Large-player domination not restricted to us: Mutual funds
India comparable with other developed markets on asset concentration in the sector, show data
Markets regulator the Securities and Exchange Board of India (Sebi) had expressed concern last week over few mutual fund (MF) houses dominating the ~23-trillion domestic asset management industry. In their attempt to play it down, industry players have claimed that concentration of assets among a few fund houses is not a cause for undue worry. “The concentration of assets is not confined to the MF business alone,” said Nilesh Shah, MD, Kotak MF.
In the automotive space, he said Maruti and Hyundai together have 60 per cent market share in India. Similarly, in insurance, the top four-five players dominate, with Life Insurance Corporation cornering almost 50 per cent share. Public sector banks collectively make up about 70 per cent of the Indian banking industry. Globally, the concentration of assets is also evident in passive MFs, with the likes of Vanguard and BlackRock holding sizeable pies. According to the data, the top 10 fund houses account for 81 per cent of the total assets under management (AUMs). This share has remained more or less the same in the past five financial years. Several factors have contributed to the growth of large asset management companies (AMCs). This could be a tied distribution network, consistency in performance and longevity, or strategic acquisitions. “When we seek to assess the relative openness of a market, we look to market concentration as an indicator. More open-markets tend to have more asset managers and less concentration, creating more choice for investors,” observed a 2017 report of investment research firm Morningstar.
According to Dhaval Kapadia, portfolio specialist director at Morningstar Investment Adviser India, a larger asset spread would widen the choice of products for investors. “We could see better innovation in the market, and avoid a scenario where few players dictate the kind of products that will be launched or expenses charged,” he said.
Some experts believe the regulator should focus on facilitating the entry of new players, rather than worry about the market share of a few players. “If the total number of AMCs increases from, say 40 to about a 100, it will be 20 or 25 players that will dominate rather than eight or 10,” said an industry official. In India, there are barriers for the entry of new players, the official added. For instance, a domestic fund house or a foreign player, who has a joint venture with an Indian player, has to set aside ~500 million as net worth to start a fund house, besides meeting requirements on profitability, and getting the right sponsor.
“While small players such as Motilal Oswal and Mirae Asset have done well, their asset growth is nowhere close to that of the larger players,” he said. There are other problems that have kept the competition at bay. “In India, you don’t have room for so many AMCs. Many of them just depend on corporate flows and not on stickier retail money. They are running losses. In the last three-four years there was a bull run, so everything looked hunky-dory. The cushion to absorb market volatility, from profit and loss perspective is not there in lot of the AMCs,” said Sundeep Sikka, CEO, Reliance MF. Focusing on retail assets could be one way to scale up, said experts. “Nothing stops anyone from building scale. One of the reasons we are focusing on rural and semiurban areas is because there is a huge untapped market out there, which can give a lot of growth to the business. Of course, focusing on building retail assets plays an important role in building profitability,” said Ashutosh Bishnoi, MD and CEO of Mahindra MF.
“It is a major cause for concern that despite such tremendous growth, a majority of the market share of the industry remains concentrated with a few big players,” Ajay Tyagi, chairman, Sebi, had said at an event organised by the Association of Mutual Funds in India. Tyagi had also called for measures to facilitate healthy competition. “The share of revenue of seven large AMCs is more than 60 per cent of the total industry revenue. Profit margins of large MFs have also stood at a healthy 40-50 per cent.”