Radhakrishnan C: So, Sundeep, give us a bit of a context, pre-COVID, during the pandemic, and I can’t say we are past COVID, how has your leadership 0style changed? Tell us a little bit about how you’ve managed your team and how these last two years have been, especially for your organization?
Sundeep Sikka: It’s been very interesting for me, these last two years. Firstly, it was the COVID-19 pandemic and secondly, this also coincides with the biggest change for the company with new promoters. So, both have happened at the same time.
And I think, over the last 18 years, it’s been a very interesting journey, starting with taking it to the top, then some headwinds for whatever reason. Then, going from being a pure Indian company to a Japanese company was like chalk and cheese, you know, because of the difference in how they operate.
And during this period, and again, the only thing that has been constant has been the management team. And the other thing has been, I think the environment has been changing and how do you keep responding to that? That’s exactly the point that you’re on.
I think, so broadly from our perspective, I think October 2018 was the time when the name of the company got changed and Nippon took majority stake. I think one of the most interesting things was, this is the first time ever a company like Nippon Life which is equivalent of an LIC of Japan has invested outside Japan without having a JV partner.
Here is a company, I think they’ve been working closely with the management team, I think their commitment to India, because you have 9 million investors, you have 1,000 employees. And when one of the shareholders goes through some challenges, I think they pump in about almost $2 billion to — I mean, which is one of the largest FDA investments in India.
But that also tells you two things. I think A, this business is a very people-oriented business. I this is the same set of people who’ve been driving it, while a lot of foreign asset management companies have gone through different challenges. But I think one of the key learning, I think, for Nippon and for me also while I was a part of the AMFI Chairman and various things, and I think it’s ultimately all local execution.
And A, local execution and I think you need to be driving into future, you cannot be looking into the rear-view mirror. So, a lot of things that work in your home country and in past, they may not be relevant in future. So, I think fast forward, I think from 2003 to ’16, and I’m coming to COVID, I’m going — taking little time trying to set the context, I think that’s the time we acquired Goldman/Benchmark.
And why I’m trying to get that context, it’s all about, not about changing with the changes, it is trying to pre-empt the change. So, I think that’s the time when in India, it was all about active fund management and everybody used to talk about the star fund managers; the concept, the halo effect behind that. I think for us, I think, what we clearly saw that I think I’ve always believed this concept of — this is different, this time it is different, we are different doesn’t work.
So, I think saying that ETFs are good, are happening, you know big numbers are happening across the globe, but the level at it happened in India was wrong. I think my philosophy was at that point of time, if something is happening in U.S., it’s happening across the world, someday it will happen in India; number one. Number two, I’ve always believed, like I said, it’s changing with time is important, but changing ahead of time is even more important.
So, I think for us, I think the critical thing was at that point of time, how do we ensure that I think before somebody else, whether it is a WisdomTree, iShares somebody comes, why should we not capitalise this opportunity to build up this business? So that I think for us, it does not matter, the investor decides what he wants. I think but we should offer everything. So, I think that was the philosophy. Similarly, I think what we think also as we started a journey, we were one of the few ones which did not have a bank as a sponsor.
And at that point of time, it was a big handicap when new, because when the, all the big ones are sponsored by a bank, I think we started building up our business. We said I think, yes banks are not there, I think we’ll build up the retail and the IFA network. So effectively I think, again, while at that time it was necessary to have bank as a sponsor or a partner, we did not have. We created our weakness into a strength.
Similarly, coming to the COVID times, now coming — moving fast forward, effectively, I think when COVID hit, let me — let’s be — between us, no one of us can say this is that one change we could see, nobody knew why. I even I did not. Nobody knew the word COVID till December of 2019. We were hearing it’s happening in — I think we used to see it in TV in China, something has happened. Some flu kind of a thing, whether it’s Sars or something, but nobody had a clue.
But, again, I think from our perspective, I still remember 17th of March 2020, I think we took the decision to close our offices. And for us, I think one of the most important things was, again, it’s not about, change will keep happening around you, and I didn’t everything has a context you know I think change is going to happen, you can’t do much. I think one shot you had your branch network was closed, your offices were closed, everything was closed. And here we were on a path to recovery — path to recovery, after the shareholding change.
But I think one good thing has been, we’ve been investing a lot in technology over the last five years. I think — and my philosophy of trying to disrupt yourself before somebody disrupts you, somehow has been helpful, and whether it was active versus passive. And also same was the strategy, while we were the largest in retail distribution way back about five years back, we hired a team from SnapDeal. And we said at that time, I think let’s try to hire a team which does not know anything about mutual funds, because I think they should come from the — with the mind-set that what does the investor want?
And today, as we stand, 52% of the transactions that we do are all digital. And while our offices were totally closed, from a business point of view, in the last five years, last year was the best year for us. Qualitative growth comes from how many retail investors you’re getting. Last year, I think out of the 20 lakh new investors, which came in the industry, 9 lakh came to us. And this was after the brand change and lot of things. And a very high percentage came through are digital.
So I think from my point of view, I think coming to your question directly on the management style. I think for me, I think one thing, I’m a leader, I think, and this is something I’m going to do. I believe data is very important, rather data and intuition both put together. I think you can — I mean, you get it right. Only data many times cannot predict that.
