Can Navneet Munot’s coming propel HDFC’s mutual funds?

Navneet Munot will be the new managing director (MD) and chief executive officer (CEO) of HDFC Asset Management. Milind Barve, the fund house’s present MD & CEO, will soon step down. Milind has been the longest serving CEO of any mutual fund house in India having headed the AMC since its inception in September 2000. He would be officially stepping down in January 2021. Navneet is expected to join HDFC AMC soon after the Union Budget is announced at the end of January 2021, but the fund house did not revert to Moneycontrol’s queries on the exact dates.

Prashant Jain, executive director and chief investment officer at HDFC AMC, will continue in his position at the fund house.

SBI mutual benefitted from Navneet's tenure

Navneet joins the list of fund managers who have gone on to head fund houses. Before he joined SBI mutual fund in December 2008, he was a fund manager at Morgan Stanley Investment Management, heading the firm’s multi-strategy scheme. Prior to that, he headed the fixed-income and hybrid scheme categories at Aditya Birla Sun Life mutual fund. Under Navneet’s leadership, SBI MF became India’s largest fund house with assets worth Rs 4.32 trillion and a market share of over 15 percent, up from being the sixth largest fund house way back in December 2008. At that time, the fund house had assets worth 25,000 crore with a market share of almost six percent.

Navneet Munot did not respond to Moneycontrol’s calls.

Vinay Tonse, MD & CEO, SBI Funds Management, while commenting on this development said: “Navneet has been part of this team of skilled and experienced senior fund managers and has overseen many of their achievements. We value his contribution to the organization and wish him the best in all his future endeavors. We are a process-oriented organization and have one of the most competent investment teams in the industry. Our robust fund management processes have been highly valued by our investors and distributors.’’

While Tonse and the fund house didn’t elaborate, they’re expected to announce soon as to who’ll take Navneet’s place. But most likely, R. Srinivasan (at present, the head of equities) and Rajeev Radhakrishnan (who currently heads the fixed income team) are expected to be elevated as joint chef investment officers heading equities and fixed income, respectively.

Will the transition be smooth?

The big question is: will Navneet be a good fit for a fund house such as HDFC AMC that has seen a change at the top for the first time in its 20-year long history? Apart from Milind, Prashant Jain too has been with the fund house since 2003 when HDFC AMC had acquired Zurich India mutual fund, where Prashant headed investments. For most of his career, Prashant has been a respected fund manager. His schemes did deliver resoundingly in the past, though in recent years, returns haven’t quite been great. Financial advisors and distributors hope Navneet’s entry can shake things up at HDFC AMC.

"It will be interesting to watch how the relationship between Prashant and Navneet evolves. Both come from a long experience of fund management and have their distinctive investment approaches. We will need some more clarity on how Prashant’s role evolves from here on," says Anup Bhaiya, founder and managing director of Money Honey Financial Services. A senior industry official who has worked with Navneet in the past says that for HDFC AMC, Navneet is a good catch. "Navneet has always worked on the investment side and never on the business side. This will be an unchartered territory for him. But, he has the leadership capabilities to make this transition," he said, requesting anonymity.

A large mutual funds distributor added that the top HDFC AMC fund managerial staff, led by Prashant and Shobhit Mehrotra (who heads the fund house’s fixed income schemes and credit risk division) have been around for long. Shobhit has been with the fund house since February 2014. “These officials have been well-entrenched in the system for long. It would take some time for Navneet to get used to the HDFC AMC system,” he says. This distributor also requested anonymity. But he quickly adds: “Milind was never much into fund management. Navneet has been a fund manager all throughout. Besides, Navneet is very good with the macro picture. He would definitely add his expertise to interpreting the macro situation.” Yet, this distributor adds, it’s a “wait and watch game.”

Other areas where Navneet can bring his expertise is in managing exchange-traded funds (ETF) and the ESG (Environment-Social-Governance) schemes. The Employees Provident Fund Organisation has been investing up to 15 percent of its incremental inflows into equities, since August 2015, but only through ETFs managed by just two fund houses – SBI and UTI – and also marginally through an ETF that invests in central public sector firms. Apart from SBI MF’s consistent performance, these inflows were one of the main reasons for pushing SBI MF to the top spot in the assets under management chart.

But here again, HDFC AMC differs as it has consistently believed in active fund management. Managing ETFs and passive funds is a low-income earning stream. For HDFC AMC, that might be a problem as it is also listed and therefore its own profitability matters, as it is answerable to its shareholders.