Sector Update on Asset Management Companies - Subdued but improvement expected - HDFC Securities

Mr. Madhukar Ladha, Institutional Research Analyst, HDFC Securities

While increased volatility and active equity outflows of Rs 204.8bn in FY21TD have dented the performance of AMCs, we do expect a more benign environment as markets are near all-time high levels and 4QFY21 will see ELSS inflows. Performance at most listed fund houses except for UTIAMC continued to disappoint as a higher percentage of rated active equity AUM slipped to underperforming. Despite weak performance, HDFCAMC continues to be the largest active equity fund manager with a market share of 13.9%. We also note that ETF/Index funds continue to gain traction as individual folios have grown at an FY15-FY21TD (Sep-20) CAGR of 64.8% to 3.6mn while assets have increased to Rs 213bn (CAGR of 59.0%). Lastly, we observe that blended equity commissions for most fund houses have increased after 3QFY20. We expect AMC performance to improve from hereon as market conditions stabilise and inflows return.

Performance tracker. Performance deteriorated for HDFCAMC as underperforming AUM (as % of rated AUM) increased 687bps (vs. Mar-20) to 96.2%. For NAM/UTIAMC, performance improved as outperforming AUM improved to 16.8/40.6% (+488/1,285bps vs. Mar-20). MOAMC recorded a large slip in performance as MO Multicap 35 scheme (66.3% of rated AUM) slipped down one notch to 3 stars, driving an increase of 7,338bps to 83.1% for the company.

Market-share. In the equity segment, HDFCAMC continues to lead despite 233bps lower market share since Mar-18 to 13.9%. The company has done well in the liquid segment where it gained a market share of 780bps over FY18. UTIAMC's market share has improved marginally (+55bps) in the past six months to 7.6% after declining 49bps over FY18-FY20. Unlisted peers such as SBIAMC/AXISAMC continue to gain market share +597/103bps over FY18 to 14.5/6.1%.

Flows. FY21TD ETF net inflows continue to be robust at Rs273.1bn, while active equity assets continued to witness outflows of Rs204.8bn. Gross SIP flows have declined 9.7% since Mar-20 to Rs 78.0bn (Oct-20) as uncertain markets tested investors' nerves. We expect flows to improve as markets stabilise and individuals invest in tax savings schemes over 4QFY21.

Passive (ETF + index funds) gaining traction. Passive funds individual AUM has displayed phenomenal growth at FY15-FY21TD (Sep20) CAGR of 59.0% to Rs 213bn. Strong traction from individual investors has resulted in a robust folio growth (CAGR of 64.8%). We continue to keenly watch this space as any sustained growth in this segment can dent profitability.

Commissions tracker. Most large asset managers have increased distributor commission payouts post 3QFY20. Equity commission payouts are highest for MOAMC at 101bps in Sep-20, while the same has risen sharply to 63bps (+6.1bps vs. Mar-20) for UTIAMC.

Source : Equity Bulls

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