Q1 show brightens outlook for MF firms; analysts expect stocks to gain

With asset management companies (AMCs) managing to largely ride out market volatility over the past year, the outlook for their stocks has brightened. This is amid multiple tailwinds and a strong performance on the earnings growth front during the June quarter (Q1), going by the post results analysis put out by brokerages.

 

In Q1, three of the four AMCs registered double-digit profit growth compared to the same quarter last year.

 

HDFC AMC saw its net profit surge 24 per cent year-on-year (Y-o-Y) to ₹748 crore. Nippon Life India's net profit grew 19.2 per cent to ₹396 crore, while Aditya Birla Sun Life (ABSL) saw its profit soar 17.6 per cent to ₹277 crore. UTI's net dropped 7.5 per cent to ₹254 crore.

 

However, compared to the previous quarter (Q4), profit was up nearly 40 per cent.

 

While the strong performance for some AMCs has been driven by strong gains in 'other income', revenue from operations of most AMCs witnessed growth. It was buoyed by surging systematic investment plan (SIP) inflows and mark-to-market gains. 

 

The average quarterly AUM of the mutual fund (MF) industry was at ₹72 trillion in Q1, up 22 per cent Y-o-Y and 7 per cent quarter-on-quarter (Q-o-Q). SIP inflows surged to new all-time-highs in each of the months in Q1 after staying largely stagnant in the previous quarter.

 

Apart from the resilient SIP inflows and bounce back in the equity market, AMCs benefitted from factors like commission rationalisation.

 

 

Brokerages see AMCs commanding higher valuations on the back of multiple structural tailwinds.

 

“We have been highlighting the case for an increase in AMC multiples based on resilient and growing SIP trends, apart from the increased trend of commission rationalisations, possible benefits from higher consumer discretionary income post tax cuts and repo rate cuts, possible higher growth from a new asset class of MFs (specialised investment fund) and lower regulatory risk,” ICICI Securities said in a note in July.

 

AMC stocks have already witnessed a strong rally in recent months with prices scaling to new all-time-highs. HDFC AMC has run up over 60 per cent in about four months. Nippon India, up 27 per cent in one year, is trading close to its all-time high of ₹813. ABSL and UTI shares have also gained around 26 per cent in one year.

 

Brokerages see a further run up in stock prices, expecting the earnings momentum to sustain.

 

“We have raised our earnings estimates by 3 per cent each for financial year FY26 and FY27, reflecting strong Q1FY26 performance and stable AUM growth,” said a Motilal Oswal Financial Services report.

 

The positive outlook for some AMCs is also based on growth expectations in businesses other than MFs.

 

“Nippon India continues to witness strong flows in the offshore business from Asia and Europe. The company will continue to strengthen its footprint in the Japanese institutional and retail space, alongside foraying into newer geographies in the Asian, European, and Latin American markets,” said Axis Securities.

 

For ABSL AMC, rise in debt fund AUM and advisory mandate from the Employees' State Insurance Corporation were also among the positives last quarter.