Following the acquisition, Goldman Sachs will integrate entire operations of Benchmark Asset Management Company as well as its manpower. Besides, Goldman Sachs Asset Management intends to bring actively managed on-shore funds to India
Goldman Sachs Asset Management today said it has agreed to acquire Benchmark Mutual Fund to increase its presence in the country. The transaction is expected to close later in the year, subject to regulatory approvals, Goldman Sachs Asset Management said in a statement, without disclosing the deal amount.
Following the acquisition, Goldman Sachs will integrate entire operations of Benchmark Asset Management Company as well as its manpower. Goldman Sachs Asset Management got market regulator Securities and Exchange Board of India's (SEBI) approval in 2008.
Goldman Sachs Asset Management has a team of eight based in Mumbai, headed by Prashant Khemka. The team currently provides research for off-shore funds, including Indian and other BRIC equities.
The last acquisition in the asset management space in the country happened in 2008, when Religare Enterprises took over Lotus India Mutual Fund from Temasek-promoted Alexandra Fund Management and Sabre Capital.
In addition, it said, Goldman Sachs Asset Management intends to bring actively managed on-shore funds to India.
"India is one of the world's largest growth markets and a strategic priority for our firm. The acquisition of Benchmark illustrates our commitment to expand in India and we look forward to working closely with Benchmark to accelerate the growth of the business," said Goldman Sachs Asset Management head (Asia) Oliver Bolitho.
"We are also pleased to announce that we will bring on-shore funds to India-building on the strong expertise that Prashant Khemka's team has established," he said.
The fund launch would be after the acquisition process is complete, he said.
Benchmark Asset Management Company was founded in 2001 and is the number one Exchange Traded Funds (ETFs) provider by both market share and assets under management (AUM) in India. It has around $700 million asset under management (AUM).
"As index and ETF product demand continues to grow significantly in India, Goldman Sachs' local expertise and global platform will provide us the opportunity to grow further and enhance our offering for clients," said Benchmark Asset Management Company executive director Sanjiv Shah.
With over 40 mutual fund companies operating in the country, the average assets managed stood at Rs6,75,377 crore on 31 December 2010.
With so many players in the market Indian is still very attractive market for asset management, Mr Bolitho said.
The tsunami and nuclear crisis in Japan may provide some opportunity for few Indian companies like pharmaceutical and steel. The crisis may also affect some upcoming as well as existing nuclear power plants in India, in terms of safety and security
Japan is still fighting hard to contain the damage caused by the earthquake and subsequent tsunami. On Wednesday morning, there was a second fire at the number four reactor at Daiichi plant. The biggest uncertainty at present is whether Japan would be able to safely shutdown the nuclear reactors or not. The exact magnitude and duration of economic problems in Japan is hard to estimate at present due to the evolving situation with the nuclear reactors and the unclear future of nuclear power sector in general.
Although it is too early to predict, the re-building of damaged areas and required healthcare facilities in Japan may provide some opportunity for Indian companies, mainly pharmaceutical and steel companies.
Religare Capital Markets Ltd, in a report said,"While impact of the crisis would be moderate on account of lower business exposure of Indian companies to Japanese markets, Autos (Maruti in particular), Capital Goods (BGR Energy), Pharmaceuticals (Lupin), and Telecom (Bharti) are the companies to watch out for on account of their revenue, raw material and funding linkages with Japan. While several other companies such as L&T, Tata Motors, Idea and Tata Steel have yen denominated debt, most of it is either hedged or converted and thus has minimal/no impact on yen appreciation."
Japan is the second largest market for pharmaceutical companies after the US. The Japanese generic market is expected to grow at about 9%-13% to $8-$11 billion, with the government target of 32% generic prescription by 2012. After the recent earthquake and tsunami, Japan is going to witness a rise in health problems related to gastro-intestinal, post-traumatic care and infections.
"Given their established presence, Ranbaxy Laboratories and Lupin are expected to be the major winners who can tap the Japanese opportunity. The increasing healthcare demand after the Japanese crisis would lead to a favourable opportunity for Lupin as the demand for anti-inflammatory (AI), neuro-psychiatric treatment and gastrointestinal (GI) drugs would see a rise," said Sharekhan Ltd, in a research note.
India has been a major supplier of iron ore to Japan. However, in recent years, many Japanese companies have set up joint ventures with Indian steel makers. During 2010, JFE Steel bought about 15% stake in JSW Steel, India's largest private steel maker for $1 billion. Sumitomo also bought 40% stake in Bhushan Steel's project in West Bengal, while Nippon Steel formed a joint venture with Tata Steel to make auto grade steel in India. Kobe Steel, which already has an existing agreement with state-run Steel Authority of India (SAIL), signed an umbrella agreement with Essar Steel.
Those Japanese steel producers who have a joint venture or plant in other countries are likely to have an upper hand while catering to local demand, as almost all companies from the earthquake-affected areas have stopped production owing to the tsunami and the disruption of power supply.
While the overseas investments from Japan are expected to be lower in the near term, there are chances of more outflows over a longer term. "In the near term, Japanese companies are likely to delay overseas direct investment (ODI) plans. However, longer term, we could see greater demand from Japanese companies to diversify production bases in geologically more stable countries," said Citigroup, in a report.
