Either the financial services industry is full of people who announce business plans for time pass or I have brilliant 20/20 vision.
When Big Bazaar group entered the financial services business, there was a chuckle. However they hired a top notch very (and frightfully) expensive executive….rumored to be paid a few million dollars (US!)
then you had Bharti entering the financial services business – there was a chuckle – wondering what is the value add….
When a big life insurance company had big offices all of us wondered – ‘is it worthwhile?’ – well most of these big offices are now being shut down….
Simple. You are a fund and wondering how you will survive the market forces with the abolishing of the entry load. However you keep hiring people and opening offices – somebody told you long back that funds will get valued on size of AUM, not how well they perform.
Suddenly there is a crunch. There is pressure from Private Equity players – they no longer say ‘perform or perish’…they say ‘perform or acquire’. So a few brokerage firms will get acquired.
However among mutual funds there are no small players at all. All of them have the backing of a big group, and so can continue to be irrational in their decision making than you can see (markets can be irrational far longer than you can be solvent!). No I do not think Escorts is bothered about the fact that Escorts Mutual fund is not making money. Nor is Sahara bothered about its mutual fund business. The bigger ones are making some money at least.
In the life and general insurance business the squeezing of the margins will force some liquidation – because it requires huge pumping of money at regular intervals. So Bharti, and Biyani may be the first to exit, but there will be others too.
Banks are of course very very profitable…..and RBI will ensure that they are profitable. – that is a different post, right?
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