Committed To Long Term

Over the past one month, we have heard rumours galore that Mirae Asset Mutual Fund, a wholly owned subsidiary of the South Korean Mirae Asset Financial Group, is closing shop. Its Assets Under Management have fallen by 55 per cent in October, over the previous month. But does that mean it is the end of the road for this fund in India? Arindam Ghosh, CEO, does not seem to think so...

Looking at the recent past and all that has been going on, is Mirae Asset committed to a future in India?
We are a leader in the emerging markets, of which India is an integral part. Our commitment is extremely strong and long-term.
In line with our global policy, we have entered the Indian market on our own and being a 100 per cent foreign owned Asset Management Company (AMC), we have committed significant amount of capital for establishing and expanding our business in India. Our aim is to emerge as a leading asset focused player over the long term. Having launched our business under the most challenging macro conditions and the harshest external environment of the century, we have already emerged stronger as a player in the asset management industry.

Give us your perspective on the short term?
In the short-term, we would continue to steadfastly engage ourselves in building our organization block by block. Being the first calendar year of our launch, the Indian AMC business is in its infancy and we have a long journey ahead of us.
We have a very long-term approach to our business and are not interested in scale. Our focus would be on profitable growth with equity as the dominant asset class and fixed income more from an asset allocation strategy point of view.
In alignment with our global business, we would ideally like to have a product mix of at least 70 per cent in equity with a strong focus on the retail segment. Apart from the two domestic equity products which we have launched, our off-shore equity advisory portfolio is in excess of $1.8 billion (Rs 8,400 crore).

In view of the challenging conditions and harsh global economy, have you adjusted your growth and expansion plans in India?
We have undertaken a series of measures aimed at achieving higher employee productivity and greater cost efficiency. We have adjusted our business model to the current market conditions and that would see us quickly evolve into a highly nimble, extraordinarily vibrant and deeply focused asset manager. We would like to consolidate our presence in the higher potential markets and launch innovative products primarily aimed at the retail investors.
We will stay committed to our investor education initiatives and distributor training programmes across the country.

Can you give us a perspective on how this global crisis has hit India?
The financial crisis which erupted in the U.S. in August 2007, as a fallout of the collapse of the American housing market and credit contraction, spread at a stunning speed to other parts of the world, including Europe and Asia. Complete risk aversion and excessive de-leveraging led to significant flight of capital from Asia, including high beta markets like India. This sent the capital markets on a gravity defying downward spiral and the Asian currencies on a virtual free fall. Frozen international credit markets also eventually led to an unprecedented gumming up of liquidity in India.
As the global financial markets teeters, world economies have now started getting impacted leading to significant de-growth and pushing the global economy into an early recessionary phase.
India, due its highly regulated markets, healthy currency reserves and pro-active measures taken by the government and policy makers, is better positioned to tide over this extraordinary global crisis. With the unprecedented measures taken by the market regulator and the government, the liquidity situation has considerably eased and it seems the worst is behind us.

And the impact on the mutual fund industry?
The Indian mutual fund industry, as a result of the unprecedented liquidity squeeze, was faced with severe redemption pressures from institutional investors. That coupled with a falling equity market led to the overall industry assets eroding by a massive Rs 97,000 crore in October 2008. The retail investors in the equity asset category, who also saw their net asset values drop sharply, demonstrated a much higher conviction, maturity and resilience by staying invested and not pressing the panic button.
For the fund industry which unfortunately got impacted by the outflows of October, it would be just a matter of time before the tide of inflows begins.

Going forward, what strategic adjustments would be needed in the mutual fund industry?
The mutual fund industry in India has seen a very healthy growth on the back of the last five years of a secular bull run and buoyancy in the capital markets. Economic pains always long outlast financial catastrophes and as the global economy slows down, the key task would be to achieve a sustainable and orderly growth for the industry.

This interview appeared in the November 2008 Issue of Mutual Fund Insight.