Canada's Manulife to acquire 49% stake for $35 million in Mahindra AMC

Canada-based Manulife on Friday announced a joint venture with Mahindra Asset Management Company (AMC), which would entail the former buying 49 per cent stake in the latter for $35 million (Rs 243 crore). This will be second instance of foreign investment in the Rs 25-trillion mutual fund (MF) industry in the current financial year. 

The deal will value the AMC at 10.4 per cent of its asset size. Historical data collated by HDFC Securities shows the Mahindra AMC-Manulife deal will command among the richest valuation in relation to a fund house’s asset size. 

Commenting on growth prospects of the MF industry, Ashutosh Bishnoi, managing director and chief executive officer of Mahindra AMC, said: “Even though few fund houses hold a higher market share at present, other fund houses have larger room for growth, given the under-penetration of the MF industry. The industry has the potential to grow multifold to a size of Rs 100 trillion, from its current size of Rs 25 trillion.”

Explaining the rationale behind forging a a partnership with Mahindra AMC, Michael Dommermuth, head (wealth and asset management), Manulife Asia, said: “We have had a long-term interest in India and Mahindra fits into our philosophy. We were seeking the right partnership, given the Indian market is much more amenable to partnership models.” 

According to experts, these are early signs of foreign asset managers renewing their interest in India’s MF industry. “Foreign asset managers see strong growth potential in India. However, they are more likely to explore partnerships or seek strategic agreements,” said Kaustubh Belpurkar, director (fund research), Morningstar India. 

Foreign asset managers — except for a handful — have found it difficult to run an asset management business in India as sole owners. In the past, the MF industry has seen several exits from foreign asset managers as they have found it difficult to find optimal cost structures to sustain their operations as sole owners. 

However, Nippon Life recently agreed to buy out the 43 per cent stake held by its joint venture partner Reliance Capital for Rs 4,484 crore, to turn sole owner of Reliance Nippon Life Asset Management.

The MF industry is seeing a period of slowdown in equity and debt flows, on account of market volatility and credit events. However, experts feel equity flows should revive with the uncertainty regarding election results now out of the way. 

“A segment of investors were holding back allocations due to uncertainty around elections. Apart from this, the steady flow of investments coming through systematic investments plans (SIPs) remains a positive driver,” said a senior executive of a fund house. 

In May, equity flows rose 17 per cent to Rs 5,407 crore as the BJP’s convincing victory lifted investor sentiment. At the same time, flows coming through systematic investment plans, or SIPs, continue to hover at the Rs 8,000-crore level.