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Eye more foreign flows; IPO by middle of next year: UTI AMC

In an exclusive conversation with CNBC-TV18’s Latha Venkatesh, on special show Financial Advisor Awards, mutual fund industry veteran Leo Puri, MD, UTI Asset Management Company said the valuations in the MF industry seem quite fair at this point in time and one can see more global participation, both directly and in some cases through acquisitions in India in future.

Puri further said this this year, so far, has been the best for the AMC with very strong growth. However, it is still a feature of this market that the underlying momentum is foreign institutional investor (FII) driven, he added.

The company is likely to come up with an initial public offering (IPO) by the middle of next year as it is difficult this financial year given the paucity of time, added Puri.

Below is verbatim transcript of the interview:

Q: You have worn multiple hats but you have always been a watcher of the Indian financial sector. How does it feel as the head of one of the biggest mutual funds? Do you think normalcy has returned, has the investor returned for good?

A: It is clear that there is ebullience and optimism both domestically as well as in the international view on India. Some of this is obviously tinged with the degree of concern that we are yet to see, follow through action, implementation and while most people are taking the view that it is likely to follow, there is still an element of caution underlying the optimism because the evidence is yet to present itself.

Q: Do you also smell disconnect with earnings or macro data? Is that also a worry, are you fund managers worried about that?

A: No, we have been very fortunate as a country and the new government to that extent has a bit of luck riding its fortune as we have seen relatively benign global macro, we have seen commodity prices falling off. For a while, we did see gold drop off in terms of imports but that is reversing sign of a warning. Therefore, there is genuinely some margin expansion happening at this point in time, only sustainable if you get fundamental underlying reform to support it.

Q: What about interest in the M&A segment in the industry? We have one foreign buyer of one big mutual fund increasing his stake. Does it look like money is going to be made by the asset management side?

A: Yes, it is a clear vote of confidence in the medium to long-term outlook for the asset management industry. It is also a sign of, in particular Japanese interest in India at the moment and a sign for many Indian entrepreneurs who set up these companies, the time is right now to monetise and capitalise. So, what you had is a staggered sale that could lead to shared control if not transfer of control over time and it is a vote of confidence in the industry.

Q: What is your sense that in the fullness of time this kind of interest is retained, we could see more foreign interest and maybe at higher percent of assets under management (AUM)?

A: Yes, the valuation appears to be quite fair and full, so I don’t know whether you will continue to see valuations getting stretched but interest absolutely. You will see the global fans participating more, both directly and in some cases through acquisitions in India.

Q: What about your own partners, have they asked you for more shares or are they likely to?

A: No comment. They are very happy with their 26 percent and continue to support us but I am sure with the current environment in India most foreign funds are going to review their strategies with a positive bias.

Q: Is the industry growing, AUMs growing with that kind of confidence? Are you seeing profits for the industry?

A: This year will certainly be the best by far for the industry. So absolutely, there is very strong growth. It is still a feature of this market that the underlying momentum is foreign institutional investor (FII) driven. That has its pluses and minuses but in a sense we are riding on those coattails at this point.

Q: One more bit about your AMC and your company and then I will come to the industry in greater detail. There was news that you have permission to do an IPO?

A: Well, it is our view as UTI and our board and trustees support that UTI’s destiny is best served if we were to be an independent asset manager listed publically. This has three benefits in our view; one, it will actually unlock value for our existing shareholders which are banks primarily, financial institutions and they will make three and half or four times their money and that itself is a good thing to do.

Two, it will galvanise the capital market in India. We will bring in foreign direct investment (FDI), we will bring in retail investors and as a brand we have tremendous reach with retail in any case.

Three, it is a very strong statement in favour of economic reforms that here you have an institution that in its history ran into some trouble around US 64 was positively restored. In fact some Rs 60,000 crore of surplus was generated through the special undertaking of UTI for the government. Not a penny of government outgo if you like in that sense is now incurred and is then put back on its feet as a strong independent asset manager potentially to one day being alongside institutions like HDFC or ICICI or IDFC.

So it sends a very strong message of clear commitment to progress and economic reform which is much needed at this point.

Q: Certainly, but is it only the view of your board or do you also have the finance ministry backing, have you asked the finance ministry?

A: We of course, are required to take permission from the finance ministry and we are seeking their permission and are in a dialogue with them and we are hopeful that after the normal consultations we should receive the approval to go ahead.

Q: The talk of an IPO from the UTI coincided with the banks having to raise capital, they needed capital. Now that need continues, so do you think something can come even as early as this financial year?

A: We would be absolutely ready and strongly support it. In reality it takes about six months from a point of approval to actually get to market but from our perspective the sooner the better, we really see no reason at all why it shouldn’t go ahead.

Q: How high are the chances that we should see it in the financial year?

A: Actually, difficult this financial year given the paucity of time but certainly by the middle of next year or around then is feasible.

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