The equity market is increasingly becoming an institutional and proprietary book market, both in cash as well as derivative segments. Retail participation in equity has been declining over the last year as investors no longer see value in it. To make up for this Aditya Birla Money is offering its customers products such as insurance, commodity, currency and even solutions in real estate, says Mr Sudhakar Ramasubramanian, MD, Aditya Birla Money and CEO Aditya Birla Money Mart.
However, the company's income from distribution has not been impacted much as it has an equitable number of retail, corporate and wealth customers, he points out in an interview with Business Line .
“Our intention is to become a leader in the overall money management space in the country in two three years time,” Mr Ramasubramanian says.
What are the broad trends in the capital markets currently?
Retail participation has fallen; cash equity volumes have dropped.
In the last year and a half, retail participation has come off substantially because markets have not given any value for retail investors, who are typically “long only” investors. Now, it's become a total traders market in the short term.
Volumes in cash equity market have also reduced substantially, from a year ago. Now the cost of leverage has increased. Earlier money was available at 9 per cent, today it is 14 per cent. So the ability to borrow and get a return of over 14 per cent in a stock has come down substantially. So traders are also not coming into the equity cash market. Derivative volumes have increased.
The flip side is, from April 2010 to today, volumes have gone up substantially. But within that, the prop book volumes or institutional volumes have increased. From April 2011 till date, there has been a drop of 15-20 per cent in retail derivatives volumes as well.
So, essentially this market is becoming increasingly an institutional and proprietary book market, both in cash as well as derivatives.
Time horizon has narrowed
For the investor the time horizon has also come down substantially. Earlier, people used to invest in a stock with a 1-2 year gap. Now, within that time, people are not getting the returns they desire.
The market is range-bound. Investors are in for a very short term. They are looking at 2-3 month time horizon.
How has the waiver of fees in mutual funds impacted your business? What steps have you taken to make up for the decline in MF sales?
Mutual Fund distribution is a big chunk for us in terms of revenues. We offer MFs to corporates, retail and wealth segment investors
We have a large corporate portfolio, which is primarily liquid, debt funds, FMPs and short term funds. A liquid fund depends on the overall surpluses in the system and what other options corporates have to invest compared to what a MF can provide to them at that point of time. It is not linked to commission and fees. So we don't have an issue on the institution side.
We have been advising companies to move from liquid funds to short term funds with the expectations of interest rates peaking off. If they have three to five months surplus we advice them to move into a short term fund, where they will get income as well as principal appreciation.
Wealth segment
The wealth segment has been growing. However, for the wealth clients we do not manage every transaction based on the income we get. We mange clients' portfolios and in the portfolio we advice what is right for the client at that time.
Retail
What has been hit in the industry is the retail participation. But we are increasing our retail team because there is a lot of opportunity on the life insurance side.
For instance, if there is an infra bond, we provide that.
We will get customers in through other products and then we can give mutual funds to our existing customers. We are promoting Systematic Investment Plans. We do worksite marketing. We go to a company and speak to employees about the advantages of a SIP.
We also provide structured products, derivative, debentures, and commodity futures. We will also be tying up with some banks for gold coins.
Will you focus more on institutional business going ahead?
We started the distribution business in 2008. We want to provide an integrated view to the customer. We (Aditya Birla Group) have a set of manufacturing business and distribution business. So we work with our manufacturing entities.
At the same time we want to create a unique proposition from our customer point of view. So we focus equally on all three – institutional, retail and wealth – depending on the timing of the opportunity and in which category it lies.
Currently, in retail, we find investors coming in for insurance products. And the nature of financial services is such that at different points of time people have affinity for different kinds of products.
In institutional business, we plan to add more services and expand to 15- 20 locations and industry clusters.
Apart from MFs, we have started offering commodities and currency products to institutional investors such as currency futures and derivatives. We will also provide lending products to companies through our NBFC.