According to a media report, the scam-ridden Franklin Templeton Mutual Fund (FTMF) has placed its hands on its holster in a preemptive move to avoid punishment for its actions in India. It has indirectly threated the Indian government that if the market regulator dares to levy ‘unfairly large penalties’ – either by fine or disgorgement, Franklin Templeton may pull out of India. Franklin Templeton’s threat is just too laughable at multiple levels:
Insignificant Role: As usual, data clarifies everything. Franklin Templeton has an insignificant role to play in the Indian mutual fund industry, as data for the past 15 years makes clear. In December 2006, Franklin Templeton was the fifth largest fund house in India, with a 10.8% share of assets under management and figured in the list of top-10 fund houses. State Bank of India (SBI) was seventh with a 7.1% share. There was no Kotak, HDFC or Axis in the list. Franklin Templeton’s assets under management (AUMs) at Rs21,576 crore were 50% more than Rs14,123 crore of SBI.
Some 15 years later, Franklin Templeton is barely hanging on in the top-10 list. Its share among the top-10 has dwindled to just 3.9%. Its AUM has grown around four times during this period. SBI, which was two-third Franklin Templeton’s size in 2006, now has an AUM of Rs4 lakh crore, which is just under five times that of Franklin Templeton!
HDFC, which was nowhere in the top-10, now has more than four times Franklin Templeton’s assets. Axis, Kotak Mahindra and IDFC have come out of nowhere and pushed Franklin Templeton down the top-10 list. The fact is, Franklin Templeton is slowly becoming an also-ran in the Indian mutual fund industry. It is not critical to India in any sense.
Foreign Card: Franklin Templeton (FT) claims that it is one of the few foreign asset managers not to cease operations in India. Somebody should throw these five facts at FT.
One, foreign asset managers add absolutely no value to India. It is not that FT’s equity schemes have been among the best-performing funds year after year. Its debt schemes have been managed with mala fide intentions and had disastrous consequences for its investors.
Two, other foreign asset managers quit India because they (wrongly) thought that their business model was unviable after the Securities and Exchange Board of India (SEBI) squeezed out obscene commissions that mutual funds were dishing out from investors’ money to distributors and agents. FT stayed on for business reasons, not as favour to India.
Three, who says we need US financial services in India at all? We should stay miles away from the toxic business models of US financial services firms, where customer-interest comes last, as we have learnt from the global financial crash of 2008.
Four, asset managers do not bring in capital; they take out capital in the form of hefty dividends paid out by their extremely profitable asset management companies; it is a low-capital business and besides, India is rolling in foreign exchange today.
Five, each year, FT makes a multiple of the meager Rs230-odd crore it has brought into India so far. India has nothing to lose if FT goes away. It is FT’s loss.
Ready Buyers: I don’t know how Franklin Templeton’s friends and buddies at the Association of Mutual Funds of India (AMFI) are reacting to Franklin Templeton’s quit India threat, but I would be surprised if they are not secretly hoping that Franklin Templeton, indeed, decides to take a walk. A quick takeover of its assets will put to rest, Franklin Templeton’s very American but ludicrous argument that its pullout will lead to job losses.
In the early-1990s Jack Welch said India, Mexico and China are the three biggest opportunities. For 30 years, foreign businessmen have been desperate to enter India and make money out of the vast middle-class population. And now, FT, which has no edge in technology or processes, and brings no special value that 20 other asset managers cannot add, is threatening to pull out of India. I am completely flummoxed by FT’s attempt to blackmail India when it just does not have a single bargaining chip!
FT deserves exemplary punishment. Acting as a 'lender' to a defaulter group like ADAG, Essel and Future, instead of acting safely on behalf of investors; buying illiquid and junk bonds and putting them in short-term debt schemes; pulling out over Rs2,000 crore through entities related to top management just three months before winding up is nothing but insider trading and, together, show criminal mishandling of investors’ funds and breach of fiduciary duty. It is time to call Franklin Templeton’s bluff.