Reliance AMC: AUM, revenue may see uptick of over 20% each in next 2 years

Concerns over long-term capital gains tax introduced in the Budget have affected the shares of Reliance Nippon Life Asset Management which are 11 per cent down since then.

However, analysts are bullish over the prospects of India’s sole-listed asset management company (AMC), given the growth in mutual fund (MF) investments, especially in equities, over the medium term.

Though the recent data by the Association of Mutual Funds in India shows that net inflows (all categories) in MFs have declined (over 60 per cent year-on-year, or y-o-y) in February 2018, experts consider the inflows to be attractive over medium term.

“Given a rise in the number of listed companies and higher investor participation, potential for the MF industry is large in the medium to long term,” said G Chokkalingam, founder and managing director, Equinomics Research & Advisory.

Share of equity funds in total assets under management (AUM) is also expected to increase, boosting the top line and profitability of AMCs such as Reliance Nippon. This is because among the various segments (equity, income/debt, liquid, etc), equity funds attract more fees for AMCs.

“The household savings are shifting to equity market through MFs as number of avenues to invest in other asset classes is limited,” said Rajesh Gupta, assistant vice-president-retail research, at SBICAP Securities. 

Though overall net inflows were down in February 2018, those from equity funds increased y-o-y.

According to Rajesh Gupta, retail investors still invest a small portion of financial savings in the equity market through MFs, providing a room for an increase in equity investments through this channel.

While analysts expect Reliance Nippon’s AUM to increase at a compounded annual growth rate (CAGR) of over 21 per cent over FY18-20, share of equity funds in its overall AUM is likely to go up to 36 per cent by FY20 from 34 per cent as of December 2017. Revenue of the company is expected to move north at a CAGR of over 22 per cent over the next two years.

Income or debt funds, which are deployed in fixed-income securities such as bonds or debentures and whose returns are dependent on yields, are expected to remain under pressure till yields remain elevated. This could be negative for overall AUM growth and revenue of the company.