Strong Market Presence and Inflows Should Stem Growth For HDFC Asset Management Company

HDFC asset management company plans to capitalise on existing reach and distribution network and focus is on enhancing it. Performance of HDFC asset management company should seek support from significant recovery in stock markets. Rising awareness about mutual funds should result higher participation of individual investors.

HDFC Asset Management Company

HDFC mutual fund is counted as one of India’s largest and most profitable mutual fund manager. Started in 1999, this company was set up as a joint venture between Housing Development Finance Corporation Limited and Standard Life Investments Limited. During FY18-19, the company carried out an initial public offering, becoming a publicly listed company in August 2018. HDFC asset management company is an investment manager to schemes of HDFC mutual fund. This company offers suite of savings and investment products across several asset classes, providing income and wealth creation opportunities to large retail and institutional customer base.

Growth Enablers of HDFC Asset Management Company

• Healthy Performance Exhibits Confidence: The company’s Quarterly Average AUM came at INR4,321 billion as of March 31, 2022 against INR4,156 billion as on March 31, 2021, exhibiting 4% growth. As of March 31, 2022, 62.4% of the company’s total monthly average AUM was made by individual investors against 55.2% for industry. Operating profit for FY22 came at INR15,375 million in comparison to INR13,996 million for FY21. This was an increase of 10%. 

• Enhanced Digital Presence Should Result in Seamless Operations: Technology platforms of HDFC asset management company limited are built on cloud leveraging emerging technologies and they are robust and scalable. Focus is to build and retain direct online investor base and to power solutions with direct access and control to business users. Steps taken to improve digital presence has benefitted the company. In FY20, transaction volumes on in-house platform saw a growth of 17% and mobile-to-web ratio saw an increase as every third digital transaction was on mobile. Its strong digital presence is being supported by integrated online platform. Between FY15-FY20, the company has compounded electronic transactions at 36%, with total transactions being compounded at 15%. Assuming 22 working days per month and for both partner and investor, the company sees logins of 50k+ per day on MF online and 40+ new user registrations every hour. HDFC AMC has best-in-class IT systems and resilient IT Infrastructure & processes. These systems support in increasing productivity. Thus, it helps in reducing turnaround time across operations, customer service, dealing, research, risk management and other functions. 

• Recent Trends in Indian Mutual Fund Industry: Mutual fund industry in India has compounded its AUM at ~15.5% over five years. Increased participation of domestic individual investors in Indian mutual fund industry has stemmed from rising awareness about benefits of investing in equity markets and growing popularity of ways of investing, like SIP. Net inflows into industry over five fiscal years were INR9.46 lakh crore, of which INR6.47 lakh crore were in equity-oriented schemes. Fixed income products including liquid funds have also seen popularity. This was amongst corporate, and retail and high net worth investors. Monthly SIP flows saw 2.8 times growth from Apr 2016 to INR8,641 crore in Mar 2020. Number of SIP transactions processed in Mar 2020 was 3.12 crore in comparison to 1.01 crore in Apr 2016. During this period, domestic equity markets saw healthy balance between domestic institutional investors and foreign portfolio investors. This reduces reliance on FPI inflows, lending more stability to Indian markets.
• Strong Brand Recall Should Support Future Growth: There is immense scope for Indian mutual fund industry to grow. Given HDFC asset management company’s strong positioning in this industry, the company should be able to capitalise on opportunities. The company sees that there is enough scope for savings and investment related products which should translate into material growth in mutual fund industry. Strong growth is expected to be seen by the company and this should stem from strong brand recall, disciplined investment philosophy and process, customer-centric approach, strong distribution network and reach and healthy financials. The company plans to maintain its focus on offering diverse range of products across asset classes and product categories so that financial needs and aspirations of consumers can be catered to.
• Take on Debt Markets: FY22 was relatively difficult one for Indian fixed income markets, with 10-Y G-sec bond yields closing year higher by ~67 bps at 6.84%. G-sec yields were seen trading in a narrow range during H1 even though factors like high inflation, strong recovery, pick up in global yields, etc. turned adverse. This was mainly due to RBI’s intervention, easy financial conditions and stronger‑than‑expected government revenues. All these factors resulted in lower‑than‑expected market borrowings.

·        Industry Overview: Mutual fund industry’s closing AUM as of Mar 31, 2020 saw a fall of 6% to INR22.3 lakh crore against a closing AUM of INR23.8 lakh crore as of Mar 31, 2019. During this period, equity-oriented AUM saw a decline from INR10.2 lakh crore to INR8.3 lakh crore while non-equity-oriented AUM grew from INR13.6 lakh crore to INR14.0 lakh crore. MF industry saw 32% rise in number of folios to 12.95 Crore for FY22 from 9.79 Crore for FY21. Of total, 12.87 Crore were folios from individuals, exhibiting 32% increase year-over-year. AUM increased 20% to INR37.6 Lakh Crore as of Mar 31, 2022 against INR31.4 Lakh Crore as of Mar 31, 2021. Equity‑oriented AUM saw a growth of 39% to INR18.1 Lakh Crore, with non‑equity‑oriented AUM rising INR19.5 Lakh Crore from INR18.4 Lakh Crore.

Conclusion

HDFC asset management company has a total market cap of INR41,16,693.90 lakhs and free float market cap of INR12,76,538.79 lakhs. Today, India is one of most vibrant global economies and this is principally due to strong banking and insurance sectors. Relaxation of foreign investment rules has been perceived well from insurance sector, as many companies are announcing their plans to increase stakes in joint ventures with Indian companies. There could be a series of joint venture deals over coming quarters. These deals are expected to take place between global insurance giants and local players.

MF industry is expected to seek support from increasing importance of financial savings among Indian households, under‑penetration of MFs, growing investor awareness and education, strong distribution platforms and ease of transactions through digitisation. India has 50 Crore+ PAN holders. Over 3 Crore new Demat accounts were opened since Mar 2020. However, Indian MF industry has reached only 3.4 Crore unique investors. This exhibits significant growth potential.  

Stock currently trades at ~29.56x of FY21 EPS against sectoral average of ~33.45x. This means that stock is currently undervalued and investors should go long on this. Going ahead, growth is expected to come from strong brand recall, disciplined investment philosophy, well laid out distribution network and growing reach, and healthy financials.

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