Nomura sees robust growth ahead for domestic asset management cos

Forecasts industry AUM to grow at 18% CAGR between FY24 and FY30

Indian asset management companies (AMCs) are showing strong growth potential as the ‘underpenetrated’ mutual funds (MFs) continue to grow their share in household savings, Nomura said on Tuesday.

The brokerage said increasing retail participation and the resultant momentum in systematic investment plan (SIP) inflows are key tailwinds for the sector.

It expects the assets under management (AUM) of MFs to grow at a compound annual growth rate (CAGR) of 18 per cent over the next five years.

The MF AUM — as a percentage of nominal GDP — which is around 18 per cent now, is expected to increase to 26 per cent by the financial year 2030, according to Nomura. The decrease in margins owing to growing AUMs is unlikely to hit profitability, it said.

“We expect core-operating profitability for the sector to remain healthy despite gradual moderation, as decrease in revenue yields on account of a rise in AUM and faster growth in the passive segment should be largely offset by operating leverage,” it said.

MFs follow a slab-based fee model. As the AUM grows, schemes have to lower the charges. 

The brokerage has given a 'buy' rating to HDFC AMC and Nippon India AMC, and a 'Neutral' rating to UTI AMC.

It sees an upside of 21 per cent in HDFC AMC, 24 per cent in Nippon India AMC and 8 per cent in UTI AMC. The brokerage is yet to start coverage of the only other listed AMC Aditya Birla Sun Life (ABSL).

On its bullish outlook on HDFC and Nippon, the brokerage stated the two AMCs have been expanding their market share on the back of consistent performance in the equity segment.

“It (HDFC AMC) remains one of the most profitable AMCs, driven by strong equity AUM and operational efficiency. The company leads with a 13.3 per cent retail AUM market share. It is witnessing consistent improvement in market share in the equity segment,” Nomura said

It added that the AMC is poised to capture more market share and its AUM is expected to grow at 19 per cent CAGR in the next five years.

“As India's fourth largest asset manager, we believe Nippon India is well positioned to benefit from rising industry flows, especially in small and midcap segments. With a robust retail franchise, growing SIP market share, and a 90 per cent dividend payout policy, we expect strong performance ahead. We project a 21 per cent AUM CAGR and 21 per cent core-earnings CAGR over FY24-28F,” it said.

Following Nomura’s report, AMC stocks logged strong gains on Wednesday even as the benchmark indices ended with losses.

Shares of HDFC AMC and UTI AMC went up over 4 per cent, on the BSE while ABSL AMC rose 2.8 per cent. Nippon India AMC went up nearly 2 per cent.