Sundaram Asset Management Company Ltd. : Environment Analysis

12/28/2014

Sundaram Asset Management Company Ltd. : Environment AnalysisStrategic Management

Submitted by012EPGP JAGTAP DESHAMUKH PRAVIN ARUN013EPGP JAYESH JAGTAP014EPGP MANISH

Overview of Mutual Fund Industry in India

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money collected & invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. Mutual Fund is the most suitable investment for the common person as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy.

The Indian Mutual fund industry has witnessed considerable growth since its inception in 1963. The assets under management (AUM) have surged to Rs 4,173 bn in Mar-09 from just Rs 250 mn in Mar-65. In a span of 10 years (from 1999 to 2009), the industry has registered a CAGR of 22.3%, albeit encompassing some shortfalls in AUM due to business cycles.

The Indian Mutual fund industry that started with traditional products like equity fund, debt fund and balanced fund has significantly expanded its product portfolio. Today, the industry has introduced an array of products. The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players

Overview of Sundaram Asset Management Company

Sundaram Asset Management Companyis the investment manager to Sundaram Mutual Fund. Founded 1996, it is one of the largest and well established fund houses in the country. Sundaram Mutual is a fully owned subsidiary of one of India's oldest NBFCs - Sundaram Finance Limited.Fund basket consists of 12 well researched and class leading equity funds and 4 products in the fixed income category.

Key Strengths: Good Brand image across larger geography Robust and transparent investment process Basket of clearly defined products Emphasis on research Customer centric processes

The average Assets under Management of Sundaram MutualFund schemes for the year 2013-14 was Rs. 15,248.25 Crs. compared to Rs. 13,573.76 Cr. for 2012-13, an increase of12.33%. The closing AUM of Sundaram Mutual Fund schemes was Rs. 15,193.17 Cr. as at March 31, 2014 compared to Rs. 12,873.28 Cr. as at March 31, 2013, representing a growthof 18.02 %.Sundaram Gilt Fund, Sundaram Ultra Short Term Fund andSundaram Select Debt Short Term Asset Plan were given 5-starratings by Value Research.

Company has a total of 44 branches as at the year-end ofwhich 31 branches were located outside the top 15 cities as defined by SEBI.

PEST AnalysisPolitical Analysis In India, SEBI (Mutual Fund) Regulations, 1996 regulates the structure of mutual funds. And SEBI chief is appointed by Government of India in consultation with ministry of Finance. This makes rules and regulation in mutual funds industry subjected to politicians in the power and along with change in government there is danger of reversal of rules of regulations. Mutual funds in India are constituted in the form of a Public Trust created under The Indian Trusts Act, 1882. All the AMCs are subsidiaries of trust. In order to launch an AMC, trust needs to be formed under which the AMC operates. Every decision is approved or disapproves by trust.

Stability of GovernmentThe stability of the government and peoples faith into it acts as an important factor. The stablegovernment encourages people to invest into such type of financial instruments. Return in equity markets depends on political stability in the country. Returns of AMC are directly linked with equity returns.

The impact of foreign investment.The foreign investment that comes into the country either in the form of FDI or FII affects positively to equity markets and currency markets. This improves the return in equity markets creating positive environment for investment in AMCs. Investment in any country is largely dependent on political stability of the country. In the current scenario, due to political stability offered by current BJP led Indian government, huge foreign investment has been made in Indian market and it have affected positively to currency and equity market leading to increase in subscription of AMCs Forced renegotiation of contractsDue to political intervention, liberty of AMCs to work in many areas is restricted. Frequent changes in rules and regulations by government would also lead to deterioration of confidence of public in general. FDI Policy.Government of India has rules and legal regulations which dictates ownership of MFs, these rule and regulations affects number of new players entering the market. SEBI and RBI PoliciesDifferent policy decision by SEBI and RBI directly or indirectly affect the mutual fund industry. For example recently SEBI increase in the minimum net-worth requirement of the AMCs from Rs. 10 cr. to Rs.50 cr. This would limit the number of new entrant into this industry. SEBI has introduced tax benefits allowed on mutual fund schemes (for example investment made in Equity Linked Saving Scheme (ELSS) is qualified for tax deductions under section 80C of the Income Tax Act) also have helped mutual funds to evolve as the preferred form of investment among the salaried income earners.Economic Analysis India's populationIndia's population is young, with 54% under the age of 25 and 80% under 45 and the percentage of working population is rising rapidly.This demographic condition offers huge possibility for growth. Also young population is more aware of financial investment opportunities which makes them more likely to invest in AMCs.

Indian Stock Market:If we see the position of BSE Sensex as compared to other major indexes in the world then we find that BSE has been the best performer. In the last year BSE and NSE are top performing markets in the world which makes investment more lucrative. India growth Potential:India is potential 'Services Capital' of the World-With services becoming increasingly tradable, India is well placed in terms of costs and skill setsand over the past 13 years. This would lead to increase in foreign money into India and it would increase money flow into AMC.

