Seven more firms get Sebi approval to sell mutual funds

India has 35 asset management companies offering more than 950 mutual fund schemes and managing assets worth Rs5.44 trillion as of August

Ravi Krishnan

Mumbai: Seven firms plan to offer new mutual funds, braving choppy stock markets, after receiving in-principle approval from the Securities and Exchange Board of India, or Sebi.

Nineteen firms had applied to the capital market regulator for approval to sell mutual funds, seeking to tap rising incomes and potential savings in the world’s second fastest growing major economy.

Sebi has given approval to Nikko Asset Management, Goldman Sachs Asset Management, Indiabulls Financial Services Ltd, Religare Securities Ltd, Shinsei Bank Ltd, Dawnay Day International Ltd and Matrix Financial Services, according to the regulatory body’s website. Approval for the remaining 12 is pending.

Private equity firm New Silk Route Advisors spent about Rs200 crore last month to buy Dawnay Day AV Financial Services, including UK-based Dawnay Day International’s 50% stake, chairman and managing director Alok Vajpeyi’s 25% holding and a further 25% owned by an employee trust, Mint reported on 21 August.

Also read:

Dawnay Day sold to New Silk Route

India has 35 asset management companies offering more than 950 mutual fund schemes and managing assets worth Rs5.44 trillion as of August, according to the Association of Mutual Funds in India, or Amfi, an industry body.

“The basic economic force driving this is that the number of households invested in the capital markets continues to remain small,” said Amfi chairman A.P. Kurian. “Also, the proportion of savings invested remains little.”

The total assets under management of mutual funds represents 12.5% of India’s gross domestic product, compared with 40% for Brazil and 60% for the US, according to data provided by Mumbai-based Crisil Ltd, a unit of global rating agency Standard and Poor’s.

Still, India’s mutual fund industry is growing at one of the fastest rates in the world, along with those in China and Brazil. Total assets under management have expanded five-and-a-half times since August 2002.

Total assets under management in the country are estimated to grow 33% annually to reach $440 billion (Rs19.6 trillion) by 2012 , according to a survey by consulting firm McKinsey and Co. Retail investment in mutual funds is estimated to grow between 36% and 42% annually through 2012, while institutional investments will likely increase by between 25% and 33%, the report said.

Equity market returns have shrunk this year, with the Bombay Stock Exchange’s bellwether Sensex index declining more than 28% since January after rising more than 45% in each of the previous two years. Assets under management have declined from Rs.5.48 trillion in January, according to Amfi data.

A faster Sebi approval process will see at least four new asset management companies starting operations this fiscal year, twice the number in each of the past two years.

Edelweiss Asset Management Co. Ltd started its operations a week ago; Goldman Sachs Asset Management Ltd, India Bulls Ltd and Religare Securities Ltd will launch new schemes by year-end.

The new entrants remain unfazed by the fact that foreign institutional investors have pulled out a net $6.9 billion this year from equities after investing a net $17.2 billion in 2007. India’s economic growth slowed to 7.9% for the quarter ended June, compared with 9.2% a year ago. “Any time is a good time (to start a mutual fund),” said Mumbai-based Gagan Banga, chief executive officer of Indiabulls Ltd, which wants to launch its mutual fund plans by November. “It’s for the long term and we are going to leverage our footprint in the financial services business.” Independent industry trackers such as Dhirendra Kumar, CEO of New Delhi-based Value Research, however, say that mutual funds hitting the market now will take longer to break even.

“Many firms broke even in 2-3 years during the bull run,” said Kumar. ”These people (the new entrants) won’t be so lucky…. their break-even will get elongated to, say, 10 years.” Industry observers also say that some new money managers might have to keep their focus narrow.

“To become a retail player, you need to have deep pockets and patience,” cautions Hemant Rastogi, CEO of Wise Invest Advisors. “It might be possible that some of these new entrants may become niche players,” he added, citing the example of Benchmark Asset Management Ltd, which has only exchange-traded funds.

