Indian asset management companies (AMCs) are showing strong growth potential as the “underpenetrated” mutual funds (MFs) continue to grow their share in household savings, Nomura said on Tuesday.
Initiating its coverage on the sector, the brokerage noted that increasing retail participation and the resultant momentum in systematic investment plan (SIP) inflows are the key tailwinds for the sector.
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It expects the assets under management (AUM) of MFs to grow at a compounded annual growth rate (CAGR) of 18 per cent over the next five years. The MF AUM as a percentage of nominal GDP, which is around 18 per cent now, is expected to increase to 26 per cent by financial year 2030, according to Nomura.
The decrease in margins owing to growing AUMs is unlikely to hit profitability, it said.
“We expect core-operating profitability for the sector to remain healthy despite gradual moderation, as the decrease in revenue yields due to a rise in AUM and faster growth in the passive segment should be largely offset by operating leverage,” it stated.
MFs follow a slab-based fee model. As the AUM grows, schemes have to lower the charges.
The brokerage has given a “buy” rating to HDFC AMC and Nippon India AMC, and a “neutral” rating to UTI AMC.
It sees an upside of 21 per cent in HDFC AMC, 24 per cent in Nippon India AMC, and 8 per cent in UTI AMC. The brokerage is yet to start coverage of the only other listed AMC, Aditya Birla Sun Life (ABSL).
Regarding its bullish outlook on HDFC and Nippon, the brokerage stated that the two AMCs have been expanding their market share on the back of consistent performance in the equity segment.
“It [HDFC AMC] remains one of the most profitable AMCs, driven by strong equity AUM and operational efficiency. The company leads with a 13.3 per cent retail AUM market share. It is witnessing consistent improvement in market share in the equity segment,” Nomura said, adding that the AMC is poised to capture more market share, with its AUM expected to grow at 19 per cent CAGR over the next five years.
“As India’s fourth-largest asset manager, we believe Nippon India is well-positioned to benefit from rising industry flows, especially in small-/mid-cap segments. With a robust retail franchise, growing SIP market share, and a greater than 90 per cent dividend payout policy, we expect strong performance ahead, projecting a 21 per cent AUM CAGR and 21 per cent core-earnings CAGR over FY24-28F,” it stated.
Following Nomura’s report, AMC stocks logged strong gains on Wednesday even as the benchmark indices ended with losses. Shares of HDFC AMC and UTI AMC went up over 4 per cent, while ABSL AMC rose 2.8 per cent. Nippon India AMC went up nearly 2 per cent.
First Published: Oct 09 2024 | 6:59 PM IST
