According to news reports in a leading business daily, mutual funds (MFs) are exploring the mergers and acquisitions (M&A) route for expansion and consolidation.

That M&As are gaining prominence can be gauged from TCK Finance's (Calcutta) buyout of B.H. Kothari's stake in Kothari Pioneer MF. Industry sources claim that this could set the ball rolling for other MFs to acquire/merge in a bid to expand. The Securities and Exchange Board of India (SEBI) has been receiving inquiries from a number of potential MFs as to whether it would be quicker for them to take over an existing asset management company (AMC) which has been awarded a licence for MF business or start a new one.

Industry sources disclose that four to five MFs who have got licences but are having second thoughts on entering the business, are up for grabs.

The consolidation process seems inevitable with the entry of foreign banks (HSBC, ABN Amro, ANZ Grindlays) and foreign insurance majors in the MF industry. Moreover global majors like Fidelity, Old Mutual are eyeing the Indian MF scene. HDFC, which has the potential to become the largest MF after Unit Trust of India (UTI), is also planning to leverage its large client database and distribution network by breaking into MFs.

With several large MFs outlining ambitious plans to corner a share of the MF pie, small and mid-sized companies will get marginalised, and become prime targets for acquisitions/mergers. It makes sense for the smaller local MFs to merge with a larger, global MF. The global MF will bring with it expertise, technology and a brand name, which combined with the local MF's research capabilities and understanding of local markets can prove to be a successful combination. In addition to the small MFs, even MFs operating in niche areas can explore the M&A route for consolidation.

Add Comments