Reliance Capital Asset Management (RCAM) will acquire Goldman Sach's Indian business for ₹243 crore. In an interview to Bloomberg TV India, RCAM President and CEO Sundeep Sikka explains the rationale behind the acquisition and the way forward.

How is the RCAM-Goldman deal structured?

Reliance Capital Asset Management has gone into a definitive agreement with Goldman Sachs. We will be acquiring all the schemes and the assets of Goldman.

The deal is valued at ₹243 crore or $37.5 million. This is a full cash deal which has been funded from the internal accruals of the company.

I think from our perspective, we look at it as more of a strategic investment. Reliance Mutual Fund has a 20-year track record of active fund management. We believe, in the times to come, passive fund management and ETF will become big. Globally, that is the way it has happened.

And that is one of the reasons we have invested in this company.

From a long-term point of view, if we were to see in India, already institutional investors have started investing — whether it is the EPFO or the Coal Miners Provident Fund, they have started investing in ETFs and we also expect more HNIs to start investing.

And, with the grid franchise that the Goldman benchmark has build up over the years, we believe Reliance Asset Management will be India’s only asset management company which will have unparalleled track record of the best active fund management schemes and also a 15-year track record of ETFs which the Goldman benchmark has build up.

What does Goldman Mutual Fund bring to the table?

I think we have been an open to acquisitions for quite some time. Even before this, as you are aware, a couple of acquisitions have happened in India and some of their proposals had come to us also but we gave it a miss because it did not fit into our overall strategy.

We were very clear from a long-term point of view it is not about acquiring assets.

It is about whatever we acquire has to compliment our present business. Goldman has outstanding franchise, they are one of the market leaders in India as far as ETF and passive fund management are concerned, and they have a great team.

So I think from our perspective, their expertise, their team, all put together, along with the Reliance brand and distribution, will be a very beneficial deal for us.

What does it mean for profitability? Will it be a drag on your profitability in the short term…the amount you have paid for this?

From the long-term point of view, we don’t see any impact on our profitability. Rather in the long term it will be a big positive for us as the business volume grows.

What does the deal mean in terms of market share?

I think while this acquisition has been done with more strategic intent, the objective is not what happens to the ranking — whether it goes up to two or not.

But definitely with ₹7,000 crore coming in, I think our market share will move up by 60 bps. Our long-term business objective is — we are not top-line focused, our major focus has been on profitability.

We believe gradually the ETF business will grow and with this acquisition definitely I think the market share goes up.

The ranking changes are not as not important but definitely in the long run it will add to the profitability a lot.

This has been a big year of the comeback of mutual funds with a lot of retail interest. What is the sense that you are getting from the market?

I think we are very positive as we have seen the flows coming in the mutual fund industry after a dry run for four-five years.

Last year we have seen more than ₹1 lakh crore coming in the industry, which is more than the outflow of the foreign investors. I expect more inflows to come in and more retail investors from smaller cities and towns to keep investing in mutual funds and ETFs.

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