gamut of products is something we want to be able to showcase to Indian investors. We needed an offshore partner to bring world-class products to Indian investors. That’s where Schroders come in. Second, we want somebody to showcase our products to global investors. This partnership will help us achieve both.

The fund industry is going through one of its toughest phases. How will things change from here on?
Anand: In an environment where we have savings rates of 30-35 per cent, the long-term opportunity for the MF industry is not under question. There will be changes in regulations and there will be tough times but at the end of the day, these savings need to find a home. I think when the tide turns, strong credible brand names that are in existence will benefit and we will certainly be one of them.

Gray: Schroders is not doing this transaction because we think the opportunity in the next 12-24 months is great. We know this will change and when it does happen, the growth opportunity will reassert itself. And, unless you are there and have established a strong presence, you are not going to benefit by the next upswing in growth.

Axis AMC catapulted itself quickly among the top 15 players within three years. With Schroders in, will you be able to accelerate your pace and reach among the top five or 10?
Anand: It’s about delivering the right products to the customers. It’s about building the business sensibly, which means you have a sensible fix on costs and manage these over time and, most importantly, innovate. If we do all this correctly and given that we have got the Axis brand and distribution, if we are not a top-10 player in the next three years, it will be a huge disappointment.

Would this deal bring changes in your brand positioning?
Anand: There is no change in the brand, as such. We will continue to be Axis AMC and our funds will continue to be called Axis funds.

More from Sify: