Even as the asset under management (AUM) of the mutual fund industry has hit ₹37 lakh crore, AMC (asset management companies) stocks have underperformed the broader market. These stocks – HDFC Asset Management Company, Nippon Life India AMC, UTI Asset Management Company - are down up to 34 per cent in last one year compared to 3 per cent jump in Nifty50. Aditya Birla Sun Life AMC got listed on October 11, 2021. It is down 40% from its listing price at ₹715.
Meanwhile, SIP flows in mutual funds have been consistent. Retail investors who are believed to exit the stock market when it is on a downtrend have shown resilience. They continued their SIPs even as the market turned volatile. They now contribute 55 per cent to the overall AUM of the MF industry and 88 per cent to the equity AUM, according to data available in a report by B&K Securities. At ₹37 lakh crore, the AUM of the MF industry has grown at a compounded annual growth rate (CAGR) of 15 per cent between FY17 and FY22.
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So why the underperformance in AMC stocks?
“We feel a shift towards passive funds which impact profitability and incidences of mismanagement in a few debt schemes could be the reasons for their underperformance. Besides, the rich valuation of large players was also a concern,” says Ajit Mishra, VP-Research, Religare Broking Ltd.
As the stock market recovers from hereon, experts believe the re-rating in AMC stocks is expected. The additional green-shoots are expected to emerge from non-mutual fund businesses like portfolio management, offshore and alternative assets, says B&K Securities.
MFs versus AMC stocks
Should you rather start SIP in AMC stocks instead of SIPs in mutual funds?
This is not the question of ‘or’ but ‘and’. Continued SIP inflow in MFs is one of the key monitorables that will define the course of the AMC stocks.
But, the time has indeed come to consider AMC stocks. “Though we’ve been seeing a noticeable rise in investment into equity markets through the SIP route, it’s still a highly under-penetrated space and we expect things to improve further with increased awareness. Consequently, the AMC players would also benefit in the long run however participants should maintain a selective approach and look for the companies which are gaining market share and are available at a decent valuation,” suggests Mishra.
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At the industry level, SIP AUM has reached ₹5.65 lakh crore as on May 2022. The number of SIP accounts stood at 5.48 crore. A detailed study by B&K Securities shows HDFC AMC has the largest AUM in SIP, nearly 13 per cent of the industry, followed by Nippon Life India AMC and Aditya Birla Sun Life. They both held 9 per cent market share each. UTI AMC has the smallest book among listed peers with 3 per cent market share.
Meanwhile, with the recent correction in the market and in the AMC stocks, the valuations have turned attractive.
B&K Securities has initiated coverage on Aditya Birla Sun Life AMC with a ‘hold’ rating. It maintained ‘hold’ ratings on HDFC AMC and Nippon Life India AMC.
The brokerage also initiated coverage on UTI AMC with a ‘buy’ rating due to its high teens PAT CAGR expectations and inexpensive valuations. “We believe re-rating can happen in AMC stocks a) as markets recover, and b) AMC’s funds outperform the market/competition and attract inflows,” says B&K Securities.