Morgan Stanley (MS) is set to vend its asset management wing in India to a collaborated unit of India's HDFC Asset Management Company Ltd. and Britain's Standard Life. As per the deal, HDFC will acquire Morgan Stanley’s eight mutual funds with assets under management worth $529 million. The total amount to be received by Morgan Stanley is not yet disclosed.
Intraday price movement of Morgan Stanley reflected an initial dip following announcement of the news. However, the stock’s value gathered momentum and closed at $31.11 per share, up marginally from the prior-day figure of $30.93. Though nothing conclusive can be deduced, market sentiment appears to be in the deal’s favor.
The transaction will benefit HDFC as it further expands its existing mutual fund client base. This deal will help HDFC solidify its position as the top asset management company in India.
Notably, in May, Morgan Stanley announced plans to divest its private wealth management unit in India to Standard Chartered plc. These divestures are part of the company’s initiatives to dispose unprofitable and non-core business units to reduce expenses and focus more on core operations.
Profit-making avenues in India are scarce and there exist stiff competition for the same. Moreover, to thrive in the densely populated Indian subcontinent, it is essential for a foreign company to have a widespread network. However, Morgan Stanley lagged these requirements. Local asset managers with a better knowledge of the market have a wider spread and therefore a competitive edge.
Moreover, the stringent regulatory requirements as laid down by the Reserve Bank of India – the central bank of the country – has made the business environment unfavorable for foreign banks like Morgan Stanley.
Other foreign banks, which partly or wholly divested their Indian operations, include UBS AG (UBS), HSBC Holdings plc (HSBC), Citigroup, Inc. (C) and The Goldman Sachs Group, Inc.
Currently, Morgan Stanley holds a Zacks Rank #3 (Hold).