Morgan Stanley's loss is HDFC's gain - An analysis of the MF deal

Morgan Stanley AMC's takeover by HDFC AMC reminds me of the famous quote by T.Rowe Price: "Change is the investor's only certainty." Here's a fund house which came to India way back in 1994 which collected for their maiden NFO (it was sold as an IPO) Morgan Stanley Growth Fund more money in that year than what Sri Lankan Government budget counted. Of course, it took several years of bad decision-making, lazy fund management and investor apathy before Morgan Stanley resurrected it's dented image in Mutual Funds by re-launching several new schemes and new fund management that's almost the talk of the town in atleast fixed-income investing. In all these years since 1994, Morgan Stanley's assets have touched a little short of Rs.3300 crores which includes it's legacy fund - the infamous Morgan Stanley Growth Fund which has a size of Rs.1300 crores apprx. Just when the fortunes of the fund house are about to look up, HDFC AMC has picked it up for a whopping Rs.170 crores almost paying half of whatever PAT it earned this year about Rs.328 crore - which is the highest in the industry. The nearest competitor to HDFC - Reliance AMC is sitting on a profit of around Rs.194 crores. Considering that, one wonders why HDFC bid in a hurry to stay at the top of the race. It could have easily pulled in some of the star fund managers like Ritesh Jain to garner a handsome lead in debt assets. 

What is curious is why Morgan Stanley exited the business after getting just 5 per cent for its equity assets. This year, Morgan Stanley is the second MNC after Fidelity to exit the fund management business and it could once again point to the disruptions in the business models thrown up by regulatory winds of change. The Indian Mutual Fund industry despite having a total fund base of  Rs.8.9 trillion or more (that's about Rs.9 lakh crores or roughly 9 per cent of India's GDP) is becoming a joke of sorts with no sense of direction. Of the 44 AMCs, less than 17 are making profits and most of them are to the tune of  Rs.50 crores or less and if you count the profit of all the AMCs this year including the likes of HDFC, Reliance, UTI and so on, it roughly comes to a total profit of Rs.750 crores. That is 0.08 per cent of the total AUM - no wonder, the industry is sinking despite projecting a brave face. Scratch the surface of the AUM and you will find most of the funds are in fixed-income or mostly liquid and ultra-short-term. If you start counting the treasury surpluses of the top corporations in Mumbai, Kolkata, Bengaluru, Delhi and Chennai, you can comfortably knock off almost 35 per cent of the total AUM - which may have already moved under the direct code - the new manna from heaven that SEBI has offered investors without realising how under-penetrated the MF industry is despite the industry struggling to re-invent itself well with the advent of new technologies and platforms. The MF Industry is offering the best of choices to the investors to minimise costs but struggling to attract the right kind of investors to meet the long-term financial planning goals. 

Look at Templeton Bluechip Fund which completed 20 years early this month. Since its inception in 1994, the fund has given a return of 53 times on its original investment but there are only 9000 folios which are staying invested since the fund was launched - of which more than 50 per cent are supposed to be inactive! Take HDFC Children's Gift Fund - it returned over 22 per cent compounded return since inception and could have been the perfect vehicle for planning for kid's education, it's corpus is still at Rs.320 crores. Take another plan aimed at Pension  - Templeton India Pension Builder Plan. Even though it returned a handsome 18 per cent plus return, not many investors nor advisors even know it exists in the fact sheet. On the contrary, hefty commissions and mighty incentives offered on Insurance Plans have made Unit-linked Insurance Plans much more lucrative to sell than the plans as mentioned above - despite having significantly lower expense ratios. More people are still sold insurance products but few come forward to buy mutual funds despite a stark need for sound investing in a country which boasts of 22 per cent plus savings rates. 

While the regulator has been blamed enough for the ills of the industry, one cannot blame them forever if the industry is not self-introspecting. I still fail to understand why the Industry's apex body is a self-regulator where a group of biggies decide what the rest of the industry should follow. I still do not understand whether there is uniformity in the alignment  of interests - of the twin goals of growth and profitability of the AUMs across the board. I still do not understand whether the mandatory spending requirement of minimum percentage on Investor Education is going towards the intended purpose. I still do not know whether funds are investing in talent in research, sales and product innovation in the requisite manner. I do not know whether the ecosystem of advisor-distributor-manufacturer is developing harmoniously and whether there's something amiss there. I do not know whether new entrants to MF Industry feel welcomed or threatened by the oligopolistic nature. I do not know whether Morgan Stanley will be the last to exit the MF Industry in India - at a time when other key markets like China and Brazil are seeing expansion in MF activity. 

As far as HDFC is concerned, it's a revival of the "Economic Moat" concept as it rakes in the Morgan Stanley assets to increase it's monopoly on the leading market share. It always had sticky asset managers on the equity front even if they are perennially optimistic about the market irrespective of the cycle performance. Now this will add to its dominant position by being able to hike its investment in technology (hiking its custody fees), reward its long-standing managers with higher carry (they will now get another scheme which will carry assets upwards of Rs.1000 crores) and increase its economies of scale in debt funds. Being an unequal merger (HDFC paid less to Morgan Stanley than what L&T Finance paid Fidelity on a comparable metric of % on equity assets), the benefits are more for HDFC than MS. And that's how realising early in Asset Management helps that some assets are more unequal than others. As for Morgan Stanley, and the guys like Fidelity, exit could have been less painful at a different time. Which again proves a costly rule in Private Equity - it is easier to sell a business than run it. 

