Business India ×
  Magazine:
Corporate Report

Published on: Aug. 23, 2021, 6:53 p.m.
Nippon embarks on a new journey
  • Sikka: our performance is gaining traction; Photo: Sanjay Borade

By Daksesh Parikh. Executive Editor, Business India

Virat Kohli’s passion for cricket, in the cricketing world today, is unmatched. As is his desire to ensure his team wins under any circumstances; favourable or otherwise.  Leaders, be they in cricket or the corporate world, need to have both traits to steer their teams to success in a world where change is the only constant.  One does not know, with certainty, if Sundeep Sikka, 49, Executive Director and CEO, Nippon Life India Asset Management Company (market cap Rs24,500 crore) ever captained the cricket team at St John’s School, Punjab or his college in Pune University from where he did his MBA. What one does know is that he is a cricket buff and a good marathon runner.

He has a passion for growing the mutual fund business. And ensuring his company remains relevant to the investor community year after year. Currently he is managing the transition of the ownership of the fund from an Indian owner, Anil Dhirubhai Ambani group-driven Reliance MF, to a foreign owner, Nippon Life. 

While FY21 marked the first full year of the ownership change. Sikka says: “It is true the name has changed. However, our performance is gaining traction. We are gaining market share, month on month, we have added more than 600 HNI family trusts, and got institutional acceptance. In the first quarter of FY22 we saw 14 lakh accounts accounting for as much as 82 per cent of investors in ETF.” 

One reason for this has been that Nippon Life has not been new to the fund. They had been gradually increasing their stake in the AMC since 2012. Buying 26 per cent way back in 2012, Nippon bought another 9 per cent in 2014 and 14 per cent in 2015. Gradually upping it to 75 per cent stake since October 2019. The fund, meantime, got listed on the capital market, the first AMC to do so, raising Rs1,500 crore in October 2017, with the issue getting oversubscribed by more than 81 times. 

Nippon, which was in total control since October 2019, decided to leave the execution team headed by Sikka undisturbed. “Having the same leader and the same team with a stronger owner, works well for Nippon Life India,” says Vijay Mantri, cofounder of JRL Money investment advisory group which has its own platform for b-2-b distribution of investment products. Sikka has been with the company since 2003 and was instrumental in growing the fund. He held various leadership roles before being elevated to the position of CEO, Reliance ADAG Mutual Fund in 2009, the youngest CEO at that time. It was during his tenure that the fund had grown its PMS and started the Alternate Investment Funds. He was also instrumental in taking over Goldman Sach’s Asset Management Company along with its 12 index funds and 20 people for a little under Rs250 crore in 2015.

Sikka was made the whole-time director and designated as the ED and CEO in FY16. “Sundeep is a fantastic leader with good relations with all stakeholders. He has guided the fund ably through different phases both in the company as also in the markets,” says Jaideep Bhattacharya, co-founder of Deeptam Advisors Private limited, a boutique investment advisory firm. Bhattacharya has good experience in the fund industry. He was earlier the group president and CMO at UTI and also the CEO of Baroda Pioneer.

Some don’t agree that the move from Reliance Nippon to Nippon Life India can be termed a transition. “I don’t think it was a real transition from Reliance Nippon to Nippon Life India. Nippon had been with the fund since 2012 and knew what was there and more importantly what is the potential, going forward,” says Amit Tripathi, CIO, Fixed Income.

With experience of over 20 years in the finance sector Tripathi manages a 20-member team and nearly 42 per cent of the fund’s debt and liquid schemes. The total AUM of the mutual funds as on 30 June stood at Rs2.4 lakh crore. Besides mutual funds the AMC also manages funds under Portfolio management schemes and Alternate Investment Funds. The combined managed funds account for Rs1.275 lakh crore. Along with international funds (Rs3,000 crore) its total AUM is a little under Rs3.80 lakh crore. 

Focus on processes and risks

Tripathi points out: “Like any international owner which is a part of a large conglomerate, Nippon will naturally focus on growth outside India as well.” Explaining the changes brought about he says: “Nippon is more process oriented, with emphasis on standardisation of processes, with strict adherence to quality. The Japanese are more process driven and interested in laying the foundation for long term sustainability and profitability.” He adds that Nippon reckons that once processes are in place, profit will naturally follow. Good output does not necessarily mean good inputs. Everyone will perform well in a good market but few will do so when markets turn unfavourable. Cycles will come and go but we have to be prepared for managing across cycles.

 Nippon Life India is part of the 130-year-old Nippon group which is majorly into life insurance and mutual funds, besides other businesses. The group’s total fixed assets as at the end of 2020 stood at 69,071 billion yen (Rs47 lakh crore). Given its size and the respect it commands worldwide, it is but natural that protection of its brand figures high on the group’s agenda.  Having a global tag is normally beneficial to the growth of a fund as it opens the gateway for the fund to tap overseas investors, create new products to facilitate investments in India and vice-versa besides ingraining the best global practices which helps in better product construct and risk management practices. 

