Rising market turns the tide for fund houses

The revival in equity markets since last year has boosted fortunes of asset management companies. Filings by the listed parents of five fund houses show a healthy profit growth for the third quarter of the current financial year, with some of them recouping the losses incurred last year. The base effect, too, has kicked in, making these numbers look much better. Their profitability does not seem to have been impacted due to the ban on entry load from August and various other regulatory measures.

“While fund houses have returned back to profits, the absolute number may not be very big. Older fund houses have an advantage in terms of ability to spend and cash reserves. Margins, of course, have been hit,” said Dhirendra Kumar, chief executive officer, Valueresearch Online.
 

RISE AND SHINE Net profit of fund houses (Rs crore)
Fund House	Oct-Dec ’08	Oct-Dec ‘09
Reliance MF	25.68	47.87
ICICI Pru MF	-14.00	40.00
Birla Sunlife MF	-4.60	16.10
Kotak MF	6.00	22.90
SBI MF	52.53	61.55
Note: Figures in brackets means loss Source: Fund houses parent's websites

The largest fund house by asset under management, Reliance MF, has posted 86 per cent rise in net profit to Rs 47.9 crore in the December quarter, compared with Rs 25.7 crore a year ago. Its income surged 115 per cent to Rs 196.4 crore, from Rs 91.5 crore a year ago. The fund house has reported average assets under management worth Rs 117,248.6 crore at the end of January 2010. “The bottom line has not been hit. But, there will be some sort of impact going ahead due to the regulations,” said a senior industry official. He said the value of equity holdings of fund houses shot up due to rising stock markets, which has resulted in higher fees and rising profits.

Fund houses were battling a bad year in 2008 with their profits declining sharply.

ICICI Prudential Mutual Fund, a subsidiary of ICICI Bank, bounced back to profits after having registered a net loss of Rs 14 crore in the quarter ended December 2008. It has posted a net profit of Rs 40 crore in the third quarter of the current financial year.

“The December 2008 quarter was an abnormal one when profits of the industry went for a toss. I do not see any impact of the entry-load move on profitability, going ahead. The mark-to-market norm for equity assets has worked in favour of fund houses. We have launched a new fund offer in the first six months and collected Rs 800 crore. We have been extremely conservative on our debt portfolio. And, the regulations that have come are a positive for the industry, as it will reduce the risk,” said Nimesh Shah, chief executive officer, ICICI Prudential Mutual Fund.

Birla Sun Life Mutual Fund, the fifth-largest fund house by assets, also recovered from losses. The fund house had posted a net loss of Rs 4.6 crore in the December 2008 quarter, but registered a net profit of Rs 16.1 crore in the December 2009 quarter. Its revenues rose 92 per cent to Rs 82.6 crore in the quarter from a year ago.

Kotak MF’s net profit jumped 281 per cent to Rs 22.9 crore in the December quarter from Rs 6 crore a year ago. SBI MF, a joint venture between SBI and Societe Generale, saw 17 per cent growth in net profit at Rs 61.55 crore in the December quarter from Rs 52.53 crore a year ago.

The MF industry also witnessed a slew of regulatory changes in 2009. Sebi scrapped entry load and fund houses need to compensate distributors by paying an upfront fee, which will have an impact on their margins. RBI, too, has raised concerns over banks’ investment in liquid funds.