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No reason not to grow 5.5x in next 10 years too, says Nippon Life India AM CEO

“Our retail investor share is now 12.5% which used to be about 10.2% one year ago. I would like to add that the board has approved an interim dividend of 3.5 per share for the half year FY22,” says Prateek Jain, CFO, Nippon Life India AM.

Overall it seems to be a good quarter for you. What are the key highlights and how has the growth been across the verticals?
India has seen continued positive momentum across its business metrics. The performance of the majority of our flagship funds have been in the top quartile, supported by the improved performance and robust risk management framework and the wide distribution reach. For the quarter ended September, NAM India assets under management has grown 10.4% faster than the industry growth of 9%, leading to an overall improvement of market share by 21 bps for the first six months of FY22.

Compared to the corresponding quarter last year, our AUMs have increased by 33% to Rs 2.65 lakh crore. Our revenue rose to about Rs 425 crore, up 32%. Our core operating revenue increased by 27% to Rs 328 crore. Our profit grew by 47% to Rs 214 crore compared to last year’s Rs 145 crore. For the first half, our core operating profit — which is a key metric we track — rose to about Rs 355 crore, up 58%. Besides that, we added almost 18 lakh investors in the first half of the financial year compared to 40 lakh for the industry. Our retail investor share is now 12.5% which used to be about 10.2% one year ago. I would like to add that the board has approved an interim dividend of 3.5 per share for the half year FY22.

What are the quarterly AUM trends that you are currently witnessing? What could be the growth trends as well as the asset quality trends that you foresee going forward?
While for us the growth has predominantly come from ETFs as well as on the fixed income side, equity growth has remained more or less flattish. But the industry growth has largely come on the equity side on the back of the new NFOs that have been launched. Those are at a significantly higher cost and from our perspective, we continue to focus on sustainable profitable growth and we do not participate in this NFO led equity growth. We continue to focus on the SIP numbers. Our SIP numbers now stand at around Rs 650 crore per month and would contribute to about Rs 7,800 crore annual SIP book.

ETFs account for almost 70% of the total stock exchange market share, of which Nippon India Mutual Fund now accounts for 58% folio share. This has been both active and passive has been our key pillars of growth and these are widely distributed. In terms of an ETF, the kind of liquidity we provide will further fuel it because liquidity attracts more liquidity. We are well positioned both in the active as well as the passive market.

Could you also talk to us about the digital aspect of it? We are seeing quite a strong uptick in SIPs via digital registrations. How are you assessing the impact and the importance of digitisation in your business and how are you changing to adapt to this?
There are two parts to this digitisation. One, investors coming directly and another is the digitisation through these platforms. So more importantly, the new age technology platforms have given an edge to the investors and they can carry out these SIPs. So, the industry now has almost Rs 10,000 odd crore of monthly SIP book and this is important to understand that in terms of mobility, going forward people will continue with their SIPs. Given the volatility, I am not sure how much of the Robinhood trading that we have seen in the past will continue.

But the sustainable amount which will come of about Rs 1 lakh-crore industry, will add up through the equity AUMs and these retail platforms offer a convenient option for the investors to carry out this SIPs and in a seamless manner the money get debited to their accounts and get invested into the mutual fund schemes.

What are the trends that you are currently witnessing in the mutual fund industry and in terms of penetration levels for your company, which pockets are witnessing higher volumes?
In terms of the mutual fund industry, there is Rs 156 lakh crore in the banking FDs which are earning close to about 5-5.5% kind of an interest and with an inflation rate of about 4.5 to 5% effectively, no real return is being generated. At the same time, the mutual fund gives almost an edge where in a similar duration one can add about 100 to 200 bps points more and these are coming as a more tax efficient investments.

Further, the kind of product bouquet which is available in the industry allows the investor to choose the time horizon for which he wants to invest and can also do long-term goal planning. Given that we expect a huge amount of growth, money will get transferred from the current FDs and flow into both equity as well as the fixed income mutual fund.

The AUM to GDP ratio in India is about 12% compared to the global average of almost 55% and in some countries it is about 100%. So we have a huge headroom available and that is one thing. In terms of trends, new players are coming in the market and that will help us in terms of further widening up of the AMC base. From a distribution perspective, the new age platforms will make sure that these products are reached to the last or the bottom of the pyramid and the retail investor in smaller cities and towns.

So digital for the new players who are coming in and for institutional purposes and for HNI purposes, passive funds are the new trends that are emerging and we are poised to capitalise on these growth opportunities.

What kind of penetration levels are you looking at when it comes to smaller cities and towns as opposed to top 30 cities?
We have always been focusing on the smaller ticket size and retail investors and today we account for almost 32% of the total investor base in the country. We have almost 86 lakhs unique investor folios as compared to 2.6 odd crores of unique investor folios in the industry. This year, we have added almost 1.8 million new investors as compared to 4 million investors. Our penetration levels with regards to the retail investors have been higher and we continue to focus on the bottom of the pyramid and getting new investors to the mutual fund regime through our distribution network. Our partners, the IFAs, have played a key role in that and going forward we will also keep working towards increasing our penetration for these investor classes. About 18% of our assets come from B30 as compared to 16% of the industry or thereabouts.

You have guided us to focus on profitable growth and expanding the overall industry size. That is a very broad-based strategy. Where do you think the growth levers are really going to come from going forward?
In the last 10 years. from September 11 to September 21, the industry has grown 5.5x and in 10 years, we have grown 5.5x and I do not see any reason that in the next 10 years we will not be able to grow 5.5x and importantly, as of today, out of that 1.3 billion population, and 40 odd crore PAN holders, India has just about 2.6 crore unique investors investing into mutual fund. The amount which has been locked into fixed deposits is Rs 156 lakh crore. We have a huge headroom available for growth, we just need to execute the right strategy, the right kind of product for our retail investors and we have to make sure that our product reaches the right masses. That is why we are working with both digital as well as physical reach.

In the last quarter, we raised one new NFO and we had almost 2.5 lakh investors investing with us across 2,400 cities. That is the level of penetration we have and we will keep working as we have seen that the more retail the investor, the smaller the ticket size, the more sticky is the assets and therefore we will keep working on that investor and the new investors which we will bring to the table and getting the investor base expanded.

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