I think I strongly believe as leaders, I think you need to be backing people. I think for me, my management style is that I think I like to back people, I’m not someone — I think it’s — and why I say this, I think the fact that I was at the age of 36, I was the youngest CEO in India, somebody backed me. Somebody took a chance on me. At the age of 38, I was the youngest AMFI Chairman, so somebody backed me. I mean, I did not have the experience or the track record. So, I believed — I’ve continued believing in that philosophy, you need to back people, you need to give them the platform, and the environment to let them flourish.
So here also, I think for us, during this period, one of the biggest things has been and I think, I believe that I think whether it’d be working from home or in office, it does not matter. I think we interact. I miss and I’m someone, a person who likes physically meeting a lot of people. I think for me that — I missed that part, patting someone on the back, because these things don’t happen on the video calls.
But one thing is there. The fact that I think, as a leader, I believed everybody is good, everybody is right, everybody is giving his best till that time he does something wrong. So, I think that’s why I think from my perspective, this period, it’s no change. You know why I said, I think even when I was sitting in office, I used to never go and check every day what you’re doing, how you’re doing. I think I’m more of a result oriented and trusting people. That has been my philosophy.
So, I will, I mean never try to go deep into it. For me, the end result done in the right manner. I think that shortcut is one thing is I’m strongly against, so — and the process as long as the basic framework is there, I think the freedom within the framework is my management style? So that continues.
And so, whether you’re working from home or whether you’re working — sitting in the same cabin, it does not matter? Sorry, a long answer RC for a short question. But I thought you know that would set the context.
Radhakrishnan C: We are actually looking at picking your brains, getting your thought leadership. So, we wanted it to be unique. We didn’t want it to you know the straight question, what is this? What is that? So, we wanted to pick your brains. To that — adding to that, you have spent a long time, 18 years in this industry, and I’m sure you have an envious record of knowing the consumer, right? Multi-generational consumers would have come through. Give us a perspective of what you experienced from an investor point of view and what kind of an investor are you seeing now? So, a journey of sorts probably will help us.
Sundeep Sikka: RC, I think let me — It’s a very interesting, I mean this is the investor behavior that keeps changing, the needs keep changing. But I think one thing is unique that the thing gets — as a CEO or as a product manufacturer, let me put it this way, I have to always keep thinking, will I be investing in it? Will my father be investing in it? If it’s good for me, it’s for my family, it’s good for the investor. So that is number one. I think if you do that smell check, it’s very easy. It’s not very difficult, because you cannot go and check-up what 10 billion investors in a country like India — in a country like India, people will always tend to save for generations.
So, what happens — and why I’m trying to touch this is, you’ll rarely see any parent who will be saying, I want to go and spend all my money and I don’t want to save for my next generation or future. I mean, no matter things we say will change, but it doesn’t happen. And why I say that is the biggest — that’s the biggest thing that you have to value it, people who are saving for the next generation, they want basically — they’re not looking for superlative returns, they’re not looking for the crypto — or the bitcoins and all this stuff.
What they want is very simple — simple products, which they can understand, which are easy to explain. And the biggest thing is, I think they have the visibility that I think they are liquid, it will be available when they need it. So, for me, I think — so, one thing that has been universal across and especially for a common man has been, they’re never looking for something extraordinary. I think the way we try to position it; this fund has given 87% return; this fund has given this.
So, I think I still remember, there was once an advertisement, a full-page advertisement given by an asset management company which said 100% our funds have beaten the benchmark. And the next day, my father called up from Chandigarh and asked me this question, Sundeep, what is benchmark? And I explained him, the benchmark means every fund is supposed to have this. And his logic was, I have two options, either to keep money in the bank, deposit, bank, or mutual fund. So, if you were to ever say that market is down 10%, I am down 8%, you’ve beaten the benchmark; that is not what I want. For me benchmark is, FD would have given me 6%, it’s 6%-plus.
So, the human psyche, I think is a very different thing you have to understand. So that’s why I think to put it very simply, the key thing lies in this industry is to keep the products as simple as possible. And in financial sector, many times it is fashionable to complicate things to justify your existence. Everyone complicates simple things. So, I think it’s a very — the best thing is how do you keep it as simple as possible?
So, I think so many — there are many times for a lot of these — our own internally production communication, when we try to do within the company, we try to ask some of our team members, how will your 10-year child see this? Can it understand? How will a 15-year teenager see it? Because I think it’s very easy to talk of R2, Sharpe ratio, this ratio, which I mean, half the people after 20 years in industry don’t understand and you expect the common man to understand that.
So, I think, how to keep it simple is the key. But again, one thing I think, over the years I’ve seen is, people will always be looking for consistent returns, number one. People look for liquidity, people look for liquidity. And when I say liquidity, I’m not saying people will not invest for long time, but the comfort that I can withdraw the money, I think it is available when I need it. So, even the loads are not a constraint to that, but I can withdraw when I want that is critical. And there will be 5%, 10% of the people who will be always looking at exotic products, these flavours, but majority of the people I think they do not know this.
I mean there is an inherent demand for wealth creation. And for this is — for them, it is all about goal-based investing. They don’t realise it. But a common Indian will always say this, I’m saving this for my son’s education, for my daughter’s education. I mean the financial parlance, we use a goal-based planning, goal-based investment. But those guys are smart, they’re already doing it.
