30th January 2012

This is what Fidelity has to say in response to the ET article :

Fidelity Worldwide Investment is conducting a strategic review of its onshore asset management business in India; as with strategic reviews all options are being covered. The review is underway and it is too preliminary to discuss any outcome.

We remain fully engaged in and committed to the process of successfully managing money for clients using all the resources of the company as required. In addition, the outcome of this review will take full account of our fiduciary duty to, and the interests of, our clients.

So, there it is : all options are on the table. Selling out is one such option - which will be evaluated among other options. Why is Fidelity contemplating such a move? It can't be only a profitability issue - Fidelity is known to be a long haul player as long as its conviction remains in the market and in the regulatory and operating environment of that market. But, rather than speculate, let's wait for the official word about the reasons for this strategic review of its India business.

The flurry of activity that we witnessed in the evening, ever since this news broke in ET online, was truly amazing. An industry whose profitability is under strain and whose growth is under severe pressure, seems nevertheless to be quite excited at the prospect of snapping up Fidelity's India business - were it to eventually go on the block. That's quite a testament to how the industry regards the quality of the book that Fidelity has built up in its India business.

For distributors of course, the big question is what should they advise their clients to do about their holdings in Fidelity's funds? There may well be some distributors who may see this as a good income opportunity, and actively recommend their clients to switch out of Fidelity's funds into other funds. This may not however be so simple. For one, Fidelity's equity funds performances have been well above par - which always makes the case for exiting that much more difficult to sell to investors. And secondly, as Fidelity has said in its response to the ET article : "In addition, the outcome of this review will take full account of our fiduciary duty to, and the interests of, our clients." Will distributors take this statement at face value and remain patient until Fidelity arrives at a conclusion on its India business? Given Fidelity's track record of doing what is right for its investors, it might perhaps be prudent to give this benefit of doubt - until clarity emerges.