birla sunlife asset management company ltd Management discussions

ECONOMIC OVERVIEW: FY 2022Rs 23

Global Economy: The inflation, rate, growth juggernaut

Reflecting on the global economy, 2022 was characterised by the accelerated rate hikes by central banks across the world to clamp down on multi-decade high inflation and resilient-albeit-slowing GDP growth. The world economy grew at a pace of 3.4% in 2022.

Among the major economies, the US recorded a growth rate of 2.1%, China grew at a below trend of 3%, and India is projected to grow at 7% (FY23). The past year has seen the most coordinated and accelerated pace of rate hikes in the last four decades as central banks were faced with persistent inflationary pressures as well as strong labour markets. Over the past quarter, most developed market central banks seem close to hitting a pause on rate changes going forward, with the important exception of Europe.

Banking stress emerged on both sides of the Atlantic, and central banks infused large amounts of liquidity while acting as the lender of last resort. Credit conditions are expected to tighten and add to the restrictive stance of monetary policy. China abandoned its Zero COVID policy abruptly at the end of 2022, resulting in a sharp services-led rebound in activity in Q1 2023.

Overall, growth stayed relatively resilient despite sharp rate hikes, banking stress and tighter financial conditions. Certain forward-looking indicators and survey-based measures are pointing towards an impending recession, but central banks are hopeful of slowing growth to a below-trend level to cool inflation without triggering a recession.

Indian economy: Resilient in the face of global headwinds

Indias real GDP growth in FY23 is estimated to be 7.0% y-o-y on a real basis, and 15.9% y-o-y on a nominal basis. On a cross-country basis, domestic growth has been the highest among major economies. While the pandemic took a toll on the economy in FY21 and FY22, its impact diminished in FY23, resulting in the normalisation of economic activity. While the headline growth is strong, it is partially due to the base effects of the COVID drag of the previous years. On a cumulative basis, the economy has grown by only 3.2% CAGR since FY20, suggesting that significant catch-up is still needed to fully recover from the pandemic-inflicted losses. However, despite the general slowdown across the world, India stands out with its positive growth impulses and strong outlook on its long-term prospects, substantiated further by the commentary from various global institutions.

The economys recovery was supported once again by private consumption growing by 7.35%, even as government consumption remained wear. Moreover, both gross fixed capital formation and exports witnessed healthy growth, and services exports are seeing a strong pick-up. However, imports growth was also very strong on the back of higher commodity prices that has a dampening impact on GDP. On a sectoral basis, growth in agriculture remained healthy, while industrial was dragged down by low growth in the manufacturing sector. The services sector posted strong growth as it recovered from the pandemic. The construction sector and housing demand also displayed healthy growth.

As seen around the world, inflation also remained elevated in India, averaging above the RBI tolerance band at 6.7%, driven both by high food inflation and sticky and high core inflation. Rising global commodity prices also contributed to inflation. RBI responded forcefully to elevated inflation with rapid monetary tightening, increasing the policy Repo rate by 250 bps and effective policy rate by 315 bps. The rapid pace of monetary tightening resulted in a broad-based increase in interest rates in the economy. However, bank credit growth remained strong in the year, up by 15.4%. This was driven by personal loans, service loans, and agricultural loans. However, bank credit to the industrial sector remained weak.

The Union Budget for FY24 was once again focused on capex-led revival, budgeting for an aggressive capex outlay of 33.7% y-o-y. The fiscal deficit target for FY24 was kept at an elevated 5.9% of GDP but is a decline from the 6.4% in FY23. The decline in fiscal deficit was achieved by a reduction in revenue expenditure owing to lower levels of subsidies and savings on Covid-related expenditures like enhanced free food provision for the underprivileged, vaccinations, and rural employment schemes.

Merchandise exports and imports growth moderated in the year, even as services exports posted strong growth. After a sharp rise in the year, the merchandise trade deficit trend saw a decline towards the end of the fiscal. However, the cumulative merchandise trade deficit stayed elevated, rising to $266 Billion from $191 Billion in FY22. There was a sharp rise in the current account deficit in the first half of the year, resulting in pressure in external accounts and depletion of forex reserves. However, the external account stabilised in the fourth quarter of the fiscal year with a reduction in global commodity prices.

MUTUAL FUND INDUSTRY OVERVIEW

In FY23, on account of volatile market conditions, the mutual fund industry witnessed muted growth with inflows across various equity schemes. Net equity sales of Rs 1.3 Lakh Crore was recorded in FY23 through new fund offerings and existing funds. Within the existing equity categories, sectoral/thematic, small cap, mid cap, large and mid cap and flexi cap funds saw the highest net inflows.

