Schroders' $32 Billion India Partner, Axis Asset Management, Faces SEBI Probe

The Indian partner of global money manager Schroders Plc is under investigation by the country's capital markets regulator for alleged front-running by two of its officials, according to people familiar with the matter.

The Securities and Exchange Board of India is scrutinizing funds that Viresh Joshi and Deepak Agarwal managed at Axis Asset Management Co., the people said, declining to be named as they aren't authorized to speak to the media. Axis AMC is India's seventh-largest asset manager with 2.5 trillion rupees ($32 billion) in assets.

Sebi didn't respond to an email seeking comment. Schroders, which holds a 25% stake in Axis AMC through Schroders Singapore Holdings Pvt., declined to comment. Joshi didn't respond to calls and messages, and Agarwal's phone was switched off. Axis AMC on Friday said it had suspended two unnamed fund managers pending an internal investigation. It declined to comment when reached on Monday.

“There are no restrictions on redemptions,” Chandresh Nigam, managing director at Axis Mutual Fund, said in a letter to investors on Sunday, a copy of which was seen by Bloomberg News. “In any event, we believe that the available liquidity with our funds and the quality of our portfolio will enable us to meet redemption requests from investors, if any.”

Indian equity mutual funds have lured billions of dollars in inflows over the last couple of years amid a retail-investing boom. The benchmark S&P BSE Sensex index of stocks hit an all-time high in October.

The increased participation of retail savings boosts pressure on new Sebi chair Madhabi Puri Buch to crack down on irregularities. 

She has dealt with similar front-running incidences very sternly in the past. In a June 2021 order, Buch, then wholetime director at Sebi, banned 20 entities including dealers at Reliance Securities Ltd. from trading for front-running trades in Tata Absolute Return Fund. 

Fund Details

The plans handled by Joshi and Agarwal included Axis Arbitrage Fund, Axis Banking ETF, Axis Consumption ETF, Axis Nifty ETF, Axis Quant Fund, Axis Technology ETF and Axis Value Fund.

Axis Arbitrage Fund is the biggest that was managed by either of the two managers, with assets worth nearly 58 billion rupees. Cash and liquid assets made more than half of it. The actively managed funds, Axis Value Fund and Axis Quant Fund, have more than 3% of their portfolio in cash.

“At this point, we want to have a fine balance. We are not going very aggressive on white listing nor downgrading any,” said Nirav Karkera, head of research at Fisdom, an investment advisory firm, referring to the funds managed by Axis MF.

Shares of companies in which Axis MF holds more than 4% have been hit on concerns over the regulatory action. These include Coforge Ltd., which has shed 8.6% since Friday, Torrent Power Ltd., which has lost 8%, and Info Edge India Ltd., which is down 9%.