Morgan Stanley Plans India Fund After 14-Year Hiatus (Update2)
By Pooja Thakur
Feb. 8 (Bloomberg) — Morgan Stanley, trailing Franklin
Templeton Investments and Reliance Capital Ltd. in India, will
start its first fund on the subcontinent in 14 years to win
clients in a nation where investments may quadruple by 2012.
The New York-based bank plans to start an equity fund that
will go on sale from Feb. 11 until March 10, according to the sale
document. The offering coincides with the worst start to the year
for Indian equities, making it tougher for the U.S. bank to
attract investors. The benchmark Sensitive Index, or Sensex,
dropped 13 percent last month.
“We view the recent correction as an opportunity to build a
portfolio, said Narayan Ramachandran, chief executive officer at
Morgan Stanley Investment Management India Pvt, in an interview
yesterday. “Maybe we missed a step for three to four years, but
still its better late than never.
Overseas money managers are vying with local funds to set up
businesses in India to tap the wealth of a nation where invested
assets will rise fourfold to $1 trillion by 2012 according to
consulting firm Celent.
Less than 1 percent of Morgan Stanleys $606 billion of
assets under management are held in India, where local firms led
by Reliance Capital and UTI Asset Management Co. manage four times
more than their overseas peers.
Domestic mutual funds, or joint ventures in which the local
partner has a majority stake, manage 4.32 trillion rupees ($109
billion), while foreign fund assets are at 1.17 trillion rupees,
according to data from the Association of Mutual Funds of India.
Assets managed by all the 32 mutual funds rose 70 percent to 5.50
trillion rupees in 2007 from a year earlier, according to the
trade body.
Crash Landing
Morgan Stanley, which in January 1994 became the first
foreign money manager to start a business in India, has focused on
investment banking and broking in the country after its asset
management business had a rocky start.
The Morgan Stanley Growth Fund, the firms only one in India,
attracted more money than it could manage when it was launched in
January 1994. Under securities regulations it had to invest all
the funds within a few weeks of the fund closure, leaving little
room for the money manager to choose at what price to buy.
The fund raised three times its target 3 billion rupees as
investors queued up for two-and-a-half days to buy units at 10
rupees each. The units almost halved in May 1997 to 5.55 rupees in
trading on the Bombay Stock Exchange.
Morgan “crash landed on its take-off, said Dhirendra Kumar,
chief executive officer at Value Research, a fund-tracking company
in New Delhi. “Over the past two years as the business started
taking off, they realized the missed opportunity.
Times Are A-Changin
Morgan Stanley manages assets worth 43.8 billion rupees,
lagging behind its peers. It has applied to the stock regulator to
convert its close-ended fund, which matures next year, into an
open-ended plan and take its units off exchanges.
Templeton Asset Management India Pvt.s Franklin India
Bluechip Fund, which was started in December 1993, has 282 billion
rupees of assets, while Reliance Capital Asset Management Ltd.s
Reliance Growth Fund, unveiled in September 1995, manages assets
worth 641 billion rupees.
The Growth Fund has returned about seven times since
inception, matching gains in its benchmark, the BSE100 Index,
while Reliances Growth Fund has returned almost 40 times since it
was set up and Franklins Bluechip Fund about 17 times.
Indians increased investments in stocks and bonds to 5
percent of their financial assets in the year ended March 31, 2006,
from 1.9 percent a year earlier, central bank data shows.
New Mindset
“The Indian mindset is changing, said A. Balasubramaniam,
chief investment officer at Birla Sun Life Asset Management Co.,
which manages $8.1 billion in assets in Mumbai. “Owning equity
assets has become part of their investment strategy from earlier
just putting the money into the bank.
Investors based outside India bought a record $17.2 billion
of equities in the nation last year, according to the stocks
regulator. The Sensex climbed 65 percent in 2007 in dollar terms,
making it Asias best performer after China and Bangladesh.
The Morgan Stanley A.C.E. Fund, or Across Capitalizations
Equity Fund, will invest in companies with varying market values
and will benchmark its performance against the Bombay stock
exchanges BSE 200 Index. Morgan also plans to start two bond
funds soon.
“Lower assets under management compared to our competitors
is a mathematical fact but the opportunity in India is a 30-year
to 40-year one as the penetration is very, very low, Ramachandran
said. “We expect the mutual fund industry not to just double or
triple but rise by a factor of ten.
To contact the reporter on this story:
Pooja Thakur in Mumbai at
