Giant Online Discount Brokerages
Will Dominate Stockbroking:
Saurabh Mukherjea
Several large tracker funds will emerge in the future as actively
managed large-cap funds will not be able to beat market returns
Saurabh Mukherjea, CEO of Ambit Capital
C
hange creates both
challenges and
opportunities. “If you
can’t deal with change, it
is a challenge, if you can deal with
change, it is a massive opportunity,”
was the gist of the address by
Saurabh Mukherjea, Chief
Executive Officer of Ambit Capital,
at Outlook Money Conclave 2018.
According to the latest Reserve
Bank of India’s Household Finance
Committee Report, 95 per cent of
India’s wealth is in physical assets,
only 5 per cent in financial assets.
So the opportunity for the financial
industry as a whole is huge.
Mukherjea made two important
observations on the future of the
mutual fund industry: First, it will
increasingly go direct to investor.
Second, there will be a significant
growth of tracker (index) funds.
There has already been a huge
rise of direct mutual funds. “As
of December 2017, 41 per cent
of the industry AUM was already
direct. Direct plans are almost
half as expensive as conventional
mutual funds and over 20-30 years,
your retirement corpus is radically
higher,” said Mukherjea. While the
high-net-worth clients will go direct,
In the future
Giant online discount brokerages will
dominate stockbroking
Massive tracker funds will dominate
the fund management industry
Boutique fund houses will emerge
with strong stock picking abilities and
differentiated investment styles
The number of intermediaries will
reduce and the number of genuine
wealth advisors will increase
Transparent, low-cost, high-quality
investment and asset allocation
strategies will become the norm
the local IFA will be left catering
to the SME owner or the salaried
employee.
Another notable thing that has
happened is that in the last six-seven
years, large-cap equity mutual funds
have generated no alpha. They were
broadly generating the same returns
as the markets. “Whatever alpha that
was generated historically is going
to be squeezed brutally in the years
to come. Of the 100-odd large-cap
equity MFs, data shows that only
three gave you outperformance over
the nine year period between 2007-
16,” said Mukerjea. This will mean
that tracker funds will be the future,
a development that has already
happened in the United States, as
investors are unlikely to pay high
fund management charges for
returns that do not beat the market.
This will however not be the case
with small-cap funds.
The impact of digital will also
be huge. By the end of FY16, the
Internet plus the discount model
accounted for 21 per cent of the
market starting from scratch only a
few years ago. By the end of FY18, it
is likely to be a third of the market.
Anything that is digital gains from
economies of scale and they can
keep cutting the unit price as they
gain scale. Just as old style IFAs will
not be able to compete other than
for high end exclusive clientele,
brokerages that do not go digital will
also cease to exist.
[email protected]
www.outlookmoney.com April 2018 Outlook Money
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