• The Industry Average Assets under Management (AAUM) for the quarter ended on 31st March 2023 reached Rs 40.49 Lakh Crore recording a growth of 6% over the same period last year. The corresponding AAUM for the quarter ended 31st March 2022 was Rs 38.36 Lakh Crore.

• Industry Equity AAUM stood at Rs 20.75 Lakh Crore for the quarter ended 31st March 2023, up by 11% from the same period last year. Corresponding Equity AAUM for the quarter ended 31st March 2022 was Rs 18.64 Lakh Crore.

• As on 31st March 2023, the total number of mutual fund investors stood at 14.76 Crore versus 13.12 Crore on 31st March 2022, an increase of 12% Y-o-Y.

• The retail investor surge is also reflected in higher individual Monthly Average AUM (MAAUM) at Rs 23.27 Lakh Crore in March 2023, which grew 12% Y-o-Y and contributed to around 58% of the total Monthly Average AUM.

• The mutual fund monthly average AUM for March 2023 from B30 cities was at Rs 6.84 Lakh Crore, which was 17% of the overall AUM.

OUR COMPANY STRATEGY

ABSLAMC has been a leading investment manager that has committedly worked towards financial inclusion, deepening of financial markets and development of the mutual funds industry. Our strategy remains rooted in our customer-first ethos and commitment to serve our investors over the long term by providing holistic investment solutions and consistent investment performance. We keep the investors interest at heart with a consistent focus on customer experience. This commitment is supported by a robust risk management and governance framework, research-driven fund management, and the integration of technology to enhance service delivery. This commitment has helped us to build our AUM size over the years, and establish a strong customer base. These fundamental principles have enabled us to establish ourselves in the mutual fund space and will continue to guide us towards accelerated growth in the alternative asset space.

To build up our scalable business and deliver long-term value to our customers and shareholders, we focus on:

• Scaling retail franchises and diversifying product offerings

- Creating an ecosystem to support retail sales growth that combines the strength of multiple channels such as Service to Sales, Virtual Relationship Manager (VRM), Emerging Market, Cross Sell and Up Sell, Direct Channel and Digital Sales.

- Grow and diversify our product offering using market research and innovation

- Continue to build product portfolio by identifying pockets of product differentiation

- Provide financial literacy to the existing and next generation of investors and distributors, and contribute to overall financial inclusion in the country

• Expanding geographic reach and strengthening multi-channel distribution network

- Continue to widen our geographic reach and investor folios by increasing our customer base in high potential and under-penetrated markets

- Along with a focus on Mutual Fund Distributors (MFDs), build scale in national distributors and banking channel, with a special focus on cooperative and PSU banks to tap their vast network.

- Build deeper engagement and loyalty with distributors and customers, resulting in higher wallet share and longevity

• Leveraging digital platforms to deliver better service

- Leverage digital platforms to increase customer acquisition and enhance customer experience

- Strategic tie-ups and exclusive partnerships with fintech and new-age tech distributors. Leverage API-based Plug-n-Play onboarding solutions for fintech partners/cooperative banks

- Focus on leveraging the digital capability to provide seamless accessibility and the right experience to our customers

- Using digital platforms to identify cross-sell and up-sell opportunities as well as focus on providing better customer service

• Building our passives and alternative asset business

- Focus on scaling our passives and alternative assets business including Alternate Investment Fund (AIF) / Portfolio Management Services (PMS), Real Estate and Offshore.

- Strategic tie-ups with existing and new partners, and digital platforms exclusively for Passives.

- Emphasis on Smart Beta (alternate weighting) passive strategies through Exchange Traded Funds (ETFs), Fund of Funds (FoFs), and Index Funds.

- Leverage our presence in GIFT City to launch new funds and expand our Offshore offerings.

PERFORMANCE OVERVIEW

For the quarter ended 31st March 2023, our Companys Mutual Fund Quarterly Average Assets under Management (QAAUM) was at Rs 2,75,204 Crore with market share (excluding ETF) at 7.7% and Mutual Fund Equity QAAUM was at Rs 1,15,827 Crore with market Share at 5.6%. Equity mix was at 42.1%. We enjoyed a dominant position in the fixed income space with QAAUM of Rs 1,59,377 Crore with market share at 10.6%. The closing mutual fund AUM as on 31st March, 2023 was Rs 2,62,292 Crore. For the quarter ended 31st March, 2023 our Alternate assets AUM which include AIF/PMS, offshore and real estate was at Rs 10,976 Crore. The Profit Before Tax for FY23 was Rs 794 Crore and Profit After Tax (PAT) stood at Rs 596 Crore in FY23.

