Asset management firms see surge in other income from mark-to-market gains

Topics Asset Management | HDFC AMC | Nippon

Due to high operating leverage, AMCs are able to generate high levels of cash after gaining a sizeable scale
Asset management companies (AMCs) have seen sharp uptick in other income in the June quarter on the back of mark-to-market (MTM) gains on investment book, aided by a run-up in equity markets and lowering of bond yields.

Among listed players, HDFC AMC reported 65 per cent year-on-year (YoY) jump in other income in the June quarter, at Rs 79 crore.

India Mutual Fund (NIMF) reported nearly threefold jump in other income, surging to Rs 103 crore in the June quarter.

In an earnings call, Milind Barve, managing director of HDFC AMC, said, “There has been benefit of MTM gains on lowering interest rates across the yield curve on debt products where we have invested.”

In May, the Reserve Bank of India cut the benchmark repo rate by 40 basis points, bringing it down to the lowest levels seen since 2000.
The rise in assets managed in HDFC AMC’s books was also cited as a contributing factor towards higher other income. On a YoY basis, the total surplus on AMC’s books has grown “almost Rs 900 crore or 33 per cent”.

Due to high operating leverage, AMCs can generate high levels of cash after gaining sizeable scale. As of June 30, HDFC AMC had total investments of Rs 4,221 crore. Of this, Rs 2,591 crore was invested in liquid and debt funds of HDFC AMC.  


The AMC also conservatively revalued its debt exposure to Essel Group promoters, from Rs 29 crore to Rs 38 crore. This was after collateral value on the exposure increased to Rs 77 crore, from Rs 36 crore.

For NIMF, the jump in other income was primarily on account of MTM gains on investments made by the AMC in its own equity schemes and exchange-traded funds. The softening of yields in debt markets also contributed to gains in debt schemes.
For both front-line indices — Sensex and Nifty — the June was the best quarter in 11 years. The 30-share Sensex has seen gains of 18.49 per cent in the June quarter, while the Nifty has seen gains of 19.82 per cent in the same period.

As of June 30, the NIMF had Rs 1,602.2 crore invested in its own debt products, while Rs 331 crore was invested in its equity products.

The equity markets have bounced back with gains of over 48 per cent from March 23 lows. Until then, the Sensex was down 37 per cent in year-to-date terms.

Sources say some of the fund houses within the industry could rejig their investment strategy, so that equity market volatility witnessed recently doesn’t take a toll on their balance-sheet investments.

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