So, the key is, how do you keep it as simple, and believe me, to keeping it simple is the most difficult thing. So, I think it’s a — so I mean, I would say, the investor behaviour is getting — investors are getting more educated. As they’re getting more educated, they are becoming more tolerant to volatility, and the overall environment in the country and now mixing with the — and adding with the COVID part, I see savings will go up.
So, I think clearly, I think I’m sure you and me now will realise that I think maybe we do not need to buy new shirts and all because you hardly go out. You know I think — earlier we used to go out for holidays, all those holidays are gone. So, I think what do you do? I think ultimately this money is going to be coming to the — our bank accounts and human psyche is — human psyche is right now, let me save a little more. We are still away from a very Western concept that I do not know how long I’m going to live, but let me live, you know enjoy my life.
I mean, I don’t see how does it matter? So why should I save for my kid. After 18 years, he’s supposed to step out of his house. And you know go, you take your own — take your own loans and do it. Last week, I was reading a very interesting tweet from somebody in — again in U.S. someone said at age of 26 that I’m so happy all my loans, education loans have been cleared today.
Now look at this, interesting, a kid there is taking a loan to study. Here, I think how many kids — how many of us took loans to study, our parents were funding it? And even right now we do it. So why I say this is, we’ll continue saving because of the sociodynamics in India. And I think this is something which I think in India and China, I mean if you see, and why people see — many times we call Asset Management, IRR, various things. There is a very deep science behind it. You know you have to know the psychology of people, why are people investing? They’re not investing only for returns; they’re investing for a reason.
And if you understand that reason, then I think you’ll understand what is their behavior. So, they’re not looking at, you know, that last — this year mid cap is good, next year this one is good, these are wrong. I think they are investing without knowing it’s a goal-based planning. And — so it’s very simple. It’s not as difficult but consistent — consistency, no risk and no volatility are the key.
Radhakrishnan C: That’s very interesting insight into an Indian consumer. Sure. And, yeah, as you rightly said, consumerism is not there in India as well as it is in the U.S.
Sundeep Sikka: Well, I’ll just give you an interesting example. Again, let me go back — way back in 2010, we started SIPs of Rs 100. Now, it’s again, now why we — when we started, was it viable because of the transaction cost and all? Answer is no. But it’s again, psychology, it’s — there is a sachet strategy. So, what happens is, you want people to start. And once they start, they start invest0ing and they’d keep topping it up. So that’s why I said this is — this business, especially the mutual fund business in India is, you can — while we can call it as a financial services, I would really classify it as — it’s a financial services FMCG company.
So, I think it’s — there — it has to be good product. There — you have to understand the need of the investors, you have to reach out and so — and ultimately, it’s about execution. If it was so simple that I think it was only returning and I always take this example ever since the advent — private sector banks have come to India, so let’s go back you know, when I think it’s mid — early ’90s, ICICI and others came.
SBI bank has always given 1% or 2% return lower than all private sector banks. If returns mattered are the only thing the entire deposit should have gone there, but it does not happen. So, there is something more. So, the secret sauce is not more, it’s brand, product, execution, relationship and psychology. So, it’s a mix of multiple things.
Radhakrishnan C: Excellent, excellent. So yes, I know 2% — I think 2% to 3% is the total population in India that invests in financial instrument like mutual funds.
Sundeep Sikka: 2 crore 30 lakh people in India investing in mutual fund.
Radhakrishnan C: Oh, so a precise number you have.
Sundeep Sikka: Precise number
Radhakrishnan C: Correct. Excellent. What do you think stops people from moving away from real estate and gold?
Sundeep Sikka: So, I think that change is happening RC. If you were to look at it, what happening is, when the interest rates are high, so what happens people like to invest in hard assets, whether it was real estate, whether it was gold, but that trend has started changing.
I think, again, I will not like to go — I mean for a minute let’s keep the numbers and the data out. But if you were to do a smell check, you were to go out, go to small cities and towns, mutual fund is not an alien word what it was 15 years back. So today I think I’m sure I think if you were to do a dipstick around you. So my — six months back, my driver told me “Sir aaj maine apne SIP start kar le.”
And for me that was a very high you know I would never have pushed him to do it. But he himself saying, “Aaj SIP start kar le” that’s something you know, I mean it is going down. And again, like I said, wealth creation is an inherent need, many time it is not felt. And I think we have to understand one thing, I think in India, today, we are roughly about $2,500 per capita income. What will happen is, as we go from $2,500 to $4,000, $5,000, you know, you’ll see people spending a little bit on lifestyle. Because I think we’ve become as a deprived country, people want to — somebody who own a two-wheeler will like a car, all these things.
But immediately after going for the basic minimum, you’ll see people — because we don’t offer social security system unlike you know, I mean U.S. or the western world. And as we go from $2,000 $10,000, all this money will come for savings, because I think — because of the reasons that I mentioned earli0er. So now what is happening is, you don’t have a social security system, your lifestyle has gone up a little. Now you want to give a better lifestyle to your children. So what do you do?
Now I think effectively, you’re going to be investing more. And the real estate story and the gold story is over now. So I think I don’t — for me, I think I will never like to invest in real estate, I think I believe it is such a nightmare. The — managing real estate, I think other than what you have, but for investment, it’s a nightmare, leasing it out doing that I mean, and then liquidity today a factor. I mean, it’s not easy.
