Ambani to enter Jio Financial in the mutual funds race: What can happen? #IndustryFinance

The reinvention of Reliance Industries under its chairman Mukesh Ambani has been continuing for more than a decade. From oil and chemicals to consumer-facing businesses to technology to renewables, Reliance has been quite a shape-shifter as it has gone on to add new businesses. Now Ambani is all set to get into another consumer business after the success of Reliance Jio and expansion in retail.

Since Jio Financial Services Ltd., the non-banking company of Reliance, was demerged from its parent in July 2023, it has forayed into various businesses such as secured and unsecured lending, digital equipment leasing, supply chain financing, insurance broking, payment bank and payment aggregator and payment gateway services. Now it is all set to enter India’s burgeoning mutual fund industry.

The joint venture between Jio Financial Services and BlackRock, the world’s largest asset manager, for starting a mutual fund business in India has received the Securities and Exchange Board of India’s in-principle approval. In July last year, Jio financial Services and the world’s largest asset management firm signed an agreement to form a 50:50 joint venture to offer investment solutions.

Many think the re-entry of Blackrock, after it ended its JV with DSP five years ago by selling its 40% stake to the partner, in association with Jio Financial Services, will become a Reliance Jio-like disruptor for the mutual fund industry. However, India’s mutual fund industry is different from the telecom industry with just a few incumbents. The mutual fund industry is highly regulated and rules out Ambani’s signature aggressive price play which had left telecom incumbents bruised and battered.

However, Ambani will hope to ride on huge scale that the business promises and fast-changing money habits of Indians who are drawn to mutual funds so much that banks are running low on deposits. Plus, the JV will ride on the data trails of lending and payments businesses of Jio Financial Services which, in turn, is driven by data from telecom and retail businesses of Ambani.

In mutual funds, Ambani’s got what he’s looking for

Ambani has always bet on huge scale, building mega pan-India businesses that specifically target crores of people at the bottom of the pyramid and in rural and semi-urban areas who are coming up with incomes rising. The Indian mutual fund industry is one of the fastest growing with its assets under management more than doubling in the last five years from ₹25.48 lakh crore to ₹66.7 lakh crore, as Indians transition from saving to investing.The monthly SIP contribution reached an all-time high of Rs 23,547 crore in August against Rs 23,332 crore in July. The contribution crosses Rs 23,000 mark for the second consecutive month. In August 2024, the mutual fund industry reached a new milestone, with the total folio count up 3.1% to 20.45 crore vs 19.84 crore in July, adding more than 61 lakh new folios. Over 46 lakh new accounts were opened in retail-focused schemes such as equity, hybrid, and solution-oriented, with the remaining categories adding 15 lakh new accounts.

Behind the phenomenal growth in the mutual fund industry is the Bharat that Ambani likes to bet on. The number of new investor folios coming from smaller cities has been rising on a monthly basis. The mutual fund industry has added 2.3 crore investors folios from April to August 2024 of which more than 50% are from smaller cities, according to a study by Zerodha.

However, smaller cities still account for only 19% of the overall assets under management (AUM) of the mutual fund industry. This indicates that while more individuals from these regions are participating in investments, the average investment size may still be lower compared to those from larger urban centres. Therein lies the huge potential growth on which Ambani’s business can feed on.

When Blackrock’s tech combines with Jio’s market reach

The partnership plans to leverage BlackRock’s deep expertise in investment and risk management along with the technology capability and deep market expertise of Jio Financial services to drive the digital delivery of products. Rachel Lord, Head of International for BlackRock, said the JV eyes India’s “evolution from a nation of savers to a nation of investors”.

Jio Financial Services is already shaping up the fintech sector by tapping into India’s large potential for retail lending and payment services. These businesses tie in with Reliance’s existing digital and retail businesses, thus providing it a vast scope of growth. Similarly, the mutual fund business will tie in with Jio Financial Services’ growing lending and payments business.

Ambani can rely on Reliance’s large physical retail network across India, easy access to consumers, its Jio telecom network, and a huge bank of data that maps consumers’ financial lives. Its already large pan-India digital footprint in telecom, retail and consumer finance will help bolster its mutual fund business.

Ambani’s big weapon besides his huge cash pile is the extensive data trails that his mega retail and telecom businesses generate. Jio Financial Services’ strategy seems to be to lend to consumers and merchants based on proprietary data analytics, and then use it to branch out to insurance, payments, digital broking and asset management.

While the consumer data generated by Ambani’s retail and telecom business will come handy for the asset management JV, BlackRock brings to Ambani its famed asset management technology called Aladdin, which is short for Asset, Liability, and Debt and Derivative Investment Network. The Aladdin platform combines sophisticated risk analytics with comprehensive portfolio management, trading and operations tools on a single platform to power informed decision-making, effective risk management, efficient trading and operational scale.

Ambani and Aladdin — the deep pockets, market experience and execution power of Reliance plus the expertise in investment and risk management and sharp technology of BlackRock — can bite deeply into India’s growing mutual fund market.

‘Distribution will be the key’

New entrants in India’s asset management industry including Jio-Blackrock JV and Zerodha Broking Ltd. can only disrupt distribution of mutual funds, not pricing or product offerings, according to Edelweiss Asset Management.

“Distribution is where they can make an impact,” Radhika Gupta, chief executive officer and managing director of Edelweiss AM, had said at a Bloomberg event last year. “They could bring 50 million more users into the industry.”

Gupta argues new competitors in an industry that now numbers some 40 firms will not be able to challenge incumbents in terms of charging less or innovating in product offerings. “Passive funds are at razor thin margins, you can’t charge below zero because of regulations,” said Gupta.

“In a country like India we really need to focus on expanding the market,” said Gupta. “You are at a 16% mutual fund-to-GDP ratio when the world average is 80%. We should expand the pie and not focus on how to divide it.”

Clearly, the huge scope in the expansion of the mutual fund pie is a big attraction for Ambani who likes to play at a huge scale.