India's Management Assets to touch USD 350-440 B by 2012

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Mumbai, Mar 10 (UNI) Total Assets Under Management (AUM) by the Asset Management Industry in India could range between USD 350 billion and 440 billion by year 2010, according to a leading management consultancy firm.

From a base of USD 92 billion in 2007 the industry could witness an annual growth of 33 per cent, the consultancy firm McKinsey and company said in its latest report, 'Indian Asset Management: Achieving Broad-based Growth'.

The research stated that while all asset classes and segments in the industry would contribute significantly to growth, retail mutual funds (MFs) and portfolio management services (PMS) would be the key drivers of profitability for AMCs.

Over the last few years, the industry has grown at a scorching pace of 47 per cent per annum albeit on a small base of USD 19 billion. Although on metrics of penetration such as AUM as a percentage of GDP and AUM as a percentage of bank deposits, the Indian market appears nascent, it was important to recognise that the industry has progressed significantly on several dimensions in a very short span of time. These include product innovation, quicker turnaround time in servicing customers and the emergence of three important third-party channels in open architecture - banks, national distributors (NDs) and independent financial advisors (IFAs) the report said.

According to the report, the retail segment could grow at a compounded annual growth rate (CAGR) of 36-42 per cent annually, taking the total AUM from US$ 36 billion in 2007 to US D160-200 billion in 2012. Rising incomes and increasing demand for wealth management services would drive this growth. This in turn would increase the propensity to purchase mutual funds and result in higher penetration of MFs into tier 2 cities. The research suggests that mass affluent segments in top eight cities and the broad retail segments in tier 2 and tier 3 cities would be the key growth drivers.

''In the domestic market in 2007, the retail and PMS segments accounted for a bulk of the profits. 75 per cent of the AUM and about 95 per cent of the retail profits were realised from the top eight cities. However, with increasing investments by players, we expect the share of top eight cities by AUM to come down to 60 per cent and profits to come down to about 80 per cent as the next tier cities show the potential to grow at a faster rate. To achieve this significant investments in infrastructure and customer education will be essential,'' said Joydeep Sengupta, Director McKinsey and Company and leader of South East Asia and India Financial Institutions Practice.

Likewise, institutional investments were likely to witness a 25-33 per cent CAGR, with total assets under management increasing from US$ 42 billion in 2007 to US0 billion by 2012. As in the past, large and mid-sized corporations will be the dominant players.

''Participation of several players such as PSUs, pension funds, insurance companies will be shaped by the regulations and could substantially boost the assets under management. This will also shift the mix to more profitable products rather than largely liquid funds,'' said Naveen Tahilyani, Partner, McKinsey&Company and co-leader of the Financial Institutions practice.

In addition, buoyant economic growth would attract participation from the international investment community across retail (both NRI and others) and institutional segments. AMCs would tap this through a variety of plays- owned presence, distribution tie-ups and advisory models across key overseas markets such as US, UK, Middle East, HongKong, Singapore and Japan. In 2007, across all funds, not just Indian AMCs, size of India-focused funds is already USD 80 billion.

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