BackAditya Birla, Motilal Oswal, Nippon Mutual Fund: Which AMC stocks to buy, hold amid debt funds blow
Ministry of Finance withdrew the indexation benefits that were hitherto available to debt mutual funds (MFs)
PremiumIn an unexpected post-budget amendment to the Finance Bill, the Ministry of Finance withdrew the indexation benefits that were hitherto available to debt mutual funds (<35% in domestic stocks). Starting the next financial year, these debt mutual funds (MFs) will instead be taxed at the marginal tax rate irrespective of the holding period.
At the margin, HDFC Securities believes this has structural implications for mutual funds, corporates (NBFCs, HFCs, and other corporates), and a read-across for insurance companies and banks as alternative sources for deploying capital.
“Our discussions with debt market participants and bankers suggest an arbitrage-sensitive capital pool of ₹2 trn-3 trn. However, given the surge in debt MF inflows in response to this amendment, we expect credit spreads for high-grade issuers to ease in the near-term before widening in H2FY24," the note stated.
The brokerage house has Buy ratings on AMC stocks Aditya Birla Sun Life AMC (ABSLAMC) with a target price of ₹525, UTI AMC with a target price of ₹950 per share.
Meanwhile, it has Add tags on Motilal Oswal Financial Services Ltd (MOFSL) with a target price of ₹985 per share, Nippon Life India Asset Management Ltd (NAM) with a target price of ₹350.
The brokerage's analysis suggests that NBFCs/HFCs exposure to debt MFs (through NCDs) is low at around 4% of their total borrowings and hence, unlikely to materially raise the blended cost of funds.
The exposure has come off meaningfully post IL&FS crisis and Covid pandemic (cheaper source of funds through bank borrowings). The surge in debt MF inflows since the announcement is likely to ease near-term spreads for high-grade issuers (AAA-rated) given limited supply of high-quality paper. However, the impact is likely to be asymmetric on NBFCs with lower- tenor assets, given that debt mutual funds were dominant in the 2-3 y maturity bucket," the note stated.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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