Winner takes it all

If you look at the overall Mutual Fund AUM of Rs.37 trillion, the top-3 AMCs account for 41.2% of total AUM. The top-5 corner 57% of the AUM while the top-10 account for 83.4% of the AUM. If you go to the top-15 AMCs then they are 94% of the total AUM. So, 40 plus AMCs are just of academic interest and for a mutual fund to really survive in the business, they need to be in the top-15. That is what is driving consolidation. 

L&T Mutual Fund sells out

In the latest big deal in the mutual fund space, L&T MF sold out to HSBC MF. The choice of the buyer was surprising considering that the AUM of L&T MF is nearly 7 times the AUM of HSBC MF. For L&T, the choice was driven more by macro considerations. After running the business for nearly 20 years, they could get a selling price of around Rs.3,200 crore for the AMC business. That is very small considering the kind of value that some of the IT businesses of L&T have generated in the last few years. Clearly, L&T sees a lot more sense in conserving its capital and allocating it to the areas of highest productivity rather than keep sinking funds into unrelated areas. 

Bancassurance is the story

In the last 25 years, some of the biggest global asset management names learnt that India was a tough market for the MF business. Over the years a lot of big global names like Deutsche MF, Fidelity, JP Morgan, Morgan Stanley, Goldman Sachs, Standard Chartered have all sold out their AMC businesses in India. The AMC business is dominated by banks with their natural cross selling edge. If you look at the top-5 in terms of AUM, then 4 are banks, with Birla being the only exception. Even in the top-10, six belong to banking groups. That has been a barrier extremely hard to break. 

How is the segment shaping up

Broadly, there are 3 kinds of players that dominate the top-15 list of AMCs in India. The first are the banking group plays like SBI, HDFC, ICICI, Kotak and Axis that dominate the AUM. Then there are the corporate group affiliations that manage to leverage their retail franchise and include the likes of Birla, Tata and ADAG. Finally, there is an emerging segment of niche players in the top-15. There is UTI due to its pedigree while the likes of DSP and Edelweiss have leveraged their sell side expertise. There are also the pure investment plays like Mirae, Invesco and Templeton that have relied on past performance to get flows. Clearly, AMCs will have to position their AMC approach in one of these brackets. The others have to just consolidate.