Indian Asset Management Industry - Investment Analysis: Industry Research Report

Indian Asset Management Industry - Investment Analysis

Published Date: October 2007

Published By: Frost & Sullivan

Order Code: R1-6112

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Description

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This Frost & Sullivan research service titled Indian Asset Management Industry - Investment Analysis provides an analysis of the key market drivers, market restraints, investment themes, merger and acquisition history, potential initial public offerings, and Frost & Sullivan Growth Monitor. In this research, Frost & Sullivan's expert analysts thoroughly examine the following segments: Debt, Equity, ELSS, Liquid/Money market, and GILT funds.

This analysis is available through our Financial Benchmarking in the Asset Management Industry program. With this program, clients receive industry-leading market research such as this, along with technical and econometric data and many interactive features including Analyst Inquiry Time and Client Council.

Market Sectors

Expert Frost & Sullivan analysts thoroughly examine the following market sectors in this research:

Debt
Equity
Equity linked savings schemes (ELSS)
Liquid/Money Market
GILT

Market Overview

Increase in Personal Financial Assets coupled with Low Penetration of Mutual Funds Offer Significant Opportunity

Spurred on by the economic boom, entry of foreign asset management companies, favorable stock markets, and aggressive marketing by mutual funds, the asset management industry in India is witnessing rapid growth. The average Indian investor never had it this good and can now choose to invest in any of the 32 mutual funds that offer nearly 2,000 schemes. What is more, new market participants are further increasing the market size by offering innovative and differentiated products and tapping the untapped markets that were believed to be non-profitable earlier (for example, rural markets). Most prominent examples of new products are gold traded funds, capital protection oriented schemes, and systematic investment plans, with monthly investment as low as Rs.100 ($2.5) per month.

However, the limited participation of the rural sector is a crucial restraint to the industry’s growth. Mutual funds are largely out of reach for the majority of rural population due to poor distribution, lack of investor awareness, and limited banking facilities. Furthermore, asset management companies are generally reluctant to invest in infrastructure in smaller towns due to lesser margins from rural business. "This apart, the biggest challenge faced by mutual funds today is hiring and retaining qualified and experienced professionals," notes the analyst of this research service. "However, with asset management companies collaborating with universities to nurture and develop talent, the impact of this restraint is expected to decline in the medium to long term."

Commodity Traded Funds and Real Estate Funds are Emerging Opportunities

Commodity traded funds and real estate funds are two promising areas of opportunity in the Indian asset management market. With the growing popularity of commodity trading in two of India’s commodity exchanges, Multi Commodity Exchange of India Limited and the National Commodity and Derivatives Exchange Limited, India appears to be ready for commodity-traded funds, thereby creating a new market in the mutual funds industry. In real estate market, rising salaries, softer interest rates for home loans, and liberalization leading to the influx of investments by foreign funds have led to a big boom. While investors with larger pockets have gained by directly investing in real estate, small investors have missed the real estate opportunity. The entry of real estate funds is expected to spread the benefit to the small investor as well.

Overall, there has been 48.22 percent increase in assets under management (AUM) from Rs.2, 655.3 billion in June 2006 to Rs. 3,935.7 billion in June 2007. The top five asset management companies (AMCs) account for more than half of the total AUM and Reliance Mutual fund and ICICI Prudential Mutual fund together comprise 25.8 percent of the total AUM as of June 2007. "Going forward, the Indian asset management industry is expected to record a compound annual growth rate (CAGR) of more than 20.0 percent for the period 2007 to 2013," says the analyst. "While all the segments of the market hold tremendous growth opportunities, the highest growth is likely to be in equity linked savings schemes (ELSS), followed by equity funds."

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