The strong participation by Indian retail investors in the stock market through mutual funds route has led to a significant rally in AMC (Asset Management Company) stocks. Shares of Aditya Birla Sun Life AMC have gained 52% so far in 2024. Similarly, other AMC stocks such as Nippon AMC, HDFC AMC, and UTI AMC have posted returns ranging between 30% and 50%.
However, according to domestic brokerage firm Centrum Broking, the rally in these stocks may not continue. The firm has recently initiated coverage on these stocks and, given the substantial rally, believes there isn’t much further upside.
Centrum Broking has assigned a ‘Reduce’ rating to HDFC AMC, setting a target price of ₹4,075 per share. HDFC AMC has been among the top 3 mutual fund players and has been focused on recouping losses and expanding its bouquet of products. However, the brokerage believes the current price captures the positives.
Similarly, it has given Aditya Birla Sun Life AMC a ‘Reduce’ rating with a price target of ₹650 apiece. The company is one of the largest non-bank-based AMCs, but the market share losses are a drag. While there are some green shoots in terms of an increase in equity in the AUM mix and traction in SIP, the brokerage sees limited upside to the current price.
Likewise, it has assigned a ‘Reduce’ rating for the UTI AMC with a price target of ₹1,015 apiece. It says, the company has consistently been ranked among the top ten AMCs, but it has not been able to capitalise on getting the desired net flows especially on the equity side when the growth has been strong for the industry.
It believes the current stock price captures the positives and any potential upside looks unlikely.
For Nippon AMC, it set an ‘Add’ rating with a price target of ₹735 apiece. According to the brokerage, the company has been the fourth-ranked player in the resurgent AMC industry and has witnessed solid growth momentum coupled with first-quartile equity scheme performances.
Underpenetrated; huge potential
The MF industry remains underpenetrated, as its AUM to GDP ratio of 15% was low as compared to the global average of 75% in 2020. Even in FY24, when the AUM grew 35% YoY, the ratio rose to 18%, indicating significant room for growth.
Over FY15–24, the AUM grew at a 19% CAGR to reach ₹54 trillion. The brokerage observed a positive upward trend in this ratio over recent years. Looking ahead, the projections remain optimistic, with expectations that the AUM to GDP ratio will stabilise around 20%.
The brokerage states that these projections depend on sustained economic growth, a favorable investment climate, and continued investor education and participation.
If this baseline scenario holds, the brokerage expects the AUM could grow at a rate of 11% CAGR over FY24–34E, reaching ₹160 trillion. GDP is expected to grow by 10% to ₹144 trillion in the bearish scenario (18%) and by 13% to ₹176 trillion in the bullish scenario (22%) over FY24-34E.
SIP funds find favor
SIPs, or systematic investment plans, have become very popular because of the regular, set investments that are made in mutual funds (MF). Rupee Cost Averaging is the special feature of SIP; in a low market, investors can purchase more units, and in a high market, investors purchase less. Furthermore, the investment amount is flexible and can be raised or lowered.
The brokerage highlighted that SIPs have outperformed traditional fixed deposits in terms of returns, particularly with the upward trend in equity markets.
According to the brokerage, the SIP approach has led to a steady increase in monthly inflows into mutual funds, rising from ₹37 billion in FY17 to ₹130 billion in FY23 and ₹166 billion in FY24.
Furthermore, SIP QAAUM has grown to ₹10.7 trillion in FY24, comprising 36% of equity assets compared to 21% ( ₹2 trillion) in FY18. Over FY17–24, the number of active SIP accounts increased at a 30% CAGR to 84 million.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
