HSBC Mutual Fund jumps 11 spots on assets tally after L&T AMC buy

The asset management industry has witnessed several foreign entities exiting India over the past few years. But HSBC Asset Management India — which is ranked 23rd in terms of average asset under management (AAUM) — is not only defying this trend but also planning to move up the ladder, starting with the acquisition of L&T Mutual Fund (MF).

HSBC Asset Management India (HSBC MF/AMC) on Thursday announced taking over India’s 12th largest fund house, L&T MF, for $425 million (around Rs 3,188 crore). According to market participants, this was one of the biggest deals in the Rs 38-trillion Indian MF industry.

Ravi Menon, CEO of HSBC AMC, said: “This is validation of our group’s view on India and on the asset management business in India. In the MF industry, size and scale matter and when the opportunity came, it was a perfect fit for us as L&T MF had assets of around Rs 80,000 crore.”

The Indian asset management industry is still dominated by large established players having a strong distribution network across the country. Even now, 82 per cent of total assets are controlled by the top 10 players.

Several foreign fund houses, such as Fidelity, Morgan Stanely, PineBridge, ING, and JPMorgan, have exited India over the past few years. According to industry players, several players that left India found it difficult to scale up their asset base. But Mirae MF and Franklin Templeton MF are among exceptions.

“The HSBC group has been present in India for more than 150 years, and we know the country. The merged entity — after the regulatory approvals — will be a substantial player by coming near the top 10 players in the industry,” said Menon.

The data from Value Research shows that L&T MF as of November-end had a pure equity asset of around Rs 33,500 crore with strong performance. HSBC MF with less assets on the equity side would get the benefit of scale from this deal, said industry executives.

According to Dhirendra Kumar, CEO at Value Research, said: “I don’t think it’s a costly deal from HSBC's point of view as building assets in the Indian MF industry is a tough ask. The merged entity will have AUM of around Rs 90,000 crore and will be a prominent and long-term player in the industry. With the brand of HSBC and the scale of L&T's funds, the AMC will have an impressive business for now.”

The data from the Association of Mutual Funds in India (Amfi) shows that L&T MF had AAUM of Rs 78,273.80 crore and HSBC MF had AAUM of Rs 11,314.32 crore as of July-September quarter. The merged entity would have AAUM of Rs 89,588 crore and rank below Mirae Asset, which is at the 11th position. The 10 ten players in the industry have AAUM of over Rs 1 trillion with SBI MF at leading position with AAUM of Rs 5.78 trillion, according to the data from Amfi.

Going forward, there can be intense competition in the Indian MF industry as many new age ‘technology’ players are planning to set up the fund house. But as long as the fund gives consistent performance and investors' interests are well protected, fund houses will continue to succeed, industry executives said.