So I think clearly the trend has changed. Had it even during this COVID period, when everything was in a lockdown, technically with branches, but even that time, you saw the industry adding new investors for us, I shared with you, we added about nine lakh new investors and this — then this could be for us, I think the number is higher, because there were a lot of investors who are sitting on the side-lines during the earlier — the last time who wanted to come but due to whatever those crises and all did not come. The moment name changed and everything’s stabilised, things are — those investors came back. So, but I think — so it’s effectively I think it’s going to be it’s — we’re just waiting for it to — just that update to take place, and everything is in order right now.
And the biggest thing is what I see, I think I’ve been — there’s another — many times you have to do a very different spell check, it’s not to do with this AUM and the numbers, you know. I was doing this analysis you know; I think every time market whenever it fell more than 1% how many calls do, we get in the call centre? And why? That tells you how much people are panicking. So, if earlier it used to be, 1% the market falls, people will call “what is the NAV” “Kya ho gaya” “ye ho gaya” Because NAV comes at 8 o’clock, people call up at 8 o’clock, their panic spreads, and now it’s normal.
So, again, many times and this is also linking it to the management style also, many times it’s not just the data. I think there are softer parts around it. I think you have to keep evaluating, I think which gives you a bigger perspective. So I think I’m very somehow bullish, very excited. I think I feel I think the time for the Indian SIP payment industry has come. This 2.3 crore investors, if you were to see, I will not be — you know for me, the way I see it is, I think time is not far away where 25% of the Indian households will be investing in mutual funds.
So, if you were to look at today we are talking of, without Jan-Dhan and others, we are about 26, 27, 30 crore bank accounts. So, I think if you were to look at, from our perspective, if you see every household having four families and it is not every one is going to go. So I think moving from 2.3 crore to 10 crore I think it might happen in the next five to seven years.
And again let’s go back to the numbers and run them again, every year I think so in India right now there are 20 crore two wheelers on the road and I keep giving different analogies to the whole thing. So I don’t understand why anybody who’s driving a two wheeler and typically two wheelers get replaced every five to six years, the person who’s buying insurance maybe as per law but why that person, if he is paying EMI will not invest in SIP?
So I think it’s a question of, it’s just a question of awareness, you know awareness around it. And these things are changing much faster. If it was not COVID I think we would be at a very different level and — but again, I don’t see the growth story as derailed. I think those stories are only getting stronger day by day.
Radhakrishnan C: That’s really insightful, especially the part where you say every time the Sensex falls, the number of calls you used to get earlier was lesser now. So that shows that Indian investor is maturing.
Sundeep Sikka: So it’s — again, things keep changing. So what happens is, when you are new, you’ve invested for the first time. And the first time you see market tanking — we all know market has fallen 500 points. There used to be panic. Now on the lightest side, even the business papers don’t have this top story 10,000 crore market cap wealth eroded in a day. Now, that also doesn’t come, you see. See because this now became a part and parcel everyone is maturing.
So earlier, you used to see in the yellow papers, the morning headline was 11,000 crores of wealth — investors lose 11,000 crores, as if it was in anybody’s pocket, it was nobody’s pocket, you know, it was just a market bucket, but I think every — investor or everybody’s getting matured now.
Radhakrishnan C: Right. To that end, maturing investor. I think all these years, it’s all been active management, right funds. Of late, we’re hearing a lot about index investing, ETFs. I think you were pioneers in introducing ETF and indexing. So a lot of investors I know are moving away to index as an option. What are your thoughts? What are you seeing in the market? Is this tectonic shift or it’s the maturity that is driving it and new people will come in and continue using your current offers [Phonetic]?
I think the way I see it is — let me like, again, go back to when we acquired Benchmark, what was the thought process? Because that thought process continues now also, because today has become more fashionable. And the good thing is out of every five articles, so I was checking nowadays, which come in the yellow papers, at least one is about active more passive for ETF. So which is a big shift in what is happening. But again, let me go back five years back, I think our thought process was, I mean, we need to offer what the investor wants, we need to offer what is right for the investor.
ETFs are not, you know, I mean, they do not have the fees that an active fund has. But I think our approach is a little — has been a little different. I think as long as we offer what is good for the investor, it’s going to be good for all the stakeholders. So — and I think I still remember going on record when after the acquisition of Goldman Sachs, that the large cap funds will be first challenged by ETFs.
And again, our philosophy still remains the same. Our philosophy is, firstly, we are not here to decide what is right for the investor. Investors are mature. They are mature or they are getting matured because of the knowledge information available, electronic media, and also because of advisors. Now, if somebody wants to move to ETF, I mean it’s our duty to offer it and we cannot think that it is not very good for our P&L.
So, now coming fast forward, the way things are happening at this point of time is, you have with the highest number of Demat accounts getting opened along with awareness increasing, we have seen ETFs becoming a little more you know, popular. But along with that, also we are seeing the maturing of lot of HNI investors, who now decide to take tactical calls based through these ETFs.
So let me give you this, today we have a Nifty — we have about 20 ETFs. But now, they will be times, let’s say we have a banking ETF, it can go from — unlike a normal fund where it is very stable, it can go from 1,000 crore to 10,000 crores and come down. So, people want to take a view. That’s what I think we are here as an asset manager, we have to provide that view to people. That is number one.
