Bajaj Finserv gets Approval for Mutual Fund

Bajaj Finserv, the holding company of the consumer finance and insurance business of Bajaj group, got SEBI approval to sponsor a mutual fund AMC. The next steps for Bajaj Finserv would be to put in place a full-fledged asset management company as well as a trustee company to hold funds in trust.

The stock markets received the news with enthusiasm considering that the stock price scaled new highs in the aftermath of the news. If you look at the last 3 months, Bajaj Finserv is up nearly 42%, when the Nifty is up just 10%. That has been largely driven by the anticipated mutual fund approval for Bajaj Finserv.

The mutual fund segment in India currently manages over Rs.35 trillion with SBI Mutual Fund, ICICI Prudential Fund and HDFC Mutual Fund being top-3 in terms of AUM. There are over 40 AMCs in India but the top-10 AMCs account for over 80% of industry AUM. In short, this is a business where scale is a distinct advantage.

What is the distinct advantage for Bajaj Finserv from the AMC business. The first is synergy. Bajaj Finserv has built a solid retail franchise with deep reach across India through its consumer finance and insurance business. The AMC licence will facilitate Bajaj Finserv to cross sell one more product offering to its massive customer base.

The second advantage is valuations. Currently, there are 3 listed AMCs. While HDFC AMC is valued at 15% of AUM, Nippon AMC is at 10% and UTI AMC at 8% of AUM. Even if you assume a median valuation for Bajaj Finserv AMC business at around 12% of AUM, there is a lot of value that the group can build by originating mutual funds. For Bajaj Finserv, the AMC business will be a cross selling as well as value enhancement strategy.