Regulatory changes will place the Indian mutual fund industry in a better shape, but it might take time for fund houses to adapt to those changes, Stewart Edgar, chief executive officer (Asia- Pacific) at BNP Paribas Investment Partners, said in an interview. Edited excerpts:
What is your outlook for the growth of mutual fund industry in India, after a spate of regulatory changes that has led to a shrinking of the asset base?
I think we will gradually see assets growing. Mutual fund business is cyclical. But in growing markets like India, you could look five years ahead and expect yourself to be in a better position. And I feel the last few years have been good by shaking out people who were not prepared to stay for the long term and also in terms of forcing people to think about their long-term strategy.
It is actually a good time to be in India because there is a lot of regulatory change and a lot of them, we welcome.
You can always debate the speed of those changes, but as and when asset management companies absorb those changes, the industry will be in a better shape than before. We are not into the new era yet, and it might take two or three years for us to reach where we need to be.
There is a view in India that we have far too many product offerings from asset management companies and there is enormous mis-selling because of that. What do you think?
I think it is a bit difficult to judge the right number of products because it depends on how you define a product. In case of a vast country like India, where needs of clients could be different, I don't think products themselves should be limited in number; rather products should be designed to suit particular needs.
The key for me in all markets is that the distributor needs to take huge responsibility in making the client understand what a product does and what it does not do.
Some regulators in Asia-Pacific have been slow to recognize the difference between what a distributor does and what an asset manager does.
The market rally this year has mostly been led by foreign investors, with local investors in India being net sellers in most of the months. How do you view this divergence?
This is not something unique to India, we have seen this happen in other markets like Indonesia and China, where locals have bought when the market dipped and sold when it rose, with foreigners on the other side of the trade.
As far as the foreign interest is concerned, I think that is fairly strong and there are more foreign investors who are prepared to make long-term equity investments in India than before. And when local investors realize that the foreign investors are here to stay, we might see a convergence in the views of both local and foreign investors.
For instance, in the rally in Indonesia, for the first six months or so, foreign investors largely led while local mutual funds saw redemption.
However, now people realize that you can't keep selling and you need long-term exposure to equity, and I think a similar story will play out for India as well.
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'I made my money by selling too soon.'
Website: http://indianmutualfund.co.cc/
Blog:http://indianmutualfund.wordpress.com/
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