Growing our SIP Book

Systematic Investment Plans (SIP) have become a chosen mode of investment for retail investors. As one of the key industry players, we have been proactive with our initiatives to increase traction in SIPs. Our Companys constant endeavour is to build our SIP book size and ensure customer stickiness while creating long-term value for investors. To achieve this, we launched several initiatives, such as ‘Har Ghar SIP, Multi-SIP, Turbo Systematic Transfer Plan (STP), Pro Portfolio and Perquisite SIP targeting mid-size corporate employees. Through these initiatives, our SIP and STP book crossed the Rs 1,000 Crore mark; a 12% increase from Rs 895 Crore in March 2022 to Rs 1,003 Crore in March 2023.

Customer Acquisition

Customer acquisition continues to be a key focus area for our Company. We added around 0.7 million new folios in FY23, and with this, our overall folio increased to 8.05 million, as on 31st March 2023.

Increasing Retail Franchise with a Focus on B30 Markets

Over the last few years, we have dedicated our efforts to expanding our retail franchise and capturing a larger market share from B30 cities. Our Company has expanded its pan-India presence to 290+ locations, with over 80% being in B30 cities. Individual MAAUM in March 2023 was Rs 1,40,303 Crore, vis-?-vis Rs 1,38,019 Crore in March 2022. The Institutional MAAUM size was at Rs 1,27,220 Crore in March 2023 vis-?-vis Rs 1,50,612 Crore in March 2022. The B30 MAAUM was at Rs 44,846 Crore in March 2023 compared to Rs 45,982 Crore in March 2022.

As part of our overall strategy, our Company is focused on building the retail sales segment across T30 and B30 markets. We have been strengthening our multi-channel sales ecosystem and distribution network by bringing together the key levers of Emerging Markets, Virtual Relationship Manager, Sampark, Service to Sales, Cross Sell and Up Sell, Direct Channel and Digital Sales. Our multi-channel market initiatives designed to deepen our presence have yielded positive results.

• Emerging Markets aims to tap into potential rural markets at an early stage, to build early growth. It also aims at increasing traction through various initiatives like investor education programmes and distributor engagement and training. Currently, 70+ EM locations have been converted into branches since initiation.

• The Virtual Relationship Manager (VRM) provides virtual assistance and guidance to MFDs, with the primary focus on increasing activations, SIPs and gross sales. Under the VRM model, our Company activated around 2,900+ distributors in FY23. Currently, it operates across 16 touchpoints in India.

• Our Companys distribution expansion initiative, ‘Sampark, empanels and onboards new distributors. It follows a One-click end-to-end digitally enabled distributor empanelment journey to make the process seamless. Through this initiative, our Company has empanelled 9,000+ distributors in FY23.

• Customer Service remains a key focus and it helps us achieve a deeper engagement with investors. Service Relationship Managers engage effectively with the investors and support them in their investment decisions. They identify opportunities for winning back, retention and upselling. Currently, our Company has deployed around 230 trained personnel as a single point of contact for guiding and servicing investor needs.

Distribution Strength

In FY23, our Company expanded its pan-India network of empanelled distributors with 72,000+ KYD-compliant MFDs, 270+ national distributors, and 80+ banks and financial intermediaries. Our Company continues to expand its distributor base and has empanelled 9,000+ new MFDs during the reporting period.

Scaling up the Passive and Alternate Assets Business

Passives

During the year, the passive product offering yielded positive results wherein our Companys assets grew over 3x from Rs 9,962 Crore in March 2022 to Rs 28,223 Crore in March 2023. We strengthened our existing product suite to 40+ products and have 7 new passive products in the pipeline. The customer base in this Category has now grown to 4,96,000 folios.

Alternate Asset Business

Our Company continues to build future capabilities by creating differentiated products in AIF/ PMS, Offshore, and Real Estate offerings to address the growing needs of HNIs and family offices. During the year, we launched and raised a commitment of Rs 734 Crore in India Equity Services Fund (CAT III AIF) and received a SEBI clearance for three more funds, namely ABSL India Special Opportunities Fund, ABSL India Equity Innovation Fund, ABSL Structured Opportunities Fund.

