This put further pressure on AMCs' overall performance in the June quarter.
The weaker AUM mix is likely to continue in the near term. According to some experts, equity MFs are witnessing redemption pressure as investors are preferring to book profits, following a rebound in the equity markets after a steep fall in March.
According to Binod Modi, analyst at Reliance Securities, “Amid the volatile investment scenario, the AUM share of high-margin equity funds would remain low and that of low-margin liquid funds would see good traction. This would hurt AMCs’ overall revenue and earnings growth in the near term.” He, however, said the long-term growth story of AMCs was intact.
On the bottom-line front, analysts expected some support from cost control as operating expenses, such as travelling, the opening of new branches, would remain low.
Analysts at PhillipCapital forecast the AMC revenue (core revenue to average AUM) to decline 7-12 per cent in FY21. Net profit growth of HDFC AMC
is estimated to grow by around 2.2 per cent and that of Nippon AMC by 39.6 per cent.
The expected higher net profit growth for Nippon AMC is mainly due to a lower base. The company had reported a 15 per cent drop in net profit in FY20 because of mark-to-market losses.
Another concern, mainly for HDFC AMC, is that though the company remains the leader in the equity segment, it continues to lose market share. The management has been taking steps to recover its market share and appointed additional equity fund managers.
Further, analysts at JM Financial, who have a ‘sell’ rating on the HDFC AMC
stock, said the current valuation (around 41x its FY21 estimated earnings) offered little comfort. The stock of Nippon AMC is currently trading at around 29x its FY21 estimated earnings.
While their long-term potential remains strong, how the two companies
protect their top line and earnings growth in the coming quarters should decide the near-term stock price movement.