AMC Stock – Mutual Fund Stocks To Buy: If you have faith in MFs’ power of compounding, buy AMC stocks
Although both mutual funds and direct equity investments are suited for different money goals and risk appetite, yet the fate of investors in AMC stocks and mutual fund investors are closely interlinked.
Out of the 44 asset management companies (AMCs) in India, the top 10 control around 80 per cent of the assets under management (AUM). Only three are listed so far – HDFC AMC, Nippon Life India AMC and UTI AMC.
ICICI Securities, which had initiated ‘buy’ calls on all the three AMC stocks earlier this year, said a strong double-digit growth outlook driven by under-penetration, nil capex requirement, high operating leverage and supernormal RoEs make the Indian asset management industry a very attractive business proposition.
“We expect the theme of financialisation of savings to continue hereon due to lower returns offered by other asset classes such as bank FDs and real estate. Our macro model suggests that Indian MF AUM is expected to grow at 15% CAGR between FY20 and FY30. Well-established business franchises with entrenched distribution, healthy AUM share and strong brand equity will capture these business opportunities,” the brokerage said in a report.
AMC stocks, which have underperformed in the last one year, are now gaining traction. In the last one month, HDFC AMC is up 9 per cent, Nippon Life India AMC 9.8 per cent and UTI AMC 12 per cent.
Boasting of a strong bank-backed distribution network and brand value, several analysts say HDFC AMC, which is India’s largest mutual fund house, could be the best among the lot. The stock commands a premium valuation of 49 times its current earnings.
Analysts at JM Financial Institutional Securities believe that UTI AMC is trading at an undemanding valuation and at a discount to its peers. The brokerage has a target price of Rs 900 on the stock, an upside of 16 per cent.
YES Securities, which is bullish on all the three stocks, sees Nippon India AMC shares going up to Rs 452 level, an upside of 24 per cent.
Growing steadily at a CAGR of 19 per cent over the last 20 years, the mutual fund industry’s assets under management (AUM) has witnessed a two-fold rise over the last five years.
Data from Association of Mutual Funds in India (AMFI) shows that during the last 12 months, the mutual fund industry witnessed outflows in 5 months. In May 2021 alone, the overall net outflows stood at Rs 38,602 crore as compared with a net inflow of Rs 70,813 crore in May 2020. Assets under management (AUMs) of the mutual fund industry, however, reached Rs 33.1 lakh crore on the back of rising equity market.
During the last 12 months, equity-oriented mutual fund schemes have seen total outflows of Rs 18,659 crore as investors chose to book profits in a soaring market. In the last 3 months, however, the trend has reversed. Equity funds have seen inflows but investors have pulled out money from debt funds.
“The penetration i.e. AUM as a percentage of GDP remains merely at ~12% compared to the USA (120%) or Canada (81%). The banking sector still dominates the household savings portfolio in India with over 56% share, whereas the share of the mutual funds industry is just 6.7% (September 2020). It is still Day 1 for India,” Flipkart co-founder Sachin Bansal said in a LinkedIn post. Harbouring big ambitions in the BFSI space, his company Navi Technologies recently acquired Essel Mutual Fund and renamed it Navi Mutual Fund.
Competition in the mutual fund space is set to get murkier as biggies like discount broker Zerodha, NBFC Bajaj Finserv, Samir Arora’s Helios Capital Management and Rakesh Jhunjhunwala’s Alchemy Capital have applied for licenses from Sebi.
Whether it is through index funds, ETFs or actively managed funds, if mutual fund investors are to become richer, chances are high that AMC stock investors won’t be far behind.