The joint venture of Jio Financial Services and BlackRock to foray into India’s asset management space could be disruptive but not disastrous for incumbent industry players, analysts said on Thursday.
As an investment strategy, analysts suggest investors stay put in shares of those AMCs that consistently improve business metrics, and where market capitalisation-to-asset under management (AUM) valuation is not stretched.
However, growth expectations of incumbent players may get trimmed in the medium-to-long term, analysts said, once the Jio-BlackRock JV unveils its plans, discounting the looming challenge as significant enough to dent their profitability.
Investors, analysts feel, will remain in a wait-and-watch mode in the near-term till more details on the proposed deal emerge before taking a call on their investments in the AMC stocks.
“Reliance Industries, via Jio Financial Services, may disrupt the asset management market just like it ruffled the telecom market with Jio Platforms.
"The difference here, however, is that the joint venture needs to perform.
"Having a brand name and resources alone will not help you capture the market share.
"Markets are yet to fully understand the implications,” said G Chokkalingam, founder and head of research at Equinomics Research and Advisory.
Meanwhile, at the bourses, shares of related players ended mixed on Thursday.
While Shriram AMC and Nippon Life AMC settled up to 2 per cent higher, those of UTI AMC, Aditya Birla Sun Life AMC, and HDFC AMC slipped between 0.7 per cent and 1.45 per cent on the BSE.
By comparison, the benchmark S&P BSE Sensex dipped 0.66 per cent to 66,267 levels.
That said, the joint venture, analysts opine, is a landmark deal in the asset management space as BlackRock's institutional depth in terms of fund management expertise and Jio's indisputable ability to distribute at scale will likely stir the AMC pot.
“The JV will have to traverse a long path to build credibility in their value proposition.
"Considering BlackRock's legacy, it may start with a firm footing on the back of context and experience.
"That said, Jio may be clearly ahead than most new players in terms of acquiring trust for the brand and enabling a distribution ecosystem.
"The daily operations of existing players are unlikely to be disrupted significantly, immediately,” said Nirav Karkera, head of research at Fisdom.
For now, Jio BlackRock has not disclosed which asset management business it will start with, but analysts at Kotak Institutional Equities believe a foray into passive schemes is more plausible.
The total asset under management for passive assets, which include exchange traded funds (ETFs) and Index Funds, stood at Rs 6.30 trillion at the end of June 2023.
Between March 2019 and March 2023, the AUM size has increased 285 per cent.
Yet, retail investing in ETFs remains less than 2 per cent as against 12-13 per cent in equity AUMs.
“Likely lower initial investments versus active equity funds, more amenability to digital/platform-based originations given very low (or absence of) distribution incentives, and low retail adoption indicate that distribution of passive schemes has been the missing link.
"Thus, the JV can potentially create maximum value/disruption through captive distribution,” wrote analysts at Kotak Institutional Equities in a note.