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Aarati Krishnan

WITH both the Pioneer Group and ITI set to sell their respective equity stakes in Pioneer ITI AMC to Templeton, the wheel appears to have turned full circle for foreign investment management companies testing the waters in India.

Several of the globally well-known investment banks which rushed into the Indian mutual fund markets since 1994, either through joint ventures with Indian partners or through fully-owned asset management companies, appear to be reconsidering their plans in India.

Pioneer Investment Management Inc is the fourth foreign investment manager to put up its stake in the Indian AMC for sale in the past one year. In June 2001, Cazenove Fund Management UK sold out its 49 per cent stake in Cholamandalam Cazenove AMC to its Indian partner — Cholamandalam Investment and Finance Ltd.

In February 2002, the Sundaram Finance group bought out the 39 per cent stake held by Newton Investment Management UK, in Sundaram Newton AMC.

Earlier this month, the Canada-based Dundee group announced plans to put up its asset management company for sale. The Pioneer Group of the US is the latest to exit its Indian operations.

Of the remaining foreign asset management companies which have a presence in India, only a few appear to be actively engaged in expanding the Indian side of their operations.

While a few overseas sponsors such as Templeton, Prudential and Alliance have aggressively expanded their Indian mutual fund operations, those such as Morgan Stanley Dean Witter and Jardine Fleming have chosen to keep a low profile and have made little attempt at expanding their fund base, either through new product launches or through aggressive promotion of their existing schemes.

However, not all of these stake sales should be taken as a signal of disenchantment of foreign partners with Indian operations.

The sale of its stake by Newton Investment Management in Sundaram Newton AMC followed the global takeover of Newton Investment Management UK, by Mellon Financial Corporation.

If Indian operations were divested, this was as part of a global effort to shed flab and focus on financial services to corporate and high net worth clients, which was Mellon's focus area.

Likewise, Pioneer's decision to exit the Indian operations followed its global takeover by UniCredito Italiano, one of the largest banking groups in Italy.

With a large base of 7.4 lakh investors, Pioneer ITI is arguably among the better-recognised mutual fund brands among retail investors in India.

It is also difficult to believe that the Indian mutual fund market is not a lucrative one for the sponsor of an asset management company. After all, given that India boasts of one of the largest communities of savers and highest saving rates in the world, the Indian market does appear to have considerable potential for marketing of mutual fund products.

That the fund houses, which have reported a reasonable performance, have gone through significant expansion in their asset base in India is testimony to this.

Between 1994 and now, Pioneer ITI AMC has expanded its asset base by around 20 times, from Rs 200 crore to over Rs 4,100 crore.

After starting out with Rs 71 crore under its first scheme — Alliance 95 Fund, Alliance Investment Management Company today manages over Rs 3,500 crore in net assets.

A combination of good performance and expanding asset base has helped these AMCs sustain profitable operations over the past two years.

For investors in mutual funds, this is a period to tread cautiously. Consolidation between funds has panned out in favour of unitholders in the past. The Apple Mutual Fund schemes taken over by Birla Sun Life AMC and the schemes of 20th Century Mutual Fund, which were transferred to Zurich India Mutual Fund, have shown a substantial improvement in their investment performance after the changeover.

However, given that these schemes were in poor shape before the takeover, this is not a surprise.

Unitholders in Pioneer ITI may have reason to watch the developments much more keenly.

While Pioneer ITI has a consistent track record of performance in its equity funds, Templeton has had a rather chequered track record in its equity funds. While Templeton India Growth Fund has performed well over the past two years, Franklin India Growth Fund has been unimpressive in its investment performance.

The challenge for Templeton may lie in marrying the investment management styles of the two fund houses, and yet maintaining Pioneer ITI's track record in equity funds.

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