Rebalancing itself will entail transaction costs. The first option, however, will be less detrimental to AMCs.
For HDFC AMC, the timing of Sebi’s move couldn’t have been worse. The June quarter (Q1) saw revenue from operations decline by 18.4 per cent, resulting in a 21.2 per cent fall in operating profit before tax (net profit grew 3.6 per cent aid by Rs 80 crore in other income).
The weak showing is attributable to the 20 per cent-plus year-on-year decline in equity AUM (70-75 per cent of operating revenue). Though it remains the leader, HDFC AMC is also losing market share (down 70 bps YoY to 14 per cent). According to JM Financial, HDFC AMC is looking at effective diversification in investment styles, within the equity segment, in order to arrest the market share decline. It has hired two new fund managers for this. Given that August marked the fifth straight month of equity outflows outpacing inflows, Q2 may be equally weak. JM Financial expects net profit to shrink by 1 per cent in FY21.
The stock has corrected 27 per cent year-to-date. There could be further downside if redemption pressures