Investor flock to mutual funds, are asset management companies a good bet?

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The month of May 2021 was momentous for the mutual funds’ industry as the asset under management (AUM) via the systematic investment plan (SIP) route hit a record high of Rs 4.67 lakh. Even the inflows into open-ended equity mutual funds came in at a 14-month high of Rs 10,082.98 crore. Similarly, the contributions under the systematic investment plan (SIP) touched a lifetime high of Rs 8,818.90 crore.

“The overall trends have remained positive for the asset management industry in FY22 thus far. There have been positive flows in equity, passive and hybrid funds with an increase in systematic investment (SIP) flows as well as folios. New fund offerings (NFOs) have also been healthy especially in multi-cap, sector/ thematic and fund of funds segments,” said Ansuman Deb, Research Analyst of ICICI Securities.

Likewise, domestic brokerage firm Sharekhan is of the opinion that outflows have bottomed out for the industry, which brightens the outlook. Due to its granular nature, SIP contribution is a good proxy for investor traction for the AMC industry. SIP contribution, which was coming down, has seen smart pickup. Even the management commentary on growth and business metrics was positive.

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ICICI Direct is bullish on HDFC AMC and has set a price target of Rs 3,000 as it aims to accelerate AUM growth and gaining market share, slew of products launches (thematic funds) are underway, though the outcome of steps undertaken to shore up AUM needs to be closely watched. Overall, we continue to remain positive on the strong brand franchise and efficient operational strength shown in FY21.

Likewise, even Nippon Life India AMC is a good bet. “Focus on passive segment through Exchange Traded Funds (market share of 13%) with substantial market share in terms of the number of investor folios and volume on exchange (~72% market share in volume) provides an advantage in AUM growth, though profitability remains low. Robust client accretion led by strong distribution and digital focus remains positive for traction in AUM ahead,” said ICICI Direct in a report.

Another stock that the brokerage firm is gung ho about is CAMS. The company is a structural growth story with the opportunity to participate in a relatively underpenetrated and high-potential Indian asset management market. It is a proxy to the growing mutual fund industry with high RoE. Technological expertise, long-standing client relation and leadership in the duopoly RTA (registrar and transfer agent) market with entry barriers remain key business strengths. Technology spends and investment in new businesses are expected to limit improvement in EBITDA (earnings before interest tax depreciation and amortization) but a gradual pick-up in new businesses are expected to drive performance. PAT to grow at 14% CAGR in FY21-23E to Rs 267 crore with RoE (Return on equity) at ~40%. The platform-oriented businesses with market leadership have forced the brokerage firm to revise the price target to Rs 2,800 from earlier Rs 2,100.

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