AMC stocks surge on buzz of new TER proposals; HDFC AMC goes up 4.5%

Shares of asset management companies (AMCs) rose up to five per cent on Thursday amid reports that markets regulator Securities and Exchange Board of India (Sebi) is about to release a revised consultation paper on overhaul to expenses charged by mutual funds. The new proposals from Sebi are expected to have a lower impact on AMCs' profit margins than the earlier ones.

Leading the gains on Thursday was Nippon Life India AMC, which saw a 4.8 per cent increase in its share price. Following closely behind was HDFC AMC, whose shares rise 4.5 per cent. The other two listed AMCs — UTI and Aditya Birla Sun Life — also saw their shares rise, by 3 per cent and 2.3 per cent, respectively.

The performance of AMC shares has been steadily improving ever since the shadow of regulatory concerns over potential cuts to the total expense ratio (TER) began to fade.

From a March low of around Rs 1,590, the stock of HDFC AMC has risen by 58 per cent to reach Rs 2,517. During the same period, shares of Nippon Life India AMC have increased by an impressive 66 per cent.

This growth comes after AMCs reported gains between 1 per cent and 15 per cent at the end of June, when Sebi first announced a revision in its TER regulations.

In May, Sebi published a consultation paper proposing that expenses such as brokerage fees, securities transaction tax, and Goods and Services Tax (GST) be included in the TER. In addition, the regulator proposed to replace the current scheme-based model with a TER model linked to the total assets of the industry.

However, Sebi announced in June that it was re-evaluating these plans, citing industry-provided data.

Speaking after the board meeting in June, Sebi Chairperson Madhabi Puri Buch had said: "Unlike previous proposals which involved the industry at the co-creation stage, this paper was presented without their involvement due to the potential impact on the pricing of listed AMCs. Given the data we have received, the board has recommended the issue of a new consultation. The industry is likely to respond positively to the new proposal."