Secondly, I think, I mean gold ETF and also we have market leadership in four different ETFs. Number one is a nifty, two is a gold, three is banking, and the fourth is liquid. And so the approach is very simple for us. I think we — in this, our approaches continue offering products, let the investor decide.
So let me give you around — extend this from ETF to passive and then from passive, I’ll move to international. So now there’s been, I mean, I think we were one of the — again, one of the innovators in launching a passive Flexi cap. So what do you mean by that? I think there is, again, this aura of this fund manager can do this, this managed fund manager can do this and all I think we said, for a minute, forget everything else, I think let’s try to create an index, do an average of what these guys do and just invest in ETF.
Now, I think today now there is an attraction and the approach has been to — on active, there are people who want active, there are people who want a low-cost product we’ll offer that. Similarly, I think extending this, to what people want, along with the international products, which are there, which are the regular U.S. and all and I’m not going to be talking about it, our thought was there are enough number of people who have views.
Now I think so, what we are doing is so — like ETF, on international, we are trying to offer unique opportunities to investors. So let’s take India is only fund to invest — to take advantage are Japan, only one to take advantage of Hang Seng, which is China, Hong Kong and China and now Taiwan. So I think our approach is going to be and there are going to be different set of investors.
Now coming back to the starting of your question. I see this as a pyramid. So the base of the pyramid is going to be guys who are going to invest 500 rupees SIPs and all. Their approach is all goal based and is very different approach. And the top of the pyramid, and then use our top 2%. They know what they want. They want to — I mean, gold is — has — is $99 announced today. I want to take a view positive or negative. The Nifty has crossed 15,000. I want to go short, I want to do this; whatever you want to do.
So these people have views. So, we are trying to create a portfolio and a business by offering everything, not deciding what should be pushed, because this is our view. And I think from a long-term point of view, I think it again boils down to the story; we’re no one to decide what is his risk appetite, what is right for him. We are only here to offer, and I think we continue offering that.
Radhakrishnan C: Excellent. Just a question on the international front. We are seeing other funds coming out with — U.S.-centric funds, but you’ve been always unique in that you have an Asia-focused fund. Is that a choice, and thanks to Nippon having good research and all that backup you have or are you looking at offering U.S. or Europe?
Sundeep Sikka: We have U.S., I did not talk about it.
Radhakrishnan C: Oh, okay.
Sundeep Sikka: I chose not to talk. I think I’m talking about differentiated strategies. So again, I think that’s what I think I’m trying to highlight now. So then let’s look at this Taiwan. I’ll give you an example. It’s so interesting, if you look at any investor which is investing in emerging markets in Asia; so China, India, and after that investments are in Taiwan, the third largest. Now what is the logic that there’s no access given to that to an Indian investor.
Now, similarly, I think we launched the first IT ETF. Now, there is — I mean, there’s so much euphoria about IT, I mean, but there was no IT ETF. So now, again, Hang Seng, it is a very interesting — there is no product in India which can give a rupee exposure to some of the largest companies in China. We are not here to decide whether you should invest or not.
But now if you want an exposure to Ping An, if you want exposure to Tencent, I mean, that is — there’s advantage in that. And that’s why I use the word — I think this classification that we have done, I think, from our perspective, I would like to — when we try to work out the strategy of the company, we do not try to define it basis, what is the, in the financial parlance, active versus passive geography this. We try to define it basis the consumer.
Now, Rs 2,000 — a guy who’s going to be investing Rs 2,000 a month, his need is very different from somebody who’s investing Rs 50 lakh per month and our approach is basically basis of that. So I think, for us, investor comes in the centre, different investors will have different things.
And that’s exactly — so I think, for us, I mean, let me give you the other extreme. The approach — the marketing approach, the marketing material that we use in Gujarat could be different for what we use in Kerala, could be different for what we use in the North-eastern states. Within Gujarat, what we use in Gandhinagar compared to Rajkot could be different.
So I think the biggest thing is, I think, my learning has been that I think to be successful, I think, you cannot see investor as a data point. I think every investor is unique. And you have to understand what he wants.
So I think from my point of view, the way I — that’s why I’m purposely — I’m trying to touch too many points together, but I’m sure you’ll be able to get the gist of what I’m trying to say. You need to keep the consumer in the centre and work what he — look at what he wants. I mean, now the INR2,000 guy wants a simple SIP. He does not understand. You’re talking to him — I have — my view on IT is this, this is this. All he needs is INR2,000 lagana hain mujhe, I want to make INR50 lakh over 25 years, that’s it. He has given to you — trusting you, you are expert.
Now, there is the other guy going to the other extreme. When I talked about Hang Seng or Taiwan, he knows what he wants. He knows, basically, I want to go and do this. So Mr. Nippon, can you give me that access? That’s the only thing he wants. I cannot tell him, go. And I’m not here to advise him, please invest in Japan or China. So I think so the approach is the investor-centric, keeping it centre and do not try to paint every consumer with the same brush. Everyone has different way of thinking, different needs. The core remains the same. But I think the way he sees risks, the way he sees products and the way he sees our industry is different.
Radhakrishnan C: Nippon’s hyper local marketing focus, they know what the customer wants — hyper local. I think that’s going to be our lead for your story.
