HDFC AMC hits new high on MSCI inclusion; zooms 204% against issue price

The stock was trading at its highest level since its listing on August 6, 2018, and has zoomed 203 per cent from its initial public offer (IPO) price of Rs 1,100 per share.

Shares of HDFC Asset Management Company (AMC) were trading higher for the third straight day, up 5 per cent in an otherwise subdued market, at Rs 3,345 on the BSE on Monday. The stock was trading at its highest level since its listing on August 6, 2018, and has zoomed 204.09 per cent from its initial public offer (IPO) price of Rs 1,100 per share.

In the past three days, the stock has rallied 14 per cent after MSCI Global Standard Index decided to include the stock in the MSCI India index, with effect from November 26, 2019. In comparison, the S&P BSE Sensex was down 0.51 per cent during the same period. The stock soared 74 per cent from its recent low of Rs 1,919 touched on July 11.

HDFC AMC delivered a strong set of numbers in July-September quarter (Q2FY20) with a modest top line growth but healthy improvement in margins backed by lower taxation expenses and lower fees and commission expenses due to regulatory changes. Analysts prefer HDFC AMC for its market leadership position (around 15 per cent market share) supported by a strong brand presence through the HDFC group association.

“Migration to financial savings, strong distribution and a consistent performance are expected to enable healthy AUM growth and maintain leadership. Strong operating efficiency, higher proportion of equity AUM and strong SIP flows would aid profitability,” say analysts ICICI Securities.

Given HDFC AMC’s strong positioning and superior earnings profile, the business deserves a premium valuation, the brokerage firm said in a result update.

“In our view, mutual funds industry in India is underpenetrated and offer long term growth prospects for channelizing household financing savings. In fact, mutual funds have been growing at a rate higher than the bank deposits growth rate. HDFC AMC is among the unique pure-play investment opportunities to take exposure to the mutual fund industry in India and a quality asset with a credible track record, superior margin profile and healthy ROEs (>30 per cent),” analyst at KR Choksey Shares and Securities said in result update.

The stock, however, was trading above the brokerages' 12-month target price of Rs 3,040 and Rs 3,256 per share, respectively.