Jio BlackRock sees India mutual fund industry tripling by 2032

[MUMBAI] BlackRock’s India venture with billionaire Mukesh Ambani’s group expects the nearly US$900 billion local mutual fund industry to expand up to three-fold over the next seven years, fuelled by record inflows from domestic investors and a robust economy.

Participation in Indian financial markets is starting to increase rapidly, much of that driven by digital platforms, according to Sid Swaminathan, chief executive officer of Jio BlackRock Asset Management, an equal alliance between Ambani’s Jio Financial Services and the world’s largest asset manager.

Asia’s richest man is seeking to reshape India’s financial services industry by leveraging his vast telecom and retail empire. For BlackRock, the tie-up marks a return to money management in the world’s fastest-growing major economy after its exit in 2018.

The move coincides with a shift in household savings, once tied-up in gold and property, towards financial markets. The change has fuelled an explosive growth in the domestic mutual fund sector, with assets more than doubling over the past five years.

“Being in India at this point in its economic journey, there are so many tailwinds in our favour,” Swaminathan, who joined the venture after a 20-year stint with BlackRock in London, said.

India’s equity markets have more than doubled to US$5.3 trillion over the last five years, drawing millions of retail investors. But Jio BlackRock faces stiff competition from entrenched fund houses backed by major lenders such as HDFC Bank, ICICI Bank and State Bank of India, which command big distribution networks that reach small towns and villages. Online investment platforms such as Groww and Zerodha are also fuelling the boom in direct mutual fund sales.

Investor appetite, however, has been strong. The Jio BlackRock venture raised more than US$2 billion in just three days for its debut funds in July, placing the alliance among the top 15 managers in that category.

“For us to be operating in the next five years as a player of scale, it has to be about growing the market, rather than just capture market share from existing players,” Swaminathan said.

That aim is shaping the asset manager’s approach: It is preparing a mix of passive and active strategies, with its first active equity fund set to launch next week. The product will draw on nearly 400 indicators on about 1,000 Indian stocks, building a portfolio broader than is typical for the category.

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In addition, it plans to launch a fund that rotates between sectors based on quantitative signals and is considering another one that systematically allocates between asset classes, Swaminathan said. The partnership hired Rishi Kohli, who headed hedge fund quantitative strategies at InCred Capital and Avendus, as its chief investment officer.

The room for growth in systematic strategies is large in India, given the low starting point, Swaminathan said, describing the data-driven approach that also incorporates human judgment. As the market matures with more stocks and greater industry diversity, it becomes more conducive to such strategies, he said.

The venture plans to use alternative data, from web-search activity to retail sentiment on online forums, and evaluate auditor quality when ranking firms.

The Jio BlackRock partnership, spanning asset management, wealth management and equity broking, is pursuing a direct-to-consumer strategy via its app, bypassing traditional brokers and distributors.

A sharp market decline could slow the sector’s expansion. Indian equities have significantly underperformed emerging-market peers in the past year, partly due to weak earnings growth and stretched valuations. Yet retail flows remain resilient, with monthly systematic investment plans topping US$3 billion in August even as foreign funds retreated. BLOOMBERG