Views are personal.

"Uyyaala Jampaala" Movie Review (Telugu)

Over 70 per cent of our population lives in rural India. In AP, we are more agrarian than many states. Proof:  take the massive human migration that happens around Sankranti season in AP: the cities look more deserted and the villages  mill with millions of city-dwellers binging on village talk, cock fights and family get-to-gethers. Isn't it ironical that Tollywood makes less than 10 per cent or even 5 per cent of the films based on village themes? For many years now, Telugu films are getting made only for the multiplexes. Last year, we made 256 films -  58 more films than in 2011 (and  35 films more than Hindi film industry) and yet  fewer than 13 films based on rural India. This year, SVSC came in Sankranti and then there was a vacuum until one or two small films came and went, hardly noticed. Until now, when "Uyyaala Jampaala" came. 

Produced by Ram Mohan Paruvu, UJ is refreshing, entertaining and evocative. Ram Mohan is an IIM grad and a sensible producer who is building a catalogue of memorable films irrespective of when they are released, even if in between star releases. "Ashta Chamma" and "Golconda    High School" were two of his acclaimed films which proved  families will flock if you offer a message with  a youthful flavor. "Uyyaala Jampaala", his latest breaks the mould and it is not a novel story. It has a classic three-act story of a boy and a girl born into relation, grow up fighting each other and eventually unite in happy ending after late realisation and triggers from a forced arranged marriage. What can possibly be ingenuine in this plot? The treatment, the straight narration with a momentary flashback, a mint-fresh starcast thats neither theatrical nor super-articulate giving them an unmatched natural advantage, motifs from rural backdrop that underpin the roots of our culture - simple friendships, grand-parent wisdom, village naivette, unalloyed emotions, sylvan scenery and bucholic charms. In less than two hours (I couldn't believe this included the interval), director Virinchi Varma takes us through a roller-coaster of emotions of what we go through on a daily basis with far greater impact than what some of the surreal madcap movies we see  with akimbo dances and adipose dialogues that only create noise pollution. 

Virinchi has used the dialect  closest to Bhimavaram-Kakinada belt in most of the characters including the hero who is at stellar ease with the slant. Avika Gour is the heroine who is well known to audiences as the cute girl in "Baalika Vadhu" dubbed in Telugu as "Chinnari Pelli Kooturu". She  is sharp and bright in the film even if she lacks the glamor rampant in commercial films. Raj Tarun is the hero who looks an underdog but walks away with most of the honours despite having an unusual and almost unremarkable personality. Its a credit to the director that if you infuse the right characterisation with the right lines, it doesn't require brute stardom to burn the screen with memories, you can create a stir with basic sensibilities and sincere emoting. Thats exactly what Raj Tarun achieved in UJ. Among others who created impact were Anita Choudhary and Ravi Varma, both playing powerful characters on opposite sides. They show that talent in serials is in huge supply that is untapped. Music by Sunny is impressive. Last heard in "Swaami Ra Ra", Sunny scored some soulful melodies with distinct instrumentation and vocal rhythms. Again hard to believe that a movie this short has just four songs. Virinchi uses the classic director's lag - the first song always starts late and the last song always finishes early - that's the only way to avoid the audiences getting restive. Seeing the film in good old Shanti theatre, I noticed that neither the smokers nor the leakers left their seats during even one song. The title song transports us to a magical world of romantic dreams minus the dirty drills and the foreign frills that today's movies mandate.

Cinematography by Vishwa has its highs and  lows - it captures the essence of village life, at times, it dullens the frames. Still, it delivers. Dialogues are apt and raise many laughs. After a long time, entertainment and comedy is enmeshed with the storyline - most of the funny one-liners come from the hero and his gang. There is subtle and refined humor lurking at every dialogue if you catch the lingo and the local idioms. In a film of this variety where the story draws you intensely with its rustic charm, the only weaknesses are those you didn't notice and they may be impertinent to the overall feel of the film. What is cliched is the use of stereotypes typical of patriarchial society that defines villages - too many symbols of even children playing wife and husband games etc. are bad examples in a society thats outgrowing those qualms. This is in bad taste and must be shunned in films even if it evokes sick laughter. There are also more examples of how the heroine feels disempowered till the end on asserting her love or her independence as a grown-up, such stereotyping does more harm than good to the society because in cinema, the medium is the message and we must be careful in projecting the right messages. It's the same stereotype that Srikant Addala used in SVSC - where a girl grows up in household with the sole objective of marrying the eldest son. Here, Avika is culturally weak and traditional and closer to her regressive picturisation in the mega TV serial that propelled her to stardom. Despite these blemishes, the director and the producer pull off a surprise family-clean entertainer that will rake it in well till the big releases. It may even be a giant-killer if the audiences bless it. It certainly has a repeat viewing quotient because of arresting simplicity despite state-of-the-art references to skype and facebook etc. We need more of such films to resonate with what majority Indians live like. Good returns for co-producers D Suresh and Nagarjuna Akkineni for partaking in the sweat equity of Ram Mohan Paruvu. 

