Expect more consolidation in mutual fund space

Religare MF is the fourth company to sell stake in the past one year

Religare Enterprises today announced 49% stake sale of its mutual fund arm to Invesco, a US-based investment management firm.

The joint venture, Religare Invesco Asset Management Company, will be headed by Saurabh Nanavati, present CEO-RAMC, with the existing management team.

Martin L Flanagan, President and CEO of Invesco feels this addition will enhance Invesco’s presence in an important and growing market, while providing Religare’s clients access to Invesco's broad range of investment solutions.

Rajesh Krishnamoorthy, MD of Fundsupermart.com, a mutual fund distributor, feels both Invesco and Religare Mutual Fund can leverage each other's competencies to a great extent.

Invesco works across global markets and Religare doesnot have any international funds, which have seen a fair amount of demand from Indian investors lately. Invesco can help Religare come out with such funds. On the other hand, Invesco has many Asia-focussed funds, where the company can use Religare's knowledge, Krishnamoorthy explains.

Additionally, Invesco has worked in more evolved markets like the US so they are likely to have more evolved processes like risk management. 

But Dhirendra Kumar, CEO of mutual fund rating agency Value Research begs to differ.

"As we see it, Invesco does not bring anything substantial for Religare on the table for the domestic market. Religare's stake sale, right now, is only for some capital. Religare will get more funds to manage in India, which will be raised abroad. Once we know the valuation, we will know more about the deal," he says.

Most mutual fund industry experts believe that there is room for more such transactions as the market condition is not conducive for the sector.

This is the fourth such deal in the last one year that has taken place in the Indian mutual fund industry.

Others were Axis Mutual Fund that sold 25% stake to UK's Schroder Singapore Holding, Reliance Mutual Fund sold 26% stake to Japan's Nippon Life and Fidelity Asset Management Company was bought over by L&T Mutual Fund.

“At present, the market is not conducive for the mutual fund industry and hence we may see such transactions as companies need funds. And for foreign players, who are looking at entering the Indian mutual fund space for the long term, this is the right time," says Kumar.

Agrees Hemant Rustagi of Wiseinvest Advisors. He says consolidations are always good for industries and investors. Minor stake sales of 10% or less should be bothered with but substantial ones like Religare's only show the potential and growth prospects of the industry.