Japan accounted for around $3.7 billion, or less than 2% of India's total exports of $175 billion during 2009-10. Over the past ten years, foreign direct investment (FDI) from Japan has been around 4% of the total FDI inflows in India.
Earlier in February, both the countries signed a Free Trade Agreement (FTA), which will eliminate tariffs on 94% of bilaterally traded goods in the next 10 years. Following the FTA, it was expected to boost bilateral trade between Japan and India. The temporary halt in Japan's export to other countries may also provide an opportunity to other countries. However, India may not be a beneficiary.
According to Citigroup, Malaysia, Singapore and Thailand look relatively more vulnerable to a sharper slowdown in exports to Japan. "However, slower exports to Japan could be offset by stronger exports for product segments where Asian countries compete directly with Japan. Korea and Taiwan have export structures most similar to Japan," the report added.
The earthquake-related economic and fiscal impact on Japan is significant, but, given the unfolding situation, Standard & Poor's (S&P) Ratings Services said it believes it is too early to judge the implications for the unsolicited sovereign credit rating, which currently stands at AA- with stable outlook.
"The key factors determining the future trajectory of the sovereign credit rating on Japan include the overall macroeconomic impact of the earthquake, the pace and duration of reconstruction, and the impact on fiscal deficit," said S&P's credit analyst Takahira Ogawa. "In addition, we need to assess the government's ability to pursue its economic and fiscal reform agenda once reconstruction is well underway."
According to a report from Citigroup, near term economic damage in Japan is likely to give way to a reconstruction boost in the second half of 2011. "The boost from Japan's reconstruction in 2H2011 could offset 1H economic weakness, boosting overall FY2011 growth by +0.2 point to 2.1%," the report said.
The total cost of the reconstruction and recovery programme in Japan is still unclear. It's likely, however, to be significantly higher than that in the aftermath of the Kobe earthquake in 1995. The Kobe disaster cost Japan $159 billion (about 16.3 trillion yen) over 1995-2000. The costs are again likely to be spread out over several years and funded from a number of sources, S&P said.
Following the Kobe earthquake, Japanese imports from Asia only slowed for about six months before rebounding, and Japan's share in Asia's exports has fallen significantly since then to a 7.3% share in 2010 from 12.3% in 1995. The slowdown in Japan's imports post-Kobe was more pronounced in industrial materials and consumer goods, while capital equipment imports posted a strong rebound. Indonesia and India also have a large share of industrial material exports to Japan, but exports matter less to these domestic-driven economies, Citigroup said.
"Given the sheer magnitude of the current disaster, the rating on Japan could be affected if the debt burden were to increase materially above our pre-earthquake expectations, due to a significant economic impact and reconstruction costs," Mr Ogawa added.
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Given time, mutual fund schemes don’t get better and better
It is always said that if you want to get the best out of equities and equity mutual funds invest for the long term. Private sector mutual funds were allowed in the game in 1993. So, we now have a track record of 18 years. (It is biased towards the funds that have survived. Nobody has a complete record of funds that have closed down.) We have done an analysis of funds which have been around since 1995. All these funds have gone through multiple cycles of bear, bull, volatile and stagnant cycles. They have had ample time to choose the correct stocks and show their performance over a long period.
The Sensex was 3,260 around March 1995 and it is at around 18,400 mid-March 2011. Thus, it has risen by 11% compounded in the last 16 years. How have the earliest funds done? Some 20 funds that were launched in 1995 have survived. Of these, 10 have outperformed their benchmarks. Among the top performers are Reliance Growth (28%), HDFC Equity Fund (23%), Franklin India Prima Plus (21%), Reliance Vision (23%), Franklin India Bluechip (19%), Birla Sun Life Advantage Fund (19%), ICICI Prudential Power (16%), HDFC Capital Builder Fund (15% and Franklin India Prima (21%).
Among the underperformers are four funds of UTI that have been consistently underperforming since inception. Of them, UTI Mastershare growth is the oldest. But Mastershare is more famous for the annual dividends that the fund has diligently paid out, during the Diwali festival. It's an illusion though; dividends come out of the own pockets of investors and the fund's net asset value (NAV) reduces by a similar margin. Mastershare has just given 7% return since inception, whereas its benchmark has given a return of 16%. Among the other underperfomers are UTI Equity Fund with a 9% return, UTI Masterplus Unit Scheme 91 (9%) and UTI Top 100 Fund with (6%).
JM Equity was launched in April 1995, that is around 16 years ago, and it has managed to give a return of 8% since inception. Whereas JM Basic Fund was launched in June 1997 and has fetched a return of just 1% as compared to its benchmark BSE 200 which has gained 14% over a period of 13 years.
SBI Magnum Equity Fund launched in January 1991 has fetched a return of just 7% over 20 years, whereas its benchmark earned a return of 16%. SBI Magnum Multiplier Plus 93 launched in February 1993 and SBI Magnum Global Fund 94 launched the following year, has managed returns on level with its benchmark with no extra return over an 18-year period. Taurus Bonanza Fund, launched in August 1995, earned a return of 10%.
Disclaimer: All our mutual fund analysis is based on the data purchased from Mutual Funds India database, controlled by rating agency Moody's of US. While the analysis is our own we cannot guarantee the that Mutual Funds India has reported the data correctly.