
Are AMC stocks still a good bet even as markets correct?

Summary
The Indian AMC industry's long-term prospects remain strong due to low penetration and the financialization of savings. However, brokerage firms have slightly lowered estimates amid market volatility.Asset management companies (AMCs) were among the top picks for many investors during the Indian markets' bull run. But over 10% correction has turned the tide for Indian asset managers. The question now is: Are AMC stocks still a good bet?
Over the past three years, shares of Aditya Birla Sun Life AMC Ltd, Nippon Life India Asset Management Ltd, and HDFC Asset Management Co. Ltd have appreciated between 24% and 66%. Bajaj Finserv Ltd’s stock gained only 11%, while UTI Asset Management Co. Ltd climbed 21%.
In comparison, the Nifty 50 gained 33% during the same period.
However, the good show petered out over the past month, with all wealth managers registering 10-25% declines, except for Bajaj Finserv, which has risen by about 6%. Meanwhile, the Nifty 50 has fallen 3%.
“The long-term prospects of the Indian asset management industry remain intact, given the low penetration levels in India vis-à -vis developed countries," said a 24 January report by Axis Securities Ltd. Not just that, “It is a play on the financialization of savings in India," the report added.
The brokerage expects Nippon Life India Asset Management to benefit in the long run. Still, because of market volatility, it has marginally lowered its estimate of the company's assets under management (AUM) growth.
The close relationship
Investors tend to react to high volatility by withdrawing money or switching between schemes, which in turn affects fund inflows and outflows.
AMCs are closely tied to capital market movements, driven by operating leverage, mark-to-market (MTM) fluctuations, and AUM, explained Aditya Sood, fund manager at InCred Asset Management Pvt. Ltd.
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He said rising AUM boosts profitability due to operating leverage, but during downturns, revenues drop while fixed costs remain, squeezing margins. MTM movements further impact earnings, as AMCs gain from rising asset values in bull markets but see profits shrink when markets decline. With AUM directly influencing fee income, investor sentiment plays a crucial role—withdrawals in weak markets can significantly impact revenue.
Sood emphasized that AMCs are cyclical businesses, “thriving in bullish phases but facing challenges in downturns".
Even as Sood sees the financialization of savings as a key growth driver for AMCs in the long run, spanning the next decade, he cautioned that near-term performance remains tied to market fluctuations. “If the market drops 10-15%, profits could plunge by 20-25%."
UTI AMC’s net profit during the December quarter stood at ₹150.69 crore, down 18.85% from ₹185.70 crore a year ago. Kotak Institutional Equities has cut earnings estimates for the company by 2-4% due to lower equity returns, partly offset by higher yields.
“Sustained improvement could likely lead to earning upgrades/re-rating, but weak markets could offset/delay improving operating trends," read the 29 January report by the brokerage.
Moreover, the brokerage believes the overall environment for equities and retail flows could have consequences in the near term.
Meanwhile, in a 28 January report, the domestic brokerage said large MTM swings could lead to a hazy earnings outlook for Aditya Birla Sun Life AMC. Kotak remains optimistic about Aditya Birla Sun Life AMC, citing its “relatively inexpensive valuations", but sees a re-rating as contingent on a turnaround in performance and fund flows.
“We have seen three quarters of strong P&L and stable operational trends. However, large MTM swings are likely to have a greater impact on earnings," it said.
Kotak has also cut FY26-27 earnings estimates for HDFC AMC by 2-3%. The recent correction in the stock has resulted in slightly more palatable valuations, said the brokerage. “A better entry point is warranted given recent drawdowns and risks to forward flow assumptions," it said.
Kotak explained that large negative MTM swings reduce the overall yield as they hurt the performance of older funds while new flows continue at lower levels.
HDFC AMC’s managing director and chief executive officer, Navneet Munot, said in its earnings call with analysts on 14 January that “If the bear market sustained for an extended period, it may affect overall sentiment that may have an impact on whether "the new investor addition or a topping up of amount by the existing investors".
However, he was positive that this time, a good part of the company’s growth is structural in nature and not completely cyclical.
HDFC AMC's other income for the December quarter dropped 46% sequentially and 35% on-year, primarily due to a decline in equity markets.
Even Nippon Life India Asset Management’s executive director and CEO, Sundeep Sikka, said in the December quarter earnings call that if markets turn volatile or negative, it definitely impacts the sentiment, and there could be a slowdown in flows.
Either now or later
So, if the market declines further, Raghvesh, an insurance and capital markets analyst at JM Financial Institutional Securities, highlighted the wealth managers' AUM growth will certainly take a hit. However, he pointed out that despite market corrections, redemptions are also slowing, as investors have matured and are increasingly buying the dip.
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He believes that AMCs have already corrected with the broader market, and markets are now looking toward 2026-27, making valuations more reasonable. “Leading AMC stocks have become an attractive entry opportunity as valuations hover around 19-26 times FY27 earnings, potentially offering an upside of 25-30% from here."
If investors plan to hold AMC stocks for over 12 to 18 months, Shrikant Chouhan, head equity research at Kotak Securities, believes they should consider investing at the current levels and additionally during dips. “However, if the outlook is shorter than 12 months, it would be prudent to wait for better entry points at lower levels, as AMC stocks are currently trading at slightly elevated valuations."
He sees a stable or rising market and a continuation of strong net flows acting as triggers for an upswing in stock prices.