Social Analysis Globalization:Due to globalization, societies are expanding leading to increase in reach of AMCs. Improvement in Standard of living of population:As peoples standard of living increases, they have more money to spend. This would lead to increase in availability of funds for AMCs Saving rate of Indian population:Saving rate in India is one of the highest in the world. This gives huge cash reserves in the hands of Indian population which could be invested in AMC. To fund future needs, to meet contingencies, to maintain same standard of living after retirement: As peoples standard of leaving increases, people tend to invest in different financial instruments to create funds for contingencies and to maintain same standard of leaving after retirement.Technological Analysis Accessibility:Due to high penetration of technology accessibility of these investment opportunity is increasing Cost:Due to technological improvement over the years, cost of investing has decreased and it is encouraging normal population to increase more into AMCs. Previously cost of investment was one of the deterrent to invest into the market but technological improvements have reduced this cost substantially. Security:Due to technological improvements investment in AMCs has become more secure. Previously many people were reluctant to invest into AMC due to security reasons but with the advent of technology people feel more secure about their investment. Integration with global financial market.Technological improvement has led to integration of Indian financial market with Indian market, leading to improved opportunist for growth. The outburst of technology has made it possible for the foreign companies to look for Indian market and returns associated with it. Accessibility to rules and legal frameworkIncrease in accessibility to rules and regulation has improved investment related knowledge of Indian population.

PEST analysis highlights

Porters Five Forces Analysis

Rivalry amongst existing firmsGovernment limits competitionGovernment policies and regulations can dictate the level of competition within the industry. When they limit competition, this is a positive for Mutual fund industry in India. This has a significant impact.Large industry size Large no. of players in industry and a very small investor base infuses a great competitiveness among all players to steal market share from each other. Large no. of industry players is a positive for Mutual fund industry in India whereas the low penetration and small investor base a curse for industry and its players.Fast industry growth rateWhen industries are growing revenue quickly, they are less likely to compete, because the total industry size is also growing. The only way to grow in slow growth industries is to steal market-share from competitors. Fast industry growth positively affects Mutual fund industry in India. Exit barriers are lowWhen exit barriers are low, weak firms are more likely to leave the market, which will increase the profits for the remaining firms. Low exit barriers are a positive for Mutual fund industry in India.Threat of SubstitutesInferior Substitute products An inferior product means a customer is less likely to switch from Mutual fund industry in India to another product or service. Since the product is market based ad there is no guarantee of returns FDs are most sought after product.Large number of substitutesA large number of substitutes mean that customers can easily find other products or services that fulfil their needs. Large no. substitutes are a negative for Mutual fund industry in India. Substantial product differentiationWhen products and services are very different, customers are less likely to find comparable product or services that meet their needs. This is a positive for Mutual fund industry in India.High cost of switching to substitutesLimited number of substitutes means that customers cannot easily switch to other products or services of similar price and still receive the same benefits. High switching costs positively affect Mutual fund industry in India.Threat of New CompetitorsHigh capital requirementsHigh capital requirements mean a company must spend a lot of money in order to compete in the market. High capital requirements positively affect Mutual fund industry in India. Recently SEBI increase in the minimum net-worthrequirement of the AMCs from Rs. 10 cr. to Rs.50 cr. This limits number of new entrant into the market.High sunk costs limit competitionHigh sunk costs make it difficult for a competitor to enter a new market, because they have to commit money up front with no guarantee of returns in the end. High sunk costs positively affect Mutual fund industry in India.Strong distribution network required Weak distribution networks mean goods are more expensive to move around and some goods dont get to the end customer. The expense of building a strong distribution network positively affects Mutual fund industry in India. Advanced technologies are required Advanced technologies make it difficult for new competitors to enter the market because they have to develop those technologies before effectively competing. The requirement for advanced technologies positively affects Mutual fund industry in India.Industry requires economies of scaleEconomies of scale help producers to lower their cost by producing the next unit of output at lower costs. When new competitors enter the market, they will have a higher cost of production, because they have smaller economies of scale. Economies of scale positively affect Mutual fund industry in India.Geographic factors limit competition If existing competitors have the best geographical locations, new competitors will have a competitive disadvantage. Limiting geographic factors positively affect Mutual fund industry in India.

Bargaining Power of SuppliersLarge number of substitute inputsHigh levels of competition among suppliers acts to reduce prices to producers. This is a positive for Mutual fund industry in India.High competition among suppliersA low concentration of suppliers means there are many suppliers with limited bargaining power. Low concentration of suppliers positively affects Mutual fund industry in India.Low concentration of suppliers The more diverse distribution channels become the less bargaining power a single distributor will have. This positively affects Mutual fund industry in IndiaDiverse distribution channelWhen inputs are not a big component of costs, suppliers of those inputs have less bargaining power. Low cost inputs positively affect Mutual fund industry in IndiaInputs have little impact on costs When inputs are not a big component of costs, suppliers of those inputs have less bargaining power. Low cost inputs positively affect Mutual fund industry in IndiaVolume is critical to suppliersWhen suppliers are reliant on high volumes, they have less bargaining power, because a producer can threaten to cut volumes and hurt the suppliers profits. This can positively affect Mutual fund industry in India.Low cost of switching suppliersThe easier it is to switch suppliers, the less bargaining power they have. Low supplier switching costs positively affect Mutual fund industry in India.Bargaining Power of CustomersBuyers require special customizationWhen customers require special customizations, they are less likely to switch to producers who have difficulty meeting their demands. Buyer customization positively affects Mutual fund industry in IndiaLow buyer price sensitivityWhen buyers are less sensitive to prices, prices can increase and buyers will still buy the product. Inelastic demand positively affects Mutual fund industry in IndiaLow dependency on distributorsWhen produces have low dependence, distributors have less bargaining power. Low dependency positively affects Mutual fund industry in IndiaProduct is important to customerWhen customers cherish particular products they end up paying more for that one product. This positively affects Mutual fund industry in India.Large number of customersWhen there are large numbers of customers, no one customer tends to have bargaining leverage. Limited bargaining leverage helps Mutual fund industry in IndiaLimited buyer choice When customers have limited choices they end up paying more for the choices that are available. Limited buyer choices are a positive for Mutual fund industry in India.

IIM Indore EPGP 2014-20151