Steady SIP inflows, SIF foray buoy positive outlook for mutual funds

Despite market volatility and AUM decline, steady SIP inflows and earnings from SIFs support positive outlook for listed AMCs following resilient Q4 performance

Even as continued market volatility remains a headwind for asset management companies (AMCs), steady systematic investment plan (SIP) inflows and addition of a new revenue source — specialised investment funds (SIFs) — paint a positive outlook for the industry, brokerages said in their analysis of the results for the fourth quarter (January-March) of financial year 2024-25 (Q4FY25).

 

The decline in assets under management (AUM) of equity schemes due to mark-to-market losses and dip in inflows weighed on the performance of mutual funds (MFs) during Q4FY25. Profits were also hit due to lower investment income.

 

HDFC AMC reported a profit of ₹638 crore, up 18 per cent compared to the same quarter of FY24. Aditya Birla Sun Life's (ABSL's) profit went up nearly 10 per cent to ₹228 crore. Nippon Life India and UTI's net profit declined by 13 per cent and 44 per cent, respectively.

 

However, the hit on earnings was either in-line with Street expectations or lower for most of the listed players. According to Motilal Oswal Financial Services report, HDFC's 30 per cent year-on-year (Y-o-Y) growth in operating profit at ₹900 crore was in line with expectations. "Higher other income led to a 3 per cent beat in profit after tax to ₹638 crore, up 18 per cent Y-o-Y and flat quarter-on-quarter (Q-o-Q)," it said. 

 

On Y-o-Y basis, ABSL AMC was the only other AMC to record profit growth in Q4. Its net profit went up almost 10 per cent due to higher revenues. The AMC, which had lost market share in recent years, also managed to grow its share in Q4, according to Incred Equities.

 

"The company is taking the right steps for improving market share. However, we see competition intensifying along with volatile capital markets, which seems to be weighing down on equity fund market share movement and SIP inflows," it said.

 

SIP inflows have been the silver lining for the industry amid the equity market gloom. These inflows have remained around ₹26,000 crore in recent months, only slightly lower than the all-time-high tally of ₹26,459 crore in December 2024. In comparison, gross lump sum inflows into equity schemes are down to around ₹30,000 crore from the peak of ₹64,000 crore recorded in June 2024.

 

The easing of valuations after the recent correction has also created scope for upside in the stock prices, analysts said. As of May 6, Nippon is down 28 per cent from its 52-week high. HDFC is down 12 per cent. UTI and ABSL are trading 42 per cent and 44 per cent lower, respectively.

 

The inclusion of the new business segment in the form of SIFs also adds to the earnings growth potential of AMCs.

 

"Slow growth in AUM and pressure on yields would impact top-line estimates. Ongoing global uncertainties, foreign institutional investor (FII) outflows and a weak rupee outlook may impact some growth momentum and lead to some volatility. The asset management industry is strongly regulated and regulatory uncertainty would impact our estimates," Axis Securities said.