Home / Markets / Mark To Market /  HDFC AMC’s Q1 was steady, but AUM growth key to shareholder returns

The stock market’s sharp gains in the last few months have been benefiting asset management companies. HDFC Asset Management Co. Ltd’s first-quarter figures were as steady as the market recovery led to a revival in assets under management. But worries are surfacing whether the lockdown will affect inflows to equity funds. That has led to shares of HDFC AMC undershooting the markets. Shares of HDFC AMC gained 18% since 1 April, compared to 36% of the Nifty 50.

While the industry has focused on pushing systematic investment plans (SIPs) over the last several months, one worry is that SIP inflows have slowed in recent quarters. In fact, SIP inflows in the quarter dipped by about 8.1% quarter-on-quarter (q-o-q) to 7,900 crore. Bigger AMCs are feeling the pinch as HDFC’s SIP book contracted about 15% q-o-q in Q1. Analysts said additional inflows to the asset management industry have been shrinking due to an increase in direct equity investing lately.

Graphic: Satish Kumar/Mint
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Graphic: Satish Kumar/Mint

Even so, the overall assets under management for the AMC have swelled, thanks to the upswing in the markets. Equity assets under management (AUMs) rose about 14% q-o-q. However, what is worrisome is the slight decline in HDFC AMC’s market share in Q1. This has come down from about 14.7% in March to 14.2% in June.

The impact of the volatility in the stock market hit revenue growth. HDFC AMC’s q-o-q revenue growth declined 14% on lower blended yields.

Notwithstanding the market growth that led to a rise in AUMs, the trend in inflows will determine revenue growth in the future. Further, market volatility could hit revenue growth.

HDFC AMC’s non-equity funds under management were flat, though. This has led to lower realizations in fees as blended yields were consequently pulled down. “Blended yields were lower by about 11/14 basis points y-o-y/q-o-q to 45 basis points. Lower operating expenses and decline in tax outgo led to 4% y-o-y growth in earnings at 302 crore, though down 21% q-o-q," said analysts at ICICI Securities in a note.

Of course, one good thing is that HDFC AMC has maintained the leadership it enjoys with individual investors. It enjoys a 14.6% market share in individual monthly average AUMs. Besides, about 51.7% of its total monthly average AUM arises from individual investors compared to 50.5% for the industry.

Operating parameters have shown an improvement over the fourth quarter. Still, the stock is quite pricey despite the fact that it has dropped about 35% from its 52-week high in November. The stock’s valuation on a trailing earnings basis works out to about 42 times.

While HDFC AMC has hiked its dividend payout recently, the market may need to be assured that AUM growth is likely to recover well in the coming quarters. That would give the share price a lift.

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