My rating: 4 out of 5 for a clean fare that lingers on with freshness.

How Tollywood fared in 2013 - An analysis by Sriram Karri

Your intrepid film critic has been quoted in the New York Times for views on how Tollywood is faring. Written by Sriram Karri. Of course, much has been said but only few quotes taken. Good analysis and interesting views on the shifts happening in the Telugu film industry.

Please read the article from the link below:

http://india.blogs.nytimes.com/

"Dhoom-3" Movie Review (Hindi)

If I tell you that the first shot of the film is a young boy helping his father resusciate the Great Indian Circus facing liquidation from a banker who has invoked the equivalent of Sarfesi Act and that young boy grows up to restore the pride of his father in making the Great Indian Circus a must-go in Chicago, does it tell you where it all leads up? The young boy becomes Aamir Khan who targets the bank - Western Bank of Chicago - the bank that made his father Jackie Shroff bow out with his life and commits heist whenever he wants. Thats the bone of "Dhoom-3" for you - a kind of Dr Jekyll and Hyde in Aamir Khan - who just exchanged one kind of stardom with another for this role of double shades, in more ways than one, which you will realise as you watch. 

Shot entirely in Chicago, the film revolves around Aamir Khan from the start to finish in all the 172 minutes of sometimes breezy and sometimes agonising frames of stylish stunts on BMW motor bikes that vroom ahead with 360 degree turns, over-turns and even amphibian dexterity like the cars in James Bond films. The franchisee stamina is tested to a point of some fatigue which doesn't find much relief in most characters including the so-called-hero Abhishek Bachchan and his flunkie Uday Chopra. Infact, Abhishek should try to relinquish his second-most well-known job as a hapless cop (after baby-sitting) for someone else to add verve and vigor. He looks singularly boring and needs to move on as much as the predictable Uday Chopra who could have been booked under Nirbhaya Act routinely for the number of women he leches on as a cop in this film.

Katrina Kaif is the romantic centrepiece of this testerone-filled story who performs stunning acrobatics in her role as a circus troupe artist. She sustains the lightest and the emotional scenes of the film well with Aamir Khan. Aamir Khan is the deserving reason to watch the film but most of the time you feel you are being taken for a ride because of the ludicrous plot with gaping holes in the script and the storyline. This is where I like to ask Vijay Prakash Acharya what he had in mind when he narrated the story to YRF films or Aamir Saheb. When a banker comes knocking on the doors of the Great Indian Circus because of payment default, what is wrong with it? Is asking for your loan back an act of cruelty that makes you turn so spiteful that you hit on my bank anytime and run with the heist? What were Abhishek and Uday - cops in India doing in Chicago? Why were they called when there is abundant local talent? With so many heists happening on just one bank, why are so many people clueless about the modus operandi and the man behind the act when he leaves so many clues? Is the 27 minute flashback at the outset required to justify the villainy of Aamir Khan? If so, will all villains get so much footage to explain their motives ? Why does every heist of Aamir Khan end with dollar notes falling  on the street people of Chicago like autumn leaves? Why doesn't he just take that money and run? Or, why doesn't it add up to the per capita income of Chicago? 

When you walk out of the film, you realise this is a film where everyone is reverential about Aamir Khan playing a villain and one must project him in as much good light as possible because the character he is playing can otherwise do no wrong under normal circumstances. This is an opportunity lost for Aamir Khan, methinks because thats not how the legends of Hollywood think or down south, some of the hero villains like NTR, Rajkumar, Rajnikanth did? If you are playing a villain, make even the best villains feel sorry by the menace in your character, don't pussy-foot around and don't think of your star image. While Aamir excels in his role, he could have outshined more than just giving a sheepish smile and a cunning eye to outwit police. The film could have also been shorter sans some repetitive stunts, most of whom are clearly graphics. The warning at the outset could have been aptly worded: Please do not try these stunts at home as they are unreal and designed by graphics. In the second half, there is an extended chase between Aamir and Abhishek where both of them hurl weapons and counter-weapons at each other on speeding bikes. It was hilarious and reminds one of the Astras and counter-astras used in mythological films on chariots. If every successive villain in the next editon of "Dhoom" thinks like Aamir Khan in giving a justification to character, the franchise will become an innocent version of Amul Dairy. Music by Pritham lacks melody and background score by somebody else heightens the drama. Unless you are a vroom Dhoom fan and do not enjoy speeds which optimise the fuel, this film lacks in substance and variety but delivers in style, speed and thrills and yes, the surprise that Aamir Khan throws at you at the beginning, the interval and the end. I would still rate it 2.5 out of 5 for the effort and Aamir.