Volatility plays spoilsport: Profit growth a mixed bag for top MFs

A slowdown in flows amid challenging conditions in equity and debt markets have led to a mixed year of profit growth for top mutual fund (MF) houses.

“A drop in equity flows would have affected the top line of MFs and this would have weighed on profits, too,” said Kaustubh Belapurkar, director (fund research), Morningstar Investment Advisor India.  

Reliance MF posted a net profit of Rs 486 crore in 2018-2019, which was 6 per cent higher on a year-on-year (YoY) basis. ICICI MF’s net profit grew 11 per cent to Rs 683 crore.

Meanwhile, HDFC MF saw its net profits grow 31 per cent to Rs 931 crore in 2018-2019. Aditya Birla Sun Life MF saw its net profits rise 28 per cent to Rs 448 crore.

Experts said the revival in equity flows would be key for the future earnings growth of the Rs 24.78 trillion MF industry.

“The reduced fee structure has underscored the importance of economies of scale in the asset management industry. Stronger equity flows would be key to driving profits of fund houses,” added Belapurkar.

In its board meeting in September, Sebi decided to cap the maximum limit on expense ratios from 2.5 per cent to 2.25 per cent. The market regulator also linked expense ratios that a fund house can charge to the asset size of the scheme. According to the new norms, expenses charged to investors reduce as the scheme becomes larger in size. These new norms got effective on April 1, 2019. Apart from coming to terms with the regulatory changes, the MF industry has been grappling with sharp slowdown in equity flows. In April, the equity flows slipped to a 31-month low of Rs 4,608 crore. 

Before seeing a surge in flows in March, the industry had seen four back-to-back months of fall in equity flows.

Besides equity markets, the industry also had a tough year in the debt market. Since the IL&FS crisis in September last year, income schemes have seen Rs 68,000 crore of net ouflows (up until March 31, 2019). Meanwhile, liquid funds have seen net outflows of Rs 1.8 trillion during the same period.  

Industry players say that after elections, growth could see a sharp recovery. “The MF industry faced multiple headwinds during the year due to regulatory changes, market volatility and credit events. However, post elections, we expect a much stronger growth. Our focus continues to be on retail assets,” said Sundeep Sikka, chief executive officer (CEO) of Reliance MF, in his comments on the firm’s results.

Experts feel that steady contribution from the systematic investment plans (SIPs) helped the MF industry during this volatile period. At the end of March 2019, the monthly contribution through SIPs stood at Rs 8,055 crore, which was 13 per cent higher on a YoY basis.