BlackRock will not be back in foreseeable future in India: Kalpen Parekh

We will be very selective in our fund launches, depending on investor need and the right timing, says DSP BlackRock president Kalpen Parekh

In the first interview after DSP bought out BlackRock’s 40 per cent stake in DSP BlackRock Investment Managers, Kalpen Parekh, president of the mutual fund house, speaks with Jash Kriplani on strategy changes and related matters. Edited excerpts:

We are seeing new players coming into the sector, preferring a controlling stake or 100 per cent ownership. Is this an emerging trend?

I don’t think this can be generalised. Many businesses have grown and thrived as partnerships. In our case, BlackRock was keen to continue but wanted to be a dominant partner. Globally, wherever they have businesses, they hold majority stakes. Also, our group, led by Hemendra Kothari, was keen to retain a majority. BlackRock also took the view that since we had a longer history and connect with the Indian marketplace, we should be the dominant partner. That is why we decided to take the 100 per cent ownership.

After buying out BlackRock’s stake, what would change in your strategy?

We will need our own dedicated international strategy. We will have to design different vehicles to access pools of capital from international geographies. For instance, Asian clients are comfortable with Mauritius-based structures, US investors have a different format and some clients prefer Luxembourg-based vehicles. Earlier, we relied on BlackRock for access to international clients. Now, we will be hiring more people for international business development and client interaction. We will also have to set up offices in places like the Middle East and the US.

What about your business on the domestic front?

Nothing much has changed there. Both partners shared a common ideology, to respect risks and focus on favourable investor outcomes. That doesn’t change. We have the right team, funds, track record and experience of 20 years, all ingredients to aspire for scale and more dominant positioning.

Any non-compete clause between DSP and BlackRock?

We won't be able to divulge details of the discussion between the two shareholders. All we can say is for the foreseeable future, BlackRock will not be back in the Indian market.

Will you be looking at new strategic investors?

Immediately, we don’t see any reason. By taking 100 per cent ownership, the shareholder (DSP) has shown confidence in running the business on its own.

Following the sharp correction in the broader markets, will DSP Micro Cap accept fresh inflow?

Prices have corrected but valuations remain high. In some sectors and companies, valuations have corrected. When we stopped taking money one and a half years back, we felt good companies in the space had seen a sharp run-up and that, going ahead, these might consolidate in terms of price. Also, a lot of money was chasing the same stocks. That is where capacity became a constraint. When we see the business cycle of companies improving and prices closer to their fair values, we will consider re-opening the fund through Systematic Investment Plans (SIPs). The SIP route also makes current valuations irrelevant, as investors buy units every month across market cycles.

Could we see more fund launches to fill product gaps?

We will be very selective in our fund launches, depending on investor need and the right timing. Interest rates have risen; hence, we would soon launch a high credit quality corporate bond fund. It’s always good to launch funds when past returns of that category aren’t the best. Though we have a few more products we could launch in line with the categories laid down by the Securities and Exchange Board of India, we will be very selective. We are working on a few passive and quant-based ideas, too, to complement our existing fundamental active range of products

How should one play the markets at this stage?

The earnings cycle will improve over time. However, the market has discounted the earnings recovery a bit too early. Strong flows from domestic investors and expectations of earnings recovery are keeping valuations on the higher side. It is difficult to time the valuations cycle; so, it is better to diversify your asset allocation across debt and equity and have a longer term view. Meanwhile, profits of good companies in many sectors are growing faster as we see earnings recovery. We like companies in consumer discretionary segments such as automobiles, white goods and consumer electronics, thanks to increased rural and urban demand, and various government schemes. We also prefer private banks, on relatively stable asset quality and consistent market share gain from state-owned banks. Among others, we are positive on select cement companies, domestic-oriented health care and gas utility firms, while being cautious on information technology, telecom and consumer staples.