Laborers are silhouetted as they work at a construction site in Palava City. | Photographer: Dhiraj Singh | Bloomberg
Laborers are silhouetted as they work at a construction site | Dhiraj Singh | Bloomberg
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Mumbai: Indian asset managers’ shares are trouncing global peers this year as domestic money managers benefit from the tectonic shift in savings from gold and real estate to stocks and bonds.

Reliance Nippon Life Asset Management Ltd. and HDFC Asset Management Co., whose shares have more than doubled in 2019, are the third- and fourth-best performers among 36 peers with a market value of at least $2 billion, data compiled by Bloomberg show.

Retail investors piled into mutual funds after the government ban on high-value currency bills in 2016 hurt returns from gold and property. While total assets have more than tripled to $382 billion in the past five years, only 1.5% of Indians own funds, suggesting a long runway for growth. And passive investing that’s decimated fees for U.S. managers is still to take hold in India.

“Mutual funds have become an asset class of choice with policy makers pushing for the formalization of savings,” Sundeep Sikka, chief executive officer of Reliance Nippon, said in an interview. The decline in deposit rates has also made funds more popular than other financial products, he said.

The parabolic surge in Reliance Nippon and HDFC Asset is also down to the fact that the duo is India’s only listed fund houses. The shortage could ease after UTI Asset Management Co. goes public next year.

To be sure, the two stocks have come off their peaks in recent days as above-average valuations deterred buyers. Problem is, they’re still expensive relative to history and trade at prices slightly above their 12-month targets, data compiled by Bloomberg show.

That’s as inflows to equity funds, the most profitable category for asset mangers, shrank to the lowest in over three years in November even as the benchmark index hit new highs.

“We are watching to see whether the slowdown continues for the next few months,” said Sikka. “If the manager has scale and sticky investors, this can be ridden out like in the previous cycles.”

Industry bulls say domestic asset managers’ profits are growing as they expand. That’s in contrast with many global peers, many of whom could become “zombie firms” unable to attract new flows, according to PGIM chief executive officer David Hunt.

“India’s savings pool keeps getting bigger and the market is anticipating that a growing portion of it will go into mutual funds,” said Steve Hanke, professor of applied economics at Johns Hopkins University in Baltimore. “The trend is in place and the trend is your friend.”-Bloomberg 


Also read: India needs bank clean-up, labour reforms to address slowdown: IMF’s Gita Gopinath


 

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  1. Is tectonic shift in savings from gold and real estate to stocks and bonds good OR bad ? Particularly when the retail investors piled into mutual funds after the government ban on high-value currency bills (DE-MO) in 2016 hurt disproportionate returns from gold and property because of tax avoidance. Does it mean a move to formal economy ?
    Has the growth of service sector not really been captured? From formal jobs of the old days are more and more people going in for kind of private practice jobs providing for own insurance and old age provisions.. Supply chain for delivery of goods to doorstep is now common even in tier 3 0r 4 cities. These are not formal jobs as we understood and would not be sustainable without adequate compensation. So is the joblessness situation really bad or is it just lack of data on various informal jobs.
    If there is job on offer the applicant wants it on his terms unless it is a government or semi-government job.
    Can Mr. Ronojay Muzumdar give us his views on this?

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