Jio moment in AMC business might need a different playbook

Mumbai: When the term ‘disruption’ is brought up in India’s business milieu, the first name that probably springs to mind is Mukesh Ambani’s Reliance Industries. After all, the term ‘Jio Moment’ became a corporate buzzword after the conglomerate shook up the telecom industry in the previous decade through aggressive business strategies aided by deep pockets that led to a plunge in tariffs and helped it become the one of the largest telecom operators in the world. In India, Jio has a market share of 37.9% compared to Bharti Airtel’s 32.45%, according to TRAI data as on April 30.

As Ambani’s Jio Financial and US-based BlackRock, the world’s largest asset manager, team up to take on India’s asset management industry’s well-entrenched incumbents, corporate watchers are wondering whether this is the Jio Moment for the asset management space. While the scope for Jio BlackRock is immense, it will require more than just repeating the playbook Reliance used in telecom and retail to replicate that success.

The firm has not revealed its plans for the business as yet but it will be useful to understand the current structure of India’s asset management space to forecast what could be in store. The asset management industry broadly includes mutual funds, Alternative Investment Funds (AIFs) and Portfolio Management Services (PMS). Currently, the domestic mutual fund industry — the largest of the three in terms of asset management — has 43 members managing over `44 lakh crore of investor money. It is a segment that thrives on volumes and scale — a situation seemingly tailor-made for Reliance . It could however also be the toughest segment to crack, dominated as it is by large banks owning wellestablished distribution networks across the country.

While Reliance is in a position to pump in cash to grow the business, it must be noted that mutual funds are essentially pass-through vehicles with lower capital requirements. Further, the rules of engagement in terms of customer acquisition are highly regulated. There are strict caps on the fees that can be paid to distributors to sell mutual fund products. Moreover, the face of the industry is changing slowly with scheme performance — mainly in equity — and costs gaining precedence over just brand name.

Data shows that better-managed equity mutual fund schemes churning out higher returns have been able to attract more inflows recently, irrespective of their ownership. Though there is nothing that stops Jio BlackRock from aiming to top performance charts, balancing the two — scale and performance — can be a struggle as seen in the case of some existing mutual funds.