Buoyant equities, coupled with strong systematic inflows, pushed assets under management (AUM) of top listed asset management companies (AMCs) higher, leading to an average revenue growth of 28.6% on a year-on-year basis in the June quarter. This also resulted in brokerage houses raising target prices and earnings estimates for FY25 and FY26.
The average AUM of the mutual fund industry grew 9% to Rs 59 lakh crore in the June quarter, according to data from the Association of Mutual Funds in India. This was the second consecutive quarter of strong growth, supported by the rally in the equity markets and robust inflows through the systematic investment plan (SIP) route.
Expectations of strong inflows, better yields and a lower tax rate compelled Kotak Institutional Equities (KIE) to revise upwards its earnings forecasts for Aditya Birla Sun Life AMC, UTI AMC and HDFC AMC by 2-11% after the June quarter earnings. It also increased the target prices for UTI AMC and Aditya Birla Sun Life AMC by Rs 50 each to Rs 1,100 and Rs 750, respectively.
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KIE has kept HDFC AMC’s target price unchanged at Rs 4,000, citing “any material tweak to commission payouts that would trigger a rethink of our near- and mid-term yield assumptions.”
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Brokerage house Jefferies projects a rise in shares of HDFC AMC up to Rs 4,900, while Morgan Stanley expects the share price to drop to Rs 3,640. Despite mixed views, shares of the company had touched new lifetime highs the day after its June quarter results were announced.
The strong revenue stream trickled down to an average profit growth of nearly 35% year-on-year in Q1 on the back of higher AUM and other incomes. Mark-to-market gains across segments led to a rise of over 14% in average other incomes.
However, on a sequential basis, these companies have seen a marginal increase of 3% in net profit and 13% in operating income.
A good set of numbers and the anticipation of continued fund flows into the asset management industry have led to shares of these companies rising 23-53% in Q1, except for the outlier HDFC AMC whose share rose over 6%. Shares of the five asset managers have grown 20-72% so far in 2024 while the benchmark Nifty 50 rose 11%.
Despite attractive long-term growth prospects, some brokerage firms foresee near-term risks to earnings growth due to potential cuts in the total expense ratio, tighter regulations, yield compression and any protracted weakness in equity markets which may blunt inflows and revenues.
Investment research firm Bernstein said earlier this month that Indian equity valuations are looking a bit rich and when the inevitable market hiccup comes, asset managers could find themselves on the sharp end of the stick.
However, the industry is expected to generate 15-20% revenue growth over the next few years thanks to the financialisation of household savings and shift away from traditional savings vehicles like gold and real estate, brokerage firms said.