Religare insists that it won’t restrict itself to any niche. While only insititutional firms can set up mutual funds, barriers to entry in the industry are low, with only Rs10 crore in minimum net worth required to start an asset management company, according to the Sebi regulations.

“We want to hit 100 cities in the first two years and get up all products so that anyone can buy what he requires,” said Saurabh Nanavati, CEO of Religare’s mutual fund unit, to be launched with the Netherlands-based insurance company Aegon NV.

Sanat Vallikappen contributed to this story.

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Oil prices rebound sharply in Asian trade

Brent North Sea crude for October surged $2.57 to $106.66 a barrel

AFP

Singapore: World oil prices rebounded sharply in Asian trade Monday on worries Hurricane Ike will threaten production facilities in the oil-rich US Gulf Coast, analysts said.

In Asian morning trade, New York’s main contract, light sweet crude for delivery in October rose $2.37 to $108.60 a barrel from its close in New York floor trading on Friday.

Brent North Sea crude for October surged $2.57 to $106.66 a barrel.

The hurricane slammed into Cuba on Sunday, becoming the second major storm to hit the island in little over a week, making landfall in the eastern province of Holguin, weather officials said.

Ike, packing 120 mile (195 kilometre) per hour winds, earlier left dozens of people dead in a rampage across Haiti.

“Oil prices are reacting to the threat of Hurricane Ike, which is heading toward the Gulf of Mexico,” said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.

“In the short term, hurricanes will determine the price direction of crude oil,” he added.

Prices had been declining due to weakening energy demand as global economies slow down.

Shum said the market was also closely watching the results of a policy meeting on Tuesday by oil ministers of the Organisation of Petroleum Exporting Countries (Opec) in Vienna.

Opec ministers are expected to wrestle with the issue of falling oil prices. Some analysts were expecting the ministers to agree to trim output to help keep crude above $100 a barrel.

Dollar gains against yen in Asia on US mortgage bailout

The US Treasury announced that it will put Freddie Mac and Fannie Mae under strict federal control and may invest up to a total $of 200 billion in them

AFP

Tokyo: The dollar gained against the yen in Asian trade on Monday after US authorities bailed out two mortgage finance giants, easing investor worries over the future of global markets, dealers said.

The dollar firmed to 108.32 yen in Tokyo noon trade from 107.67 in New York late on Friday, 5 September. The euro gained to $1.4350 from $1.4260 and to 155.42 yen 153.57.

The US Treasury Department announced on Sunday, 7 September when markets were closed, that it will put Freddie Mac and Fannie Mae under strict federal control and may invest up to a total $of 200 billion in them, dealers said.

Fannie Mae and Freddie Mac, government-chartered, shareholder-owned firms that provide liquidity to the US housing market, have been whipsawed by the financial meltdown in the past year.

The companies have lost some 90% of their value on fears of further losses from mortgage defaults by “subprime” customers, who were given loans despite patchy credit histories.

“Markets reacted positively at first glance to the news because it dispelled uncertainty about credit and fears of a worsening housing market,” said Masatsugu Miyata, forex dealer at Hachijuni Bank.

After a volatile morning session, trade started to calm down “as investors were taking a second glance at the bailout plan and its details and are unsure whether it will solve the financial crisis. They are cautious,” he added.

The US government plan could potentially cost taxpayers billions of dollars and Washington’s decision to buy back preferred stock would mean common shareholders still risk losing millions of dollars, dealers said.

The market was further relieved by reports that South Korean and Japanese banking companies were considering investing in Lehman Brothers, one of the Wall Street banks worst-hit by the subprime debacle.

The euro firmed against the dollar as market players raked in profit from the single European currency’s recent one-year lows against the greenback, dealers said.

But the rise did not signal a shift in market sentiment over the outlook in the eurozone, whose 15-nation economy contracted in the second quarter for the first time since the bloc’s creation in 1999.

The pound firmed to $1.7845 from $1.7653 in Tokyo morning trade.

The Canadian dollar slipped to $1.0560 US from $1.0591 after Prime Minister Stephen Harper called snap elections on Sunday.