Brokerages have lowered the price targets of asset management companies (AMCs) since they failed to beat revenue growth expectations in the January-March quarter (fourth quarter, or Q4) of 2022-23 (FY23).
The regulator’s plans to lower the fee charged by AMCs also added to concerns.
While HDFC AMC and Nippon Life India AMC reported modest growth in revenue from operations in Q4FY23, UTI AMC and Aditya Birla Sun Life AMC delivered yet another weak quarter.
The revenues of Nippon Life India and HDFC rose 3 per cent and 5 per cent, respectively. UTI’s revenue for the quarter was flat at Rs 301 crore.
Aditya Birla Sun Life’s declined 8 per cent to Rs 297 crore.
In the case of Nippon, a majority of the brokerages have slashed the price targets, while maintaining ‘buy’ and ‘accumulate’ ratings.
The ratings reflect the brokerages’ optimism on the AMC’s longer-term growth potential and expansion of market share, even as yields are under pressure and face the risk of shrinking further due to regulatory changes.
“We maintain ‘buy’, given the company’s growing market share, exchange-traded fund leadership, strong scheme performance, and steady equity assets under management (AUM).
"Regulatory headwinds from potential total expense ratio (TER) revision, along with lower net flows for the industry in FY23, could pose downside risks,” BOB Capital Markets said in a report.
The reports also highlighted Nippon’s improving market share in the high networth individual (HNI) segment.
Its HNI market share improved from 5.1 per cent in March 2022 to 5.8 per cent in March 2023, according to reports.
HDFC, which also missed revenue expectations in Q4, reported improvements along several parameters.
“As of March 2023, HDFC AMC remains the top performer in the one-year and three-year buckets. Superior equity performance has led to strong market-share gains in net flows to 8.6 per cent in FY23.
"Hence, equity market share is rising and touched 11.8 per cent,” Prabhudas Lilladher noted in a report.
UTI’s result was weak across fronts.
Its core operating profit was 3 per cent lower sequentially owing to sharp compression in equity yields, coupled with elevated staff costs, loss in equity market share, and mark-to-market losses on treasury books, said HDFC Securities.
The stockbroking arm of HDFC Bank justified the ‘buy’ rating on the stock, citing attractive valuations, a sizeable AUM base, credibility from over five decades of experience, a differentiated non-mutual fund (MF) business, and a growing market share.
The Securities and Exchange Board of India is reviewing the expenses charged by MFs and has indicated that it may bring down TER caps.
Several changes on the regulatory front have weighed on the performance of AMC shares.
Shares of listed AMCs have severely underperformed the market over the past year. HDFC is down 10 per cent in the past year; Nippon Life India down 22 per cent; Aditya Birla Sun Life down 31 per cent; and UTI down 16 per cent.
By comparison, the benchmark S&P BSE Sensex has gained 10 per cent.
Analysts said while the earnings growth for listed AMCs faces headwinds, the sharp fall in their share prices factors in most negatives.