A REPORT on Market outlook 2010 and the changes in Mutual fund industry.

Venue: BSE Convention Hall, Mumbai. Date: 25th March 2010.
Prepared By: Mr. Chintan Dedhia (MBA Student - Shah & Anchor Kutchhi Management College, Chembur Mumbai).

Introduction:
The conference was on Market outlook 2010 and the changes in Mutual fund industry. It was organized on 25th March 28, 2010 the conference started at 5:30 pm at the conventional hall B.S.E on the 1st floor, by Birla Sunlife Asset management Ltd, and was addressed by Mr. A Balasubramainan CIO of Birla Sunlife Asset Management Ltd. The co-speakers were:

1.Mr. Ashish Chauhan – Deputy CEO, Bombay Stock Exchange (B.S.E)
2.Mr. K.N Vaidyanathan – Ex Director, Securities and Exchange Board of India (SEBI).

Speeches Delivered:
Mr. Ashish Chauhan:
He gave a brief description about core facts of B.S.E and mutual fund industry.

Mutual funds:

• The Mutual Fund industry has around 4 crores of investors, net investors are around 3.5 crores(after removing the duplicates)
  
• Growth of mutual fund industry is almost parallel to the growth of stock markets.


• Indian MF industry grew at 29% CAGR in 2004-2008 which is 2nd next to China as against global average of 4% CAGR.
  

Mr. A Balasubramanian:
Mr. A Balasubramanian gave good insight on changes in Asset management industry and Market outlook of 2010, which included many core facts of the industry which are as follows.

• The contribution of India to Global GDP is 4.8%.
  
• From March 2005 till date the growth rate of GDP of India has increased from 6% to 8%.


• AUM to GDP ratio of India is estimated at 12.8% in 2010, which is far less than that of 50-70% in developed nations like US, UK and EU.
  
• Only 5.3% of the 6 lakh villages have commercial banks.


• The middle class segment is about 17 crores and it will increase to about 35 crores in the coming years which are much higher than it is right now.
  
• Indians continue to be the highest savers in the world with 35% saving rate.
  
• Mutual Funds are still 13% of Bank Deposits.


• The BRIC countries attract the major investments as they are the emerging markets and have a lot of opportunities.


• The Chinese MF industry grew at 69% CAGR and Indian MF industry grew at 29% CAGR.


• The Asset management industry manages funds of around 8 lakh crores, which is still small as compared to Banking and broking firms.

Then Mr. A Balasubramanian spoke about the returns that various funds offer and how the markets are changing by using the example of Telecom industry.

Fund’s Returns:

• Large Cap funds offer around 15% returns over long term and nearly 80% returns in the last year i.e. 2009.
  
• Average returns for the income funds are about 5% for 2 years.

Changing trends in Market – Telecom Sector

• The growth in telecom industry is calculated on the basis of ARPU i.e. Average Revenue Per User.
  
• Over the years the ARPU has decreased due to fall in call rates and tariffs, but the EBITA has increased due to deep penetration. For E.g.–IDEA had an ARPU of Rs.757 at the early stages when it launched its services but has reduced to Rs.214 currently.
• Thus profit margins have reduced but overall profits for the sector have increased decently due to increased volumes.
• In India 25% of the population have telephone connections.
• The telecom industry is growing much faster than that of China.

Mr. K. N. Vaidyanathan:
Mr. K. N. Vaidyanathan spoke about the changes which are going to take place in the Asset management Industry in the coming years, which are as follows.
He said that the Indian stock markets have met 3 Game Changers:

1. Met Strike – When BSE went electronic and technologically improved it met with strike from many of the market intermediaries and its employees.
   
2. Met Sneer – When the shares were suggested to be converted into DEMAT from physical form, in order to bring more transparency and reduce the constraints BSE & NSE faced sneers.
   
3. Met Skepticism – When the depository services were changed and CDSL and NSDL were introduced for database management and keeping the record of each and every trade, they faced skepticism.

Mr. Vaidyanathan said “As the football team has 11 players and 1 goal, each and every player works hard with all efforts towards that goal, SEBI is also trying to achieve the goal which is Investor protection”.

He also said that previously the scenario was different in the BSE the volume was only of Rs.300 crores in 1993 and also the brokers charged brokerage of around 2.5%

But now the scenario is changing in the following manner:

• The infrastructure of the secondary market has grown up thus reducing the cost.
• Reduction of the brokerage charged to .40% to .50%.

Changes in MF industry:

• A lot of money is paid as commission to the brokers, advisors, and distributors thus reduction of the fees will benefit investor.
• The sale and purchase of Mutual funds will be online thus making the process of investing and redemption quite simple and hassle free.
  
• There will be a single view terminal and kiosk with internet connections which will help investors to buy or sell any of the MF products from the Kiosks, thus increasing flexibility.
• Investors those who don’t have DEMAT a/c will have to open an electronic a/c for investing in the funds.
• The investors will be able to see the status of investments in all the funds on a single statement.
• Mutual funds will be governed which will give the investors a clear and transparent picture of the whole system.
• There will be investor awareness campaign with the help of Multimedia, T.V and Internet etc.
• But it will take still around 12-18 months to build the whole system.

Suggestions to MF industry by Mr. Vaidyanathan:

• MFs should treat the investors fairly and should not show any illusions.
• If they have 15-20 products then they should show the performance of all them instead of showing the performance of the 4-5 top performing one.
• Should guide the investor in his investment as per his requirement and capability.

After the speech delivered by Mr. Vaidyanathan there was a Question and Answer session wherein the questions were raised by the agents regarding the removal entry load and reduction of the trail commission, and satisfactory answers were given by them.

Thanks,
DENIP Consultants Pvt. Ltd.