On the real estate front, we completed the first close of the Aditya Birla Real Estate Credit Opportunities Fund (Category II AIF) and also started deploying the first investment. Due diligence has been completed for one more deal.

To cater to the needs of the large pool of NRI and Global Investors, we received an in-principal approval from the International Financial Services Centres Authority (IFSCA) for launching the ‘India ESG Engagement Fund domiciled in Gift City in April 2023. This will help our Company serve the growing needs of our NRI and Global Investors who are keen to invest in India through dollar-based India funds.

Focus on Investment Performance with a Robust Risk Management Framework

Our Company is dedicated to delivering consistent investment performance. This commitment is reinforced by our stable and highly experienced investment team, possessing vast industry knowledge and expertise.

We have a robust risk management framework that monitors firm-wide governance, risk and compliance. Our risk management systems and procedures demonstrate our commitment to working ethically and profitably while ensuring compliance with best practices and applicable laws, rules, and regulations. These are intended to assure against material misstatements or loss, as well as ensure the safeguarding of assets, the maintenance of proper accounting records, the reliability of financial information, and the identification and management of business risks.

Compliance

Our compliance team ensures that our Company and the funds managed by us comply with applicable regulations including the SEBI (Mutual Funds) Regulations, 1996, the SEBI (Portfolio Management Services) Regulations, 1993, the SEBI (Alternative Investment Funds) Regulations, 2012 and various circulars and notifications issued by SEBI from time to time.

To comply with applicable Statutory requirements, we have established robust systems, policies and processes. We review and update our policies periodically.

IT and Digital

In a highly dynamic and competitive marketplace, we believe that IT plays a pivotal role in providing a seamless experience to our investors. It is central to our operations, including in relation to customer onboarding, online payments and other transactions, fund management, dealing, accounting, customer service, data analytics and other functions.

Using the latest technologies available in the market, we endeavour to build our digital properties for our partners and customers, with the promise of scale, fault tolerance, and security. We are continuously innovating to enhance our value proposition and accelerate our time to market by setting up a strong application development centre of excellence. Many of our technology assets are built in-house through the application development unit using latest technologies.

Our Company has established an omnichannel experience by integrating API platforms in collaboration with digital partners. We continue to work with 75+ fintech partners to increase overall digital engagement.

Of our new customers, 75% have been onboarded digitally, and currently 84% of our overall transactions are conducted digitally, while 87% of customers are serviced via digital platforms. Additionally, 92% of our new MFDs were empanelled via digital means.

Marketing

In order to maximise customer engagement, we run a number of marketing initiatives that leverage content marketing, hi-tech delivery platforms for hyper-personalization, PR, digital, and social media platforms.

#Blockbuster

A marketing campaign to promote our NFO-ABSL Multi Asset Allocation Fund, which comprises a portfolio composition that is akin to a blockbuster with the Action of Equity, Dance of Debt and Romance of Gold (Commodities).

#AapkeSapnoKeSarthi

A digital film that celebrates the untiring service offered by mutual fund partners to investors, enabling them to realise their dreams, over the last three decades.

#ProInvesting

ProInvesting was a campaign aimed at bringing together Aditya Birla Sun Lifes three legacy mutual fund schemes: Aditya Birla Sun Life Flexi Cap Fund (An open-ended dynamic equity scheme investing across large cap, mid cap, small cap stocks), Aditya Birla Sun Life Frontline Equity Fund (an open-ended equity scheme predominantly investing in large cap stocks), and Aditya Birla Sun Life Balanced Advantage Fund (an open-ended Dynamic Asset Allocation fund). The aim of this combination was to enhance returns in a bull market while managing risks in a bear market. This was executed across digital and BTL activations.

#WinWithSIP

This campaign focused on the value of SIPs and communicated to our audience that investing in multiple SIPs was the way to achieving your dreams.

Training and Investor Education

We have a dedicated team for investor education to increase awareness and understanding of our mutual funds. We believe in creating a community of well-informed, financially literate investors capable of making decisions with a comprehensive understanding of the potential investment risks and rewards. Our training modules appeal to a wide range of investors across various demographics of age, profession, gender, geographic location, and language, and have been designed to be sustainable, scalable, and successful in their objectives to reach, teach and actively engage with common investors. As of 31st March, 2023, we reached more than 9,55,000 people through 13,500+ training sessions.

Operations

The primary focus of our operations team is to execute all stages of a transaction process with minimal errors. The team aims to ensure prompt and efficient delivery of services to our clients, and we intend to manage our front-office and back-office operations efficiently to provide a high level of customer satisfaction. We have established process controls to ensure accuracy and speed in transaction processing, such as time stamping and bar-coding transactions, as well as the automated process of credit confirmation. The processes are documented and audited periodically. End-to-end processing of transactions, maintenance of data records and servicing are managed by our registrar and transfer agent, Computer Age Management Services Limited (CAMS).

Customer Service

Customers are central to our business and they are the driving force of our organisation. We strive to empower our customers with real-time information, and offer them a seamless investing experience through a host of value-added services and digital solutions.

Our customer service team manages the servicing needs of our customers and distribution partners, overseeing both ground-level requirements as well as remote support. Our inbound contact centre is open all days of the week to assist customers. Our outbound contact centre proactively engages with our customers to ensure that their transactions and servicing needs are satisfied.

Through various initiatives like Senior Citizen Servicing, Social Media Engagement, NRI Servicing through dedicated email desk and phone lines, we aim to strengthen efficiency and accessibility for our customers.

Human Resources

As of 31st March, 2023, we had 1205 permanent employees. We have always aspired to be an organization which attracts, retains, and provides a canvas for talent to operate, learn and grow.

The Company continues to be focussed on providing our people a work environment that welcomes diversity, nurtures a culture where values are the cornerstone and provides opportunities based on meritocracy for people to grow and build their careers with us in line with their aspirations.

The Company constantly strives to provide a happy, vibrant, and engaging work environment and continues to reinforce the importance of health and wellbeing through wellness programmes and initiatives like regular Health Assessments, Health Management Programmes. With wider offerings and health management initiatives, the Company aims to ensure that every employee is focussed on improving their health and wellness. This initiative helps the company to enhance the efficiency & productivity while keeping the employees healthy.

Building a strong future ready talent pool and robust leadership succession pipeline are a priority for us. We continued to give prominence to identifying and developing our high potential employees and have steered towards more holistic, comprehensive, and future oriented development interventions for them. The Company has continuously recognised high talent, strengthened its structures, and provided higher responsibilities to internal talent.

The Companys learning interventions are focused to enable employees to do better at work. The Company has introduced various initiatives to enhance functional & behavioural capabilities of the employees. While executing the initiative, the Company leverages a blend of People, Classroom, Digital Learning Journals, App based and Virtual training platforms to gain maximum impact.

An AI enabled learning app provides employees easy access to personalized content that meets their unique individual requirements with the flexibility to learn anytime from anywhere. A plethora of relevant courses, videos & webinars are hosted on our e-Learning platform, and these are leveraged by our employees to enhance their skills and knowledge.

FINANCIAL PERFORMANCE

Consolidated Statement of Profit & Loss Account

(in Rs Crore)

Particulars	FY 2022-23	FY 2021-22	Y-o-Y Change
Revenue from Operations	1,227	1,293	-5%
Employee Benefits Expenses	277	285	-3%
Fees and Commission Expenses	23	20	16%
Depreciation and Amortization Expenses	34	36	-4%
Other Expenses (1)	225	200	13%
Total Expenses	560	540	4%
Operating Profit Before tax	667	753	-11%
Other Income	127	116	10%
Profit Before Tax (excl. extraordinary item)	794	869	-9%
Extra-Ordinary Item(2)	-	26	NA
Profit Before Tax (Incl. extraordinary item)	794	895	-11%
Tax Expense	197	222	-11%
Net Income	596	673	-11%

(1) Includes Finance Cost; (2) FY 2021-22 Includes a reversal of a provision for an earlier Long Term Incentive plan amounting to Rs 32 Cr and provision for a new incentive plan of Rs 6 Cr.

Consolidated Balance Sheet

(in Rs Crore)

Particulars	As at March 31, 2023	As at March 31, 2022
Share Capital	144	144
Other Equity	2,373	2,052
Total Equity	2,517	2,196
Financial Liabilities	147	151
Non-financial Liabilities	124	88
Total Equity & Liabilities	2,788	2,435
Investments	2,359	2,121
Other Financial Assets	211	142
Non-financial Assets	218	171
Total Assets	2,788	2,435

CAUTIONARY STATEMENT

The statements in the Boards Report and the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. The Company is not obliged to publicly amend, modify or revise any forward-looking statements, based on any subsequent development information or events or otherwise.