Sundeep Sikka: Believe me, RC, I mean, I’ll touch here on this that this is — actually if you were to look at it, over the years, lot of people asked me this question, Sundeep, I think, what is the key to build up a successful asset management company? I can complicate it as much as I want. But I think I’ll just say one simple thing. It is as — it’s the easiest business.
It’s the easiest business, all you need to do is keep your eyes and ears open and understand what the investor wants and respect the fact every investor is different. And every investor is different. Don’t try to go this thing, and that’s why, I mean, you cannot say, I’m in asset management for 300 years [Phonetic]; I mean, from Boston, I can tell you what works in India. It doesn’t work like that. It doesn’t work like that. From Bombay, we can’t tell — I mean, so it’s a — so — and I will tell you this example, so, I mean, there’s so much difference in investor in Bombay versus [Indecipherable], so I mean, I’ll give you, I come from north, I come from Punjab, Chandigarh.
Today, someone — my own father, he will like to visit a branch, talk, pampering is something that helps him. In Bombay, you cut and dry and you say I want my business done and I move on. I mean, there’s a difference in approach. So I mean, so that’s the way you design your branches, that’s the way you — I mean, you have your staff, that’s the way you train them.
I mean, so it’s — I’m just trying a very simple approach. You cannot — in Bombay, you will just say, give the application and thank you very much and you move on. Before taking the application you’ve to talk 10 things, how are you, how are your sons, how’s this and everything. Without that it doesn’t work. So I’m just trying to give you just another example.
Radhakrishnan C: That’s the street view versus a proper [Phonetic] short view. Right?
Sundeep Sikka: So it’s like saying, on a lighter side, when a lot of people sitting in BKC, if it rains in BKC, they say it’s a very good monsoon in India. So I think the reality is very different.
Radhakrishnan C: I think I’ve got a lead question based on that. Tell us a little bit about your investment approach to stocks or what goes behind your research process. How do you find the next Nifty 50 stocks?
Sundeep Sikka: I think it’s a very good question. And I think very apt, especially because I think as we are going through this change. So I think over the years, I think we’ve been changing. And then I’ll tell you where we stand today and how we want to be seen. 10 years back, I think, or 15 years back, I think, if you’d asked me this question, I would have told you, we are bottom up stock pickers and opportunity investors. Wherever we see an opportunity we’ll invest. That was the view 15 years back.
But as we talk today, I think my answer to this will be, our approach is very, very — It’s an institutionalized approach, number one. Number two, by design, as a company, we do not have any face. And I’m again repeating this, by design, we do not have any face. It’s a faceless organization. What I mean by that is we don’t want to have the halo effect of a fund manager. I think there is a process and the process has to be followed.
And for me, I’ve been very, very interested in, I think, understanding how companies in Japan — so let’s take Nippon Life, a 130-year old company, and 130 years, so much has changed. How the processes become so important part of the running the company that it does not matter who’s there or who’s not. I’m not trying to say people are not important, but I think from a bigger point of view, what I’m trying to say, processes become important.
So from our point of view, right now, we are a mix of two things. First, the basic philosophy is it’s a very highly institutionalized approach with the risk management coming to the core, having very strong framework and freedom within the framework. So and I’ll try to define it what I mean.
So, we are trying to implement a lot of factor analysis, so what you can invest, where you can invest, but there’s a complete freedom. So, I mean, example, I mean, we will never like to take a scenario where assuming Financial Services is 25% of index and we say we will be zero.
No, we cannot be zero, because, today, the type of investors we are looking at, I think, for them volatility, you can go right once, you can go right twice, but you could also go wrong 10 times. I think how do you have basically risk adjusted return? So, I mean, that is exactly is also getting reflected in the fact over the last three years our tracking error is just coming down.
So by design we are working on, if one line strong bottom up stock picking, but after that it is with a strong — a very strong overlap of processes, institutionalized approach and then freedom within the framework.
So I think what we believe is this is both an art and science but it is not purely — that I think — because this is a fiduciary money that we are managing, there cannot be a fund manager bias beyond a certain point, that I don’t like this, so I will not invest in it. So it’s a very, very — so unlike some asset management companies in India, where I think it’s a very high personalized view, so I think — so we are trying to reduce the bias with a very strong framework, and trying to get the best of our insights. Complicated answer what I’ve given you, but I think it’s a — believe me, it will make you understand in times to come. It’s an approach so that does not matter who’s there. I think — but I think the basic stuff will always remain the same.
Radhakrishnan C: I think that’s an excellent straightforward answer because MF industry in India is basically a fund manager job only. I have — we got what you’re targeting. So we’ll highlight that, of course.
Sundeep Sikka: I think the way — and generally, I’ll tell you why I say this. Again, this is a very interesting thing. People — I think all of us were from capital markets, we see things very differently. This is again the same example I told of raining in BKC. But I think when you go to a small town, for him, it does not matter who’s managing. I think, is there any volatility or not? Is he achieving what he wants to achieve?
I think that’s where I think we confuse it. And I think we — all of us being very close to capital markets, try to look at the portfolios very differently, the people who manage it very differently. And again, I go back, and I’ve been so impressed when I — every time I’ve been talking to my colleagues in Japan. How is it that, I think, over 130 years, the basic philosophy remains the same, of the company. People — and 130 years, by law of nature, so many people are not there. I mean, but it remains the same. People keep changing in different roles, but it’s such an institutionalized approach.
