MUMBAI -- Every question shot at National Stock Exchange managing director and chief executive Chitra Ramakrisha leads invariably to one reply -- exchange-traded funds -- a financial instrument that she reckons has the power to draw individual, risk-averse savers to the capital markets.
The easy to use, liquid instruments are currently drawing less than 5% of retails savings, and Ramakrishna is keen to double this amount by introducing more and more ETFs on India's largest stock exchange.
"If in 3 years we increase the amount of savings coming into the market even by 5-7%, that will be tremendous because that will be double the amount of savings, so it serves the large economic need," the 53-year-old CEO told the Nikkei Asian Review in an interview.
"Our mandate and job is really to provide more appropriate products which will help retail savings to come into the market, and when you are supported by a good, strong sense in the market, then it is the right time for us to push more and more of these products."
Building a base
Currently, there are 47 ETFs listed on the NSE around equity, gold and debt schemes. Its most popular one, the Nifty ETF, has chalked up an annualized return of 11.50% in the last 10 years. The exchange also hosts two global indices, namely the Goldman Sachs' GS Hang Seng BeES and Motilal Oswal AMC's MOSt Shares NASDAQ 100.
The NSE also runs its ETF schemes abroad. Its Nifty ETF and other products are available at stock exchanges in 32 different countries and regions, such as Germany, Hong Kong, Japan, England, Korea and France.
"We have to continuously look for more locations for relevant investors who can have access to Nifty. So we always search for these opportunities and keenly watch for alliances," she said. "It's not restricted to one continent or the other. We look at it as very broad-based penetration. It (the penetration) is definitely better than where we were 5 years ago. Still, we have lot of presence to cover, so at this point all opportunities are welcomed."
She believes the Nifty ETF, which tracks the 50 largest Indian companies, is the most appropriate product for global investors because that would give them diversification in their portfolio.
"The AUMs (assets under management) on those are small, but that's always the function of when the flavor of that particular country catches up, then that vehicle is available for people to put money into India."
She expects the ETF sector to have 1 trillion rupees ($15.1 billion) worth of assets under management "soon," from around $ 2 billion now, and sees high performing technology, cost competitiveness, versatility and resilience as key drivers for success.
According to Ramakrishna, ETFs come with the benefit of cost rationalization, and that is consistently coming down.
Room for growth
Her optimism also reflects the ETF wave that the world is witnessing. A study by PriceWaterhouseCoopers predicts that assets will almost double globally by 2020 to $5 trillion.
According to the report, titled ETF 2020, asset flows in the developed markets of the U.S. and Europe will dominate the global ETF landscape, but the highest rates of growth are likely to be found in less mature markets.
Asian investors have had access to ETFs for some time, but are only now adopting them in greater numbers, the study said, adding that the region currently accounts for 7% of global ETF assets.
In India too, the shift towards ETFs has been rather slow. Although the first ETF was launched in 2001, the segment has not really become a favorite for domestic investors. Its contribution to the 11.86 trillion rupees worth of assets in the mutual fund industry is just around 1.2%.
Gold ETFs and equity-linked schemes generally dominate the scene, with some debt-focused products.
Interest among domestic investors increased with more products such as gold, but the real shot in the arm was the launch of the Central Public Sector Enterprises ETF in 2014. The segment allows trading in 10 blue-chip public sector companies, including Oil and Natural Gas Corp., Coal India, GAIL, Indian Oil Corp. and Bharat Electronics.
Interest in equity ETFs also increased when the Employees' Provident Fund Organisation began investing retirement money in the segment. As of October, it has invested 23.22 billion rupees in ETFs.
"Of course it is a very appropriate time that provident fund money has also started to be invested in markets," Ramakrishna said. "Today, Bank Nifty ETF is also what people find interesting, so we will have a diverse set of products in the ETF category."
Arpana Tripathi in Mumbai contributed to this story.