As AMCs enjoy higher operating margin for managing equity funds, the fall in equity flows is a reason to worry. Both companies have around 40-45 per cent equity fund share in their total assets under management (AUM, indicates size of assets managed by a fund house). However, analysts believe there is nothing much to worry, at least for now.
According to Cyrus Dadabhoy, vice president at Centrum Broking, "The lower equity flows in November were largely due to increase in redemption (profit booking) taking place. The structural growth potential of AMCs is still intact.” With markets are all-time highs and earnings growth missing, some profit-booking isn’t a surprise. In fact, the weak trend in equity flow may continue in December too.
On the other hand, factors such as lower penetration, rising preference of retail investors for equity market, among others, should help AMCs in the long-run. According to latest available data, AUM to GDP ratio of India stands at 11 per cent as compared to global average of 59 per cent, says Dadabhoy.
The listed fund houses, too, are focused on SIPs and have a sticky SIP profile. For instance, close to 80 per cent of HDFC AMC’s SIP book, as of September 2019, has more than 5 years of tenure. This takes care of the overall equity inflows even if the lumpy equity investments fall.
Further, companies like HDFC AMC and RNAM have strong and established distribution franchise.
In this backdrop, analysts say AMCs remain good long-term bets. However, in case of HDFC AMC, investors should await some correction given its rich valuation of 40 times FY21 estimated earnings verus RNAM’s 31 times.
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