The focus on processes can in a way be seen as a major cultural shift in Nippon Life’s way of doing business. Earlier, during Anil Ambani’s time, growth was foremost even though processes were in place and strictly adhered to. “Lots of freedom was given to fund managers earlier,” says Manish Gunwani, CIO, Equity. Gunwani, who has a BTech degree, and is an IIT graduate with a diploma in management from IIM Bangalore, points out: “Being a global company, there is also a high emphasis on risk management. Deviation from the benchmark is clearly limited to the risks defined. A fund manager is not allowed to deviate beyond the upper band of risk in a bid to generate alpha. The trend is to create an institution of global standing and not focus so much on fund managers.” 

Like in cricket, it is not individual performance which solely matters it is always the team which is put above individual performance. “The emphasis is not on quarterly or half yearly profit. Our outlook is medium to long term.  Process-centric with proper risks in place allows the company to absorb shocks better during extended period of volatility.”

Even the evaluation of fund managers is not done on three-six months’ performance but over a period of three to five years. One year’s performance also does not count high, explains Gunwani saying: “The aim is not to have flashy performance but consistent performance.”

Many of the top Indian funds too are moving away from having star performers who in pursuit of generating alpha often take higher than warranted risks. SEBI has also played a role in clearly specifying limits at scheme levels as also fund levels. Fund exposure to particular stocks and fund exposure to a group is laid out. Compliance levels are also high. Gunwani manages 41 per cent of the total AUM.

With clearly defined risks and the process of institutionalisation set in place, can a fund house really report good performance? Generate alpha returns compared to its peers? As part of its risk management, Nippon Life has also taken the conscious decision of investing only in AAA or AA rated securities in the case of non-equity funds. And this could further dampen performance. Tripathi says: “It is not just the performance but investors look at risk-weighted returns and safety. Institutions appreciate the measures taken by our fund. They are more interested in predictability of income and appreciate the risk measures. Risk improves visibility and acceptability.” “The aim is to create a faceless organisation which will live beyond CEO and fund managers,” says Sikka. 

Nippon Mutual Fund had faced issues relating to the high level of debt of the Anil Ambani group over the last two to three years. And the consequent impact of its holding company, Reliance Capital. Internal issues are behind us, claim insiders. Questions were raised about Nippon being a new brand and not as recognised as ADAG. However, institutions and HNIs are aware of the brand which is becoming stronger by the day. “The structural improvement will help performance, going forward.” 

Gunwani says, “There is scope in creating alpha by following a bottoms-up approach. Today 20 per cent investments are top down looking largely at the sector while 80 per cent are bottoms up. Earlier it was 50:50.” A top-down approach involves taking a macro view of the economy and sectors which are likely to do well and invest in those companies in the sector, while in a bottoms up approach, more focus is on the company’s performance vis-à-vis its peers and then looking at the macro trends. The fund relies a lot on in-house research. It has a four-member team besides which it also leverages its global counterparts. 

Leaders in Index funds

Besides equity and debt which include both liquid schemes and debt schemes, Nippon has a good offering of index funds across equity, debt and gold. As on 30 June, it had 23 ETF schemes.  “Many evolved investors are evoking good interest in passive funds,” says Vishal Jain, head, ETF and fund manager, pointing out a near 5x growth in ETF funds to Rs44,000 crore in July 2021 from November 2016. Jain, an ex-Crisil employee, was the first member of the Benchmark Index Fund which was acquired by Goldman Sachs for Rs131 crore and later sold to Reliance Nippon Life. During the height of the pandemic when pharma shares were in demand, Nippon Life came out with a pharma ETF. This was followed with an IT Index fund.

“We try to cater to the investor demand and try to make products which are easy to understand,” says Jain. The fund is planning to open an office in GIFT City, Gandhinagar to facilitate global investors, including NRIs. It is also planning to provide investors a choice to diversify their portfolio by taking global exposure to companies in the US, Europe and east Asia. It is contemplating a Europe benchmarked index fund and also one linked to Nasdaq. 

 The proof of making changes, making them more process driven with a higher emphasis on risk management has to be reflected in the profits. In FY21 the fund posted its highest PAT in the recent past at Rs680 crore. The total income was impacted to some extent on account of regulatory changes by SEBI on the way distribution and marketing costs are to be treated. The total income of the fund was Rs1,419 crore. PAT to total AUM (average of four quarters AUM) of Nippon Life in FY21 was 0.33 per cent and compares favourably with other funds. HDFC MF and ICICI MF are the only two funds with better ratios of 35 and 34 per cent respectively. While Nippon Life stands at no 6 in terms of AUM, in terms of PAT it is ranked no 3. 

Riding on technology

Not having the backing of a bank, unlike SBI, HDFC, ICICI or Kotak, which are in the top 5 ranked by AUM as on 30 June, 2021, Sikka is following the Blue Ocean strategy which is essentially consists of differentiation and a low-cost approach. While it is still tapping HNI and family funds and institutions Sikka had early on foreseen the growth of passive funds and grew the index funds where they have a leadership position.

