UPDATE 1-INTERVIEW-Principal looking to buy fund firm in India

(Adds details, background, quote)

By Nishant Kumar

MUMBAI Nov 25 (Reuters) - U.S. firm Principal Financial Group (PFG.N) is looking to acquire an asset management company in India as it wants to scale up its fund unit operations in the high-potential market, a top executive said on Tuesday.

Merchant bankers have been told to look out for possible targets in the 35-member industry, preferably with large equity assets, Rajan Ghotgalkar, Principal's country head for India, told Reuters in a telephone interview.

"Mandates have been given," Ghotgalkar said.

He said the firm was yet to finalise potential targets, but said the time was right for inorganic growth given the sharp drop in markets and ongoing financial turmoil.

"Valuations have moderated. It's a better time to buy now," said Ghotgalkar.

Principal already has a fund venture with Punjab National Bank (PNBK.BO) and Vijaya Bank (VJBK.BO) that manages about 70 billion rupees ($1.4 billion).

Early this month, Religare Enterprises Ltd (RELG.BO) said it would buy Lotus Mutual Fund, a unit of Singapore state investor Temasek [TEM.UL] and London-based Sabre Capital Worldwide.

The deal was valued at 1-2 percent of Lotus's assets, according to media reports, far lower than 6 percent that Infrastructure Development Finance Co (IDFC.BO) paid to buy the fund unit of Standard Chartered (STAN.L) in March.

Last December, Reliance Capital (RLCP.BO) said Eton Park would buy about 5 percent of its asset management arm for 5 billion rupees ($100 million), valuing India's largest fund firm at 13 percent of total assets.

That deal came at the tail end of a boom for the industry, when assets under management had quadrupled to 5.5 trillion rupees in the five years to end-2007.

A plunge in the share market .BSESN of more than 50 percent this year has led to a slump in inflows. Equity assets under management have nearly halved to 1.1 trillion rupees and the industry's total assets are down nearly 30 percent.

New fund offers (NFOs), which had contributed significantly to the growth, have fallen out of fashion. In the first seven months of 2008/09, flows into new stock funds dropped more than 85 percent from April-October 2007 levels, industry data showed .

"If there are not going to be NFOs and we are not going to have a lot of organic growth, may be we should look for some inorganic growth," Ghotgalkar said. ($1=50 rupees) (Editing by John Mair)