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Notwithstanding the sharp run-up in asset under management, mutual fund company stocks have dipped over 15 per cent in the last three months and under performed broader markets due to shrinking profitability.
HDFC Asset Management Company shares have dipped 17 per cent to ₹2,394 on Thursday from ₹2,909 in September while Nippon India AMC was down 14 per cent at ₹360 against ₹426 logged in the same period.
Similarly, UTI AMC slipped two per cent to ₹1,045 from ₹1,067 in September. Aditya Birla Sun Life AMC plunged 15 per cent to ₹550 against ₹649 in October when it debuted in the market.
‘Still under penetrated’
Despite the best effort of the fund houses, the asset management business in India still remains largely under-penetrated with AUMs-to-GDP of just 13-15 per cent against the global average of about 75-80 per cent. Similarly, equity AUMs-to-GDP is also low at 5 per cent.
Institutional brokerage and financial services firm CLSA expects mutual funds assets to increase 16 per cent between FY22-25, driven by 18 per cent growth in equity AUMs. The share of equity AUM will increase to 51 per cent from about 48 per cent currently.
‘AMC stocks underperform’
CLSA has also upgraded shares of HDFC AMC and Nippon India AMC to buy and outperform on favourable risk-reward following sharp correction in these stocks. The upgrade came even as the foreign brokerage cut HDFC AMC’s target price to ₹3,000 from ₹3,100 and maintained Nippon’s target at ₹475 as they currently trade below long-term average valuations.
“AMC stocks have corrected 17-22 per cent in the last three months and underperformed broader markets. HDFC AMC and Nippon AMC are trading below their long-term average valuations. The earnings outlook for HDFC AMC is finally improving with ESOP costs getting into base,” it added.
Equity infow
Net equity inflow into equity schemes (ex-arbitrage) has touched ₹1.6 lakh crore in the first nine months of this fiscal against an outflow of ₹50,000 crore in the same period last year.
Apart from healthy inflows, strong market returns of 22 per cent year-to-date have also aided 36 per cent growth in equity AUMs, said CLSA.
Slow down in SIPs
Though the investments through systematic investment plan has increased, the ticket size has gradually declined to ₹2,000 last month from ₹2,900 logged in FY’19.
Chirag Mehta, Senior Fund Manager, Alternative Investments Quantum AMC, said equities are one of the best asset classes to generate long term growth, but at the same time there could be risks that could knock equities down by 30-40 per cent in any given year.
This makes it imperative to hedge the risk by investing in other asset class debt and gold to sail through any kind of market environment, said Mehta.
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