So I think it’s — that’s again something, so we’re trying to — if I can use the word with this integration, we are trying to get Indian passion and Japanese perfection, if you were to get that word, I think it’s a — there is a very different passion that we have as Indians. And I mean, at least his team has. I think we want to go there. And there is a very — the perfection and the process orientation.
So I think I earlier talked about the change in shareholding, the one big change will be, like in any Indian company, many times we’ll be planning, let’s have this meeting tomorrow, this that. I can tell you, in my calendar at this point of time, there are meetings for 2024 also. So that’s the way it is planned.
So it’s a — it helps, and I see, if you get the right mix of localization and getting the process orientation, so that is something which helps. But again, I’m trying to match it with the –take it to your question, which you talked about management style and with COVID, but I’ll say by — without COVID Also, big style that is changing now is to build long term global organizations. I think, to have very strong processes and institutional approach is very critical. It has to be beyond individuals. And that is, I think, what we are trying to create. I think we are trying to create, while we talked a lot about only mutual fund, I think I’m — I think as a team, we are trying to create a global player out of India, which is not only the mutual fund, which is going to be private equity, AIF, real estate and a lot of the other things we’ve started doing.
But right now, today, we’re focusing more on mutual fund. But I think the approach will be, we do not want to be — we want to be a true blue asset management company. Mutual fund is going to be one part — important part of it. ETF, AIF, offshore money, venture fund. We launched Indo-Japan start-up fund, a start-up Fund, which was inaugurated by Prime Minister Modi and Prime Minister Abe-san there.
And that is about getting foreign — Japanese money into Indian start-ups. So like, these are a lot of things which are happening and I think you will see us play a very different and a very big role in the Indian, both listed and unlisted, space in times to come. And, this is just the starting of a new journey, which is going to be much beyond mutual funds.
Radhakrishnan C: Interesting. If you can share us a little bit more about — you said you want to become a true blue asset manager, AIFs, these are things that probably are new to India. What are you planning for India? If you can just briefly tell us and probably we can add that as highlights.
Sundeep Sikka: The way I see is in India somehow I think the moment you talk of AMC, it’s either — 90% people think it’s mutual fund, number one, or when you talk to somebody else, he’ll think it is AIF, because it’s all a bit fragmented. I think from our point of view, this comes from the genesis of, I think, what I talked earlier, you have to see every investor differently and the investor needs are different.
So today a Rs 5,000 guy has a very different — wants a mutual fund. Someone who graduates wants a ETF. There is somebody who wants whatever I talked about the mutual fund investment thesis that I talked about earlier. But there are investors who don’t want that at all. They want absolute conviction, high conviction products. They’re saying I’m willing to wait for three years and without return, but I’ll opt for that via AIF.
Then what we’re also trying to do is trying to leveraging Nippon Life’s network, trying to get a lot of offshore money into India. So, let me give you examples and names of where all what has happened so that it gives you an idea. So first, I think we have launched funds in Japan. So the Japanese — giving the Japanese investors an access to India. And then after that, I think we have given — so that is on the both bond and the listed space. After that, working closely with Bangkok Bank, which is the largest bank of Thailand. Nippon Life has a 26% stake in life insurance company there. So I think they are already selling Bhartia Fund. In Sanskrit as it’s called Bhartia Fund. It’s sold by 500 branches of Bangkok Bank. Recently you have read about Taiwan, Cathay is the largest financial asset management company in the financial group in Taiwan, and Nippon Life has a special relationship with them. So, again, I think we will be — the idea here is two way; to give Indian investors an access to Taiwan and giving Taiwanese investors an access to India.
Similarly, we launched our first India ETF in — first Indian ETF in Australia. Now you will also see Nippon Life is also one of the largest — second largest shareholders in DWS in Europe, and I think we are evaluating, again, though, too early for me to say, evaluating what we can do. And Nippon again in U.S. also is a 26% shareholder in TCW and Putnam, I think we’re evaluating.
So I think the idea is, like I said, it’s going to be a very different play, a domestic mutual fund, AIF, getting offshore money into India, then working — moving ahead. Also, this talk was more on the listed and the bonds, then moving ahead to the unlisted space. We launched our, I told you, Indo-Japanese technology fund, we’ve launched two real estate funds in Japan. And I think, again, this whole thing continues. So again, it’s a very, I mean, interesting thing for us.
I think if you were to ask me, mentally, as a company, we are right now running three different strategies; regain what we lost in the last two, three years; reinvent ourselves in the present environment; and recreate for future. It’s regain, reinvent, and recreate. I think we’re trying to run three different strategies. And I think — and from our perspective, everything – if I think then coming to the point of true blue asset management company, we see an opportunity everywhere. So we have different teams, we are creating. So I think maybe there’s no Indian asset management company which has done this because everyone has very vertical approach or if they have it also could be part of the group company somewhere else.
Radhakrishnan C: You sort of read my mind because my next question was, are you planning to be the BlackRock of India.
Sundeep Sikka: So, again, many times, RC, what I’ve realized is, it does — you need to know your destination, but it’s all building, many times you have to keep changing the strategy. Maybe if you will talk two years later, I might tell you what we discussed last time, I realized, out of the five things that I told you, two things, I mean, did not make sense. Things will get dropped at midway. So, I think it’s, again, being very, very flexible and nimble is very critical. And I think one thing that has also worked for the company and for me, I think, along with passion, I think we’ve been very, very closely looking at the opportunities all around us and reacting very fast and also this philosophy of failing fast. There will be few things, I think we all get excited, we’re human beings, not that I think we should never believe that I know everything and our bias comes into it. There are times we get into something believing this will be good. But I think the moment you realize, it’s not what you thought of, I think the idea is to move on, pocket and move on.