While many funds concentrated on metros and large urban towns, Sikka thought it fit to broad-base its retail investor segment through its 980 employees at 280 locations and 80,000 distributors on a pan-India basis.  Retail today forms the backbone of Nippon Life India. In FY21, the fund added 9 lakh new investors of the 20 lakh new investors in the industry.

Arpanarghya Saha, Chief Digital Officer, who leads the digital transformation says they have created digital platforms which are frictionless and friendly. “New investors have platforms of their choice, mobiles, internet, hands-free investment using Google Talk for on-boarding and transactions. He can even invest through WhatsApp.” Saha plans to create even vernacular platforms with the aim of reaching the real Bharat. Paperless transactions are gaining traction. “We continue to grow organically through our physical and online channels in active, passive and non-mutual fund segments,” says Sikka.

The strategic use of technology to gain investors in the untapped market has paid off. The share prices of Nippon Life India have gained nearly 50 per cent over the last one year and are currently trading a little under Rs400. Brokerages are optimistic about the fund’s upward journey. ICICI Direct, in its report on 12 August, recommends a buy on the stock reckoning that the funds will focus on individual business and non-mutual fund initiatives, strong brand franchise, distribution and operating capabilities. It feels that AUM growth will offset competitive pressure and passive products will aid yields. 

Prateek Jain, CFO, says that over the 12 quarters cost expense ratios have come down. “We embraced technology ahead of others. Technology and digitisation initiatives will help to bring it down further. With technology, cost of managed funds is also low and also helps us to piggyback on our parent’s net worth. Once the fixed cost for the platform is in place incremental cost of acquisition of new investors is quite low. Gross realisation of the fund is nearly 60/70 basis point on an average as against 46/47 per cent average realisation of several players.” 

Sikka says: “Consolidation in the industry is inevitable with the top 10 funds accounting for 82 per cent of the AUM. We are open to pursue inorganic growth. Our aim is to grow beyond just mutual funds. The diversification of income streams beyond mutual funds will help us in the future. Our new journey has just begun.” 

As a marathon runner, Sikka knows that he has to take measured steps to ensure that he does not get exhausted ahead of reaching the final post. The only difference in the mutual fund race is that it is a moving goal post and one has to be careful of not running too fast. And exhausting oneself. Nippon’s dream of creating a faceless organisation may not be relevant in India at this juncture. It is always the captain and the team members which inspire confidence and not just brands, however strong they may be.

Don't miss this

Cover Feature

Why September is crucial

The true picture of the economy has started to emerge. A lot now depends on consumer demand

Special Report

Markets on a new high

The markets, which have given a thumbs-up to the government’s policies, may hit the pause button for a few sessions

Focus

Island of distress

Lanka’s fragile liquidity situation has put it at high risk of debt distress

Corporate Report

JB Chemicals new formulations for growth

The company is all geared up to start its next growth phase

Our letter to you, once a week.
Register with The CSR Weekly for free!

E-MAGAZINE
Why September is crucial
Top Business Houses
Paytm The Indian Fintech Giant
FROM THIS ISSUE

Business & Industry

Corporate Report

Automobiles

Corporate Report

Education

Milestones

Social Responsibility

Healthcare

Goodyear India partners Americares India Foundation

Published on Feb. 2, 2021, 9:21 p.m.

The partnership will support COVID-19 healthcare facilities in Faridabad and Aurangabad

Environment

Tata Motors launches a 'Go Green' initiative

Published on Dec. 23, 2020, 10:34 a.m.

The company will plant a sapling for the sale of every new commercial vehicle

Women Empowerment

Tata Starbucks ties up with Educate Girls to empower women

Published on Dec. 2, 2020, 3:10 p.m.

The partnership aims to provide volunteering and educational support to those who have relocated to urban cities from villages

Environment

Indian Oil has a social initiative for a clean and green world

Published on Nov. 25, 2020, 2:53 a.m.

The public sector company is planting a tree for every retail customer visit during its TreeCheers campaign period

Climate Change

E-vehicles

Ola creates history

Published on Sept. 22, 2021, 3:38 p.m.

The company sells electric two-wheelers worth Rs1,100 crore in two days

Sustainability

Mastercard’s masterstroke for sustainability

Published on Sept. 22, 2021, 3:20 p.m.

Mastercard launches Sustainability Innovation Lab

Government and Policy

Kerry launches Indo-US Clean Energy Partnership

Published on Sept. 14, 2021, 8:31 p.m.

US senator introduces Bill to boost bilateral cooperation

Renewable Energy

Let a thousand Solar Parks bloom!

Published on Sept. 14, 2021, 11:08 a.m.

TN Energy Minister V Senthilbalaji says the state will have Solar Parks in every district

Stay ahead of the times.
Register with The Climate Change Weekly for free!