Nuvama, HDFC AMC tank upto 9% today; why are capital market stocks falling?

Sebi has released a consultation paper on overhauling the mutual fund regulations to simplify the rules and reduce costs for investors

Capital market stocks today

 

Capital market stocks, including stock broking and asset under management companies (AMCs), came under pressure selling on Wednesday with the Nifty Capital Markets index slipping 3 per cent on the National Stock Exchange (NSE) in the intraday trade.

 

At 09:24 AM, Nifty Capital Markets index was trading as the top loser among thematic indices, down 2.2 per cent at 4,539.20, as compared to 0.21 per cent rise in the Nifty 50. The capital markets index slipped 3 per cent to 4,500.90 in the intraday trade.

 

The index had hit a record high of 4,768, more-than-doubling or zooming 137 per cent from its 52-week low of 2,009.60, the NSE data shows.

 

 

Among stocks, Nuvama Wealth Management, Computer Age Management Services (CAMS), HDFC Asset Management Company, Motilal Oswal Financial Services, 360 One WAM, Nippon Life India Asset Management, and KFin Technologies from the Capital Markets index declined in the range of 5 per cent to 9 per cent on the NSE in the intraday trade. 

 

Why are capital market-related stocks falling today?

 

Broking and AMC stocks were falling in trade today following a consultation paper, released by the Securities and Exchange Board of India (Sebi), on overhauling the mutual fund (MF) regulations to simplify the rules and reduce costs for investors. This is the second such consultation paper; the earlier one was released in May 2023.

 

Sebi has proposed changes in MF regulations, including lower brokerage cost, statutory levies like STT, CTT, GST, and stamp duty to be excluded from the total expense ratio (TER) limits, and performance-linked fees.

 

The reduction in the cap on brokerage and transaction costs, with cash market brokerage falling from 12 to 2 bps and derivative transactions from 5 to 1 bps. Regulator noted investors are being double charged - once at management fees and also at brokerage level. Besides, the regulator proposed removing the additional 5 bps that fund houses previously collected via exit loads. 

 

The exclusion of statutory levies means that these statutory taxes can be charged over and above the capped brokerage costs. The fund houses could be allowed to charge performance-based differential fees. AMCs now allowed other activities like advisory services to specific Family Offices or Global Endowment funds etc.

 

"The development is mainly negative for brokerages and AMCs to a certain extent. Significant reduction in brokerage fees paid by MF industry to brokerages is likely to impact revenue for brokerages. In the near-term, AMC may share the burden but shall ultimately pass on," ICICI Securities said in a note.

 

The removal of an additional 5 bps TER can have an impact on the earnings of AMCs if they absorb the hit, or it could have an impact on distributors if the AMCs cut commissions to offset the hit. For customers, it will lower the TERs. If the distributors' commissions are cut, Anand Rathi, 360 One, and Nuvama could see earnings cut, according to Motilal Oswal Financial Services (MOFSL).

 

The brokerage firm said that its estimates suggest that for Anand Rathi, a 5bps cut in commissions could lead to about 4.8 per cent hit on earnings. For 360 One, the hit would be 2 per cent on earnings if the commissions are cut on MFs, while the AMC hit of 5bp would be less than 0.5 per cent.

 

The reduction in the cap of brokerage rates paid by AMCs would not impact AMCs in terms of financial performance but would have an impact on brokers' realisations. For customers, this will lower the overall expense charged to the scheme, MOFSL said.