Why Jio BlackRock has potential to disrupt the asset management industry
Legendary investor Warren Buffett has long argued that passive funds such as the S&P 500 ETF remain the best bet for the average investor. It seems investors in the US have heeded his advice, as passive funds now account for 59% of the total domestic and international equity investments of $23 trillion by US investors as of April, as per the Investment Company Institute, Washington.
Back home in India, passive investing is yet to pick up in a big way. AMFI data shows total assets under management (AUM) of the industry at FY25-end were ₹66 trillion, and within this, the share of passive funds is just about 17%.
However, the scenario is promising to become action-packed in the coming days. Jio BlackRock Asset Management has announced the appointment of its executive leadership team and the launch of its website on Monday. It had appointed Sid Swaminathan as its managing director and chief executive officer (CEO) last month. Swaminathan was earlier the head of Index equity funds at BlackRock.
Given the CEO's expertise in index funds, it is likely that Jio BlackRock could target passive index funds initially. The existing asset management companies could feel the effect of disruption more in actively managed equity funds if industry AUM starts shifting from active equity funds to passive equity funds.
Also Read | Q4 earnings: Jio set for steady growth on last tariff hike, subscriber additions
Index funds well-liked
How can Jio BlackRock take passive flows higher? First, let's understand why index funds are popular. Index funds are better as the job of stock picking is done by the exchanges with the best-performing stocks in terms of free-float market capitalization replacing the worst-performing stocks periodically.
Also, their asset management charges, including salaries, are lower than actively managed funds as passive funds don't have to do in-depth research and just mimic the underlying index.
Now, Jio BlackRock can go one step ahead of index funds. How? There are many ways but for now, let's consider the Nifty Pharma and Nifty Healthcare indices. They have constituents such as Lupin Ltd, Dr. Reddy's Laboratories Ltd, which are exposed to potential sudden actions from the US Food and Drug Administration (US FDA) leading to volatility in their stock prices.
If an investor is bullish on the Indian pharma sector in general but wants to avoid the Nifty Pharma index and its constituents that suffer from frequent US FDA inspection-related deficiencies, there can be an index of only hospital and diagnostic stocks. An index fund/ETF based on such an index could attract investors.
Now let's look at the Nifty Auto index, which includes two-wheeler stocks as well. If an investor feels that the growth rate of the passenger car industry would outperform the two-wheeler industry, then it is better to focus on stocks such as Maruti Suzuki India Ltd and Hyundai Motor India Ltd.
Thus, an auto index can be constituted with only car companies, and an index fund/ETF tracking the passenger car industry's performance can be launched.
Sure, the outlook for the Indian asset management industry appears bright in the foreseeable future. But, the entry of Jio BlackRock could create disruption because of its innovative products and vast distribution reach. Thus, investors have to watch how the valuations of leading listed asset management companies (AMCs) behave.
Based on Motilal Oswal Financial Services' FY26 estimates, HDFC Asset Management Co. Ltd and Nippon Life India Asset Management Ltd shares are trading at a price-to-earnings multiple of 40x and 35x, respectively. As for Jio Financial, material business activity is set to begin with the leadership team announcement.
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