Asset management companies enjoyed a strong rally last year, thanks to vibrant secondary market and steady inflows into schemes. Nippon Life India Asset Management (NAM-India) was the star performer in FY-24 by producing 124 per cent return, followed by HDFC Asset Management Company (120 per cent) The other three - Shriram Asset Mangement, Aditya Birla Sunlife Asset Management (ABSL) and UTI Asset Management -gave a return of 66 per cent, 45 per cent and 27 per cent respectively.

However, on Monday, except ABSL AMC (gained by 0.63 per cent) all the others fell between 1.2 per cent and 4 per cent, in line with adverse market condition.

Going ahead, analysts expect the momentum to continue for AMC stocks, on the back of assets growth and profitability.

Domestic brokerage Prabhudas Lilladher in report said that equity would drive healthy core income growth. The brokerage stated that the AMCs would witness overall/equity QAAuM growth of 11.1 per cent/13.5 per cent q-o-q (against 5.2 per cent/9.5 per cent in Q2FY24). The equity QAAuM growth would be superior for HDFC and NAM at 15 per cent q-o-q due to strong equity performance, said the broking house adding that while core income for our coverage AMCs (HDFC, NAM, and UTI AMC) could grow by 13.2 per cent q-o-q. Nippon is Prabhudas Lilladher’s top preferred pick in the AMC space.

InCred Capital expects the slowdown in small-cap and mid-cap schemes to be transitory in nature and see debt outflow as seasonal. “We appreciate the overall healthy scheme-wise delivery by the industry which, in turn, resulted in a surge in equity funds’ AUM. There may be some short-term pressure on yields amid flattish market movement, but we expect the overall yields to remain healthy in the medium-term,” it said adding that NAM India remains its top pick in the sector with a target price ₹600 or about 32x FY25F EPS amid the AMC’s ability to improve its market share with a limited impact on profitability. “We also like UTI AMC (ADD, TP ₹1,050) due to a favourable risk-reward ratio and the undercurrent of likely acquisition. We have a Hold rating on HDFC AMC with a target TP of ₹3,550, corresponding to a P/E of 36x FY25F EPS, due to an unfavourable risk-reward ratio.” according to its analysis on AMCs.

According to Prabhudas Lillader, the healthy up move in equity markets might result in slightly lower profitability for AMCs leading to fall in yields. “We envisage revenue for our coverage AMCs to increase by 8.8 per cent q-o-q to ₹1,510 crore. For HDFC AMC, yields remaining flat would not materially impact core profitability although NAM and UTI are more sensitive to yields,” it added.

“On a post-tax basis, HDFC AMC could see a minor decline in yields while NAM and UTI AMC could see yields improve.”

Motilal Oswal Financial said that total equity value for the top 20 AMCs increased 2.3 per cent m-o-m (+52.1 per cent y-o-y) in March 24 . Among the Top 10 funds, the maximum m-o-m increase was seen in ICICI Prudential Mutual Fund (4.9 per cent) followed by Kotak Mahindra Mutual Fund (3.2 per cent), SBI Mutual Fund (2.7 per cent), NAM India (2.7 per cent) and UTI Mutual Fund (2.5 per cent).

Analysts expect opex to rise by 1.8 per cent q-o-q led by a rise in employee cost. ESOP charge & outlook and variable pay would be key monitorable for all three AMCs.