Morgan Stanley Exits India Mutual Fund Business, Sells Oil Merchandising Unit

In its latest move to step back from the volatile Indian economy, Morgan Stanley (NYSE:MS) inked a deal to sell its mutual funds in the country last week. ^[1] HDFC Asset Management – India’s largest mutual fund provider – will acquire the eight mutual funds Morgan Stanley has in the country, with around ₹32.9 billion ($530 million) in assets under management. The Indian mutual fund industry has seen considerable consolidation over the last couple of years with many foreign players exiting the once lucrative market over growth concerns. The deal follows Morgan Stanley’s decision to sell its private wealth business in India to Standard Chartered in July (see Morgan Stanley Exits India’s Private Wealth Market In Retrenchment), which was itself a part of the bank’s larger goal of focusing its wealth management efforts entirely in the U.S.

The bank also announced its decision to sell its global oil merchandising unit to Rosneft late last week, keeping with its plan to get rid of non-core businesses. ^[2]

The two recently announced exits do not impact our $31 price estimate for Morgan Stanley’s stock, which is around the current market price.

See our full analysis of Morgan Stanley

As can be seen from the chart above, Morgan Stanley’s asset management business contributes roughly 10% of its total share value. The business caters to retail as well as institutional clients with a full range of mutual fund and alternative investment products, and has grown steadily over the years – something that is evident from the chart below, which shows the total assets under management for the bank. Morgan Stanley reported $360 billion in assets under management at the end of Q3 2013.

With just over half a billion in assets, the eight mutual funds managed by Morgan Stanley in India form a very small part of the business. The decision to exit the Indian mutual fund industry is not really a surprise, given that the already slim margins in the extremely fragmented market were impacted negatively over recent years by high volatility in the country’s equity markets. High redemption rates in mutual funds was another factor that prompted other players like Fidelity and Daiwa to sell off their India mutual funds businesses.

As you can confirm by making changes to the chart below, a reduction in total assets under management by $530 million resulting from this sale has a negligible impact on our estimate for Morgan Stanley’s share price.

1. Morgan Stanley to sell India mutual funds assets to HDFC, Reuters, 23 Dec 2013 [↩]
2. Morgan Stanley to Sell Global Oil Merchanting Business to Rosneft, Morgan Stanley Press Releases, Dec 20 2013 [↩]