Mumbai: Shares of asset management companies on Wednesday slumped on fears of the impact on their revenue and profitability after the Securities and Exchange Board of India reduced the total expense ratio. HDFC AMC and Reliance Nippon AMC were trading at their lowest levels since their trading debut.
HDFC Asset Management Co Ltd declined 7.6% to ₹ 1,422 a share. HDFC Asset Management Co Ltd declined 7.6% to ₹ 1,422 a share. The stock got listed on 6 August and since then it gained over 28% from its issue price of ₹ 1,100.
Reliance Nippon Life Asset Management Ltd (RNAM) slumped 8.2% to ₹ 196.55 a share. The stock was listed in November 2017 and has fallen nearly 22% since then from its issue price of ₹ 252 a share.
Sebi on Tuesday capped the total expense ratio (TER) for equity-oriented mutual fund schemes (close-ended and interval schemes) at 1.25% and for other schemes at 1%. The cap for fund of funds will be 2.25% for equity-oriented schemes and 2% for other schemes.
“(This) will have a direct negative impact on overall revenue yields for most AMCs. What the recent rise in assets under management, this will lead to further pressure yields," said Emkay Research in a note to its investors.
Sebi said all mutual fund commissions and expenses must be paid from the scheme itself, adding that the industry must adopt a full trail model of commission in all schemes without paying any upfront commission. Trail commissions are payments earned by distributors as long as investors stay invested in the scheme.
Brokerage firm Morgan Stanley has cut its equity gross revenue assumption by 20 basis points. “We assume 6 bps to be the overall savings in distribution costs, as some hit will likely be passed on to distributors. This will be the one of the key variables in determining upside or downside to our earnings forecasts," Morgan Stanley added. The brokerage firm has cut the HDFC AMC target price to ₹ 1,765 from ₹ 2,050 a share.
Nomura Research has downgraded the Reliance Nippon scrip to ‘neutral’ from ‘buy’ and cut its price target to ₹ 210 a share from ₹ 315 a share.
“We expect Reliance Nippon to maintain strong position in the business and incrementally benefit from its efforts to penetrate the B15 and B30 locations. Considering overall pressure on yields, we are reducing our revenue estimates by 1.4% for FY20E resulting in an earnings decline of 3.2%," Emkay Research added.