I think what I’ve realized is many times leaders, especially, get married to their own thought, and even when they realize it also it’s not going the right way, but it’s very difficult to admit it was a wrong decision. So for me, I think I’m very clear on that. I think this has to be a practical approach. Not that — and not believing whatever we have thought, what I have thought is right. There will be things we will be wrong, admit it and move on.
Radhakrishnan C: Excellent. I think no interview would have actually got all these personal insights because all the interviews that I’ve read, it’s all about how your company is doing. We wanted it to be unique. So I’m glad we were able to pick your brain. Closing thoughts, I know we are — we have to stop in sharp five minutes. One, we would love to know your favourite books. If, during this lockdown, we are all in a lockdown, and if we were to tell, okay, please, Sundeep, recommend three books that has been your all-time favourite, what those three books would be.
Sundeep Sikka: So I’m going to show it to you. It’s next to me. I’m reading this book.
Radhakrishnan C: GRIT.
Sundeep Sikka: GRIT. This is one of my favorite.
Radhakrishnan C: Nice, nice.
Sundeep Sikka: So it’s — and it — again, it’s a very interesting book, I think if you get a chance, it’s good for all of us as professional, as parents, as everyone, that too much importance is given to intelligence. We think the IQ level is this. So — but ultimately, it’s about the passion and determination to make it big. That is more critical. So it is not that every Olympic gold medalist was born a star. I think the only thing he did, he did not give up, I think. So I think that is — this book is all about and I had actually tweeted about this book, that this is a must actually for — because many times we think it’s for professionals — for all parents and teachers, because who give so much importance to intelligence and marks. This book tells you that I think — so Angela, she says, my father used to always say that you can’t get good marks, so you’re not smart. And ultimately, she — I mean, she’s where she is. So I’ve just thought, so this is one of my book.
But other than that, I think I have — I remain myself in more than books. I keep myself updated, I read a lot. But more than books, I think surfing. My interests are varied, especially human psychology, I think I try to read a lot, because I think that helps you when you’re with your family, your team, you’re running business, and also the consumer, because it’s all about the human psychology. So that is true. And other than that, I try to surf and read a lot about food. I’m a hardcore North Indian. I never miss, so I keep this thing.
Radhakrishnan C: Punjab da puttar.
Sundeep Sikka: Punjab da puttar. So this is something — food is my passion. So I never miss that. So there was a time I used to say this, I think, to, I think, any new restaurant which used to open, in the first 15 days, I used to go.
Sundeep Sikka: …under 40, 40 under 40. I think you had taken and I said that time also. Now with lockdown it doesn’t happen. But still — so — but I think I’m a hardcore foodie. I think that’s something that continues.
Sundeep Sikka: I have not actually got to cooking. That’s something I should say. That’s something I’ve not been able to.
Sundeep Sikka: So, but I enjoy, still I continue enjoying. My food is one thing I don’t — no compromise.
Sundeep Sikka: And I’d say also, I think, again, for me, one, again, it’s one of the biggest stress busters for me is physical exercise. I exercise a lot. So that’s something I’m about, in lockdown, if you were to ask me. So it’s been, average, 100 minutes per day, throughout the lockdown, I’ve been able to do it. So that’s something. So that’s…
RC: Just absolutely the last question. You mentioned about human psychology. Two questions; one, what keeps you awake at night? And two, what gives you the Monday motivation?
Sundeep Sikka: I take the motivation, I’m a positive person and so I think let me start. Actually, I’ll tell you it’s very interesting, by nature, I’m a very positive person. So I mean, which is not related to your question, I’ve yet to meet anybody who can make me negative. So I can meet people who talk depressing everything. So — but when I sleep at night, I think there’s something wrong with him. I think why should I take that into stress, because I think being positive is the biggest thing. If you’re not positive, I think — and imagine, I mean, the challenge that I think, for me, I mean, as when the company was going through the biggest crisis, you have 1000 employees, 1000 household families, it’s very easy for you to get negative, and with the pressure. But I think you think, I mean, what’s your responsibility, and so that’s where you have to remain positive, so that is number one.
Number two, I think the Monday motivation, like I said is — it remains, I think, that feeling of a management trainee, there’s something new happening. There’s something new happening and I need to know that. So I — still today, I think, I believe the best — and why I give this management trainee thing, I still believe some of the best ideas come from youngsters. I think it’s very important. So for me, I think I surround myself with a lot of positive people and youngsters. I think some of the best ideas come from them.
Coming to what keeps me awake, I think from — I can say someone — I’m not someone who’s been able to get that right balance of where people say you come home and switch off, button off. My work-life balance has not been — I think it’s — now I’ve been very, very, too much into it. But I think I still say sleepless nights were more during the period, I think, when the company was going through this transition, because for me, that had become a mission to save, I mean, it was about 1000 households and their families. I think that was the biggest thing. At this point of time, I sleep comfortably and after a good meal and a glass of wine. I think it sits well. So there’s no problem in sleeping.