HDFC AMC hits record high, rises 9% in four days

HDFC Asset Management Company (AMC) hit an all-time high of Rs 1,971, up 2 per cent on the BSE, in an otherwise range-bound market.

The stock surpassed its previous high of Rs 1,970 recorded on August 27, 2018. In the past four days, it has outpaced the market by gaining 9 per cent, as compared to a 0.20 per cent rise in the S&P BSE Sensex.

HDFC AMC stock has recouped its entire 7 per cent loss registered on June 18, after the company said it offered exits to investors of some fixed-maturity plans (FMPs) by transferring Rs 500 crore worth of their exposures to Essel group firms to its own books.

The liquidity arrangement shall only apply in case of FMP schemes (having an exposure to the NCDs issued by the Essel Group Companies) which have either already matured in April, 2019 and/ or will mature till the standstill arrangement entered into by the Company with Essel Group Companies is in force.

According to a Business Standard report, if the payments related to Essel firms don't come through within the September deadline, the AMC will sell the collateral shares to recover the dues and pay the realisable value to the investors. CLICK HERE TO READ FULL REPORT

Thus far in the calendar year 2019, it has rallied 31 per cent, against an 8.5 per cent gain in the benchmark index.

Analysts at JP Morgan believe HDFC AMC's business is well positioned for the longer term, benefiting from its leadership position in the industry (and especially equity) and its status as the most profitable AMC in the industry since 2011.

India's under-penetration of mutual funds relative to the world and vs. competing areas of bank deposits/insurance additionally lends credence to longer cycle growth from “financialization” of savings. Further, the company’s business model checks most of the investment criteria of a growing and high ROE business, positive free cash flow and high dividend payout, the brokeage firm had said in a report dated April 29.

Analysts at JM Financial expect operating profitability (PBT ex-other income as % AUM) to be maintained at 37-38bps for HDFC AMC in FY20E / FY21E (vs 38bps in FY19) as the brokerage firm believes the banning of upfront commissions (and a full trail model) makes new inflows profitable from day 1, which will largely offset the impact on profitability of total expense ratio (TER) cuts.

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