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MUMBAI: Shares of HDFC Asset Management Company Ltd have underperformed the broader market despite the 32% rise over the past two months. The company’s December quarter performance didn’t seem to give enough reasons to celebrate and the stock has slipped today as well.

The fund house’s net profit grew a modest 5% for the December quarter. But the growth was largely because of a sharp reduction in expenses rather than an improvement on the income side. Operating expenses shrank, led by a massive 80% year-on-year drop in fees and commissions. Operating profit from core asset management business rose just 6% growth for the quarter. That said, operating margin has improved for the third straight quarter.

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Asset management companies make money from distribution of mutual fund products. This means that a faster growth in the assets that they manage leads to a boost to profitability. HDFC AMC’s asset under management (AUM) growth has been tepid off late, with the pandemic making it challenging. But most of all, the company has lost market share in equity funds. Equity products have a higher yield and a reduction here has a larger impact on profitability compared with other products. For the December quarter, the fund house’s market share in equity fund AUM stood at 13.4%. It was 15.6% in a year ago and 15.7% at the beginning of FY20.

To be sure, market share loss has slowed on a sequential basis, a sign that the fund house has managed to mend. Its equity oriented mutual fund schemes formed 40% of total AUM. Its overall market share has also declined, albeit marginally.

The largest fund house’s systematic investment plan (SIP) inflows also remain tepid. While sequentially, SIP inflows were steady, they showed a 2% year-on -year drop for the December quarter. Its market share in individual AUM also slipped. This does not bode well for the fund house.

It is clear that HDFC AMC’s shares have enough going against them, which explains the underperformance. Add the fact that the fund house is in process of leadership change. Analysts at Morgan Stanley had upgraded the stock to overweight in December but had sighted continuous market share loss as a key risk to the stock.

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