India's top listed AMCs ride rising market to beat Covid pandemic in FY21

Analysts expect momentum to sustain in the current financial year as equity flows rebound

Amid a boom in the equity markets, India’s top listed asset management companies (AMCs) reported a good performance for FY21, even as the Covid-19 pandemic dented the financial performance of multiple sectors.

This was achieved despite the mutual fund industry witnessing net outflow in the more profitable equity schemes for eight consecutive months in the previous financial year.

With equity funds witnessing net inflow in the past two months, the industry and analysts expect revenue and profits to be much better in the current financial year.

“Given our house view of a significant rally in the Indian equity markets in the near term, we expect assets under management (AUM) growth of the industry to remain strong. This shift of product mix towards a higher share of equity AUM shall lead to better profitability as yields on equity AUM are twice overall yields,” noted analysts at YES Securities in a Q4 results review report on Nippon Life India AMC.

Profit after tax (PAT) of HDFC AMC for the financial year ended March 31, 2021, was Rs 1,326 crore as compared to Rs 1,263 crore in the previous financial year, an increase of 5 per cent. This was lower than Street expectations.

Nippon Life India AMC (NAM India) reported a year-on-year (YoY) jump of 63 per cent in PAT to Rs 680 crore for the year ended March 31, 2021. The fund house saw a sharp surge in other income to Rs 357 crore (-Rs 9.8 crore in FY20), which helped total income rise 19 per cent YoY to Rs 1,419 crore.

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UTI AMC also reported an 82 per cent YoY jump in net profit to Rs 494 crore in FY21, led by a 35 per cent rise in total income (Rs 1,199 crore). According to market participants, the rise in total income was also due to the mark-to-market gains on investments in the last financial year. 

 Sundeep Sikka, ED & CEO, Nippon Life India AMC, said: “In FY21, we continued our journey towards strong profitable growth, and remain focused on longer-term returns, while expanding our investor base… NAM India recorded its highest-ever profit, driven by robust asset growth and better operating efficiencies.”

The equity segment, a key driver for profitability for asset managers, went through a turbulent phase in 2020-21. Between July 2020 and February this year, pure equity schemes saw a cumulative net outflow of Rs  46,800 crore, even as the benchmark Sensex surged more than 40 per cent during this period. The overall outflow across equity, debt, and other schemes was Rs 2.15 trillion for the industry.

Notably, outflows have stemmed in recent months. In March, pure equity schemes saw a net inflow of Rs 9,115 crore, after a gap of eight months. In April, equity schemes had seen a net positive flow of Rs 3,437 crore.

“Given that the quarterly average AUM (QAAUM) in H1FY21 were depressed, we believe that QAAUM growth in H1FY22 could be quite strong,” said HAITONG in its research note on asset management space. HDFC AMC and Nippon Life India AMC have both delivered returns of more than 35 per cent in the last financial year. 

Assets managed by the Indian mutual fund industry have increased from Rs 23.53 trillion in April 2020 to Rs 32.43 trillion in April 2021, an increase of 37.8 per cent. The proportionate share of equity-oriented schemes is now 42.4 per cent of the industry assets in April 2021, up from 38.8 per cent in April 2020. The gains are partly led by the surge in stock prices.

Over a longer timeframe, equity AUM have grown 7x in the past 10 years, while debt AUM are up 3x, to Rs 14 trillion and over Rs 9 trillion, respectively.

Industry executives say MFs can benefit from the shift from physical to financial assets in the years to come. “There is still tremendous opportunity for the MF industry to grow from here. Top cities still contribute a large part of AUM and if fund houses manage to reach semi-urban and rural areas, revenues and profits will see a huge increase,” said a senior official from the industry.

The share of the top 15 cities in overall AUM has ranged 83-85 per cent for at least seven years.

Moreover, initiatives on the digital front and new distribution channels, such as fintechs, should support growth.