HDFC Asset Management Company

This is going to be a series of posts

Post I - Financial Savings in India and MF as an instrument

My views on financialization as a theme are captured here with some basic market sizing -
FINANCIALISATION: TSUNAMI expected in AMC & Insurance?

Data Set 1 - Combining data from RBI & AMFI

Household (Gross) Within Household Financial Savings Mutual Funds
Year Financial Savings Physical Savings Deposits Insurance PF Markets Deposits with SCB’s YoY % Deposits from Corporate Year MF AUM Change YoY % YOY Net Mobilization MTM Impact Net Mobilization as % of Inc Financial Savings Net Mobilization as % of Incremental Deposits MF AUM % of Deposits
2005 3,13,260 3,44,327 1,75,128 67,986 55,794 8,113 17,00,198 2005 1,49,650 2,788 8.80%
2006 3,27,956 4,35,729 2,66,238 83,494 61,950 33,857 21,09,048 24.05% 1,42,612 2006 2,31,862 82,212 54.94% 52,482 29,730 16.00% 19.71% 10.99%
2007 4,38,331 4,30,657 4,33,866 1,14,851 72,503 50,847 26,11,933 23.84% 69,019 2007 3,26,292 94,430 40.73% 94,062 368 21.46% 21.68% 12.49%
2008 5,80,210 5,38,137 3,90,294 1,69,848 71,544 74,308 31,96,939 22.40% 1,94,712 2008 5,05,152 1,78,860 54.82% 1,58,677 20,183 27.35% 40.66% 15.80%
2009 5,71,026 7,59,846 4,32,575 1,52,861 73,398 -2,333 38,34,109 19.93% 2,04,595 2009 4,17,300 -87,852 -17.39% -24,208 -63,644 -4.24% -5.60% 10.88%
2010 7,74,753 8,56,046 4,16,657 2,59,821 1,29,849 44,841 44,92,825 17.18% 2,42,059 2010 6,13,979 1,96,679 47.13% 78,347 1,18,332 10.11% 18.80% 13.67%
2011 7,73,859 10,26,315 5,53,398 2,10,102 1,41,139 1,729 52,07,969 15.92% 1,61,746 2011 5,92,250 -21,729 -3.54% -48,600 26,871 -6.28% -8.78% 11.37%
2012 9,32,729 13,89,322 5,35,991 1,95,673 95,680 16,522 59,09,082 13.46% 1,65,122 2012 5,87,217 -5,033 -0.85% -45,413 40,380 -4.87% -8.47% 9.94%
2013 10,64,041 14,65,013 6,02,921 1,79,949 1,56,479 17,027 67,50,453 14.24% 2,38,450 2013 7,01,443 1,14,226 19.45% 78,862 35,364 7.41% 13.08% 10.39%
2014 11,90,770 14,16,428 6,62,120 2,04,469 1,77,841 18,930 77,05,560 14.15% 2,92,987 2014 8,25,240 1,23,797 17.65% 54,579 69,218 4.58% 8.24% 10.71%
2015 12,57,247 15,13,127 6,08,187 2,99,322 1,90,883 20,364 85,33,285 10.74% 2,19,538 2015 10,82,757 2,57,517 31.21% 1,02,880 1,54,637 8.18% 16.92% 12.69%
2016 15,20,727 12,72,105 6,41,609 2,69,960 2,91,742 44,893 93,27,289 9.30% 1,52,395 2016 12,32,824 1,50,067 13.86% 1,31,758 18,309 8.66% 20.54% 13.22%
2017 14,04,847 13,98,462 9,66,935 3,49,198 3,02,010 36,265 107,57,656 15.34% 4,63,432 2017 17,54,619 5,21,795 42.33% 3,43,418 1,78,377 24.45% 35.52% 16.31%
2018 18,80,874 4,96,273 3,27,233 3,49,654 1,50,948 114,26,049 6.21% 1,72,120 2018 21,36,036 3,81,417 21.74% 2,72,225 1,09,192 14.47% 54.85% 18.69%

Inferences -

Growth rate in deposits with banks has been 16% over the period depending on the starting and ending points, deposits have spiked after demon. One can calculate the rolling return, it is between a range of 13-17% with median being 15%

MF AUM over the same period has seen a growth of 22%. Intuitively one can see that MF AUM growth has typically been between the range of 1.2 - 1.8 times of the deposit growth rate, with the average number being 1.5X. This also makes logical sense given that the equity AUM grows at 1.6 times the deposit return over the same period

One can also triangulate this from other data points in the economy like growth in money supply, deposit rates and the real GDP growth rate.

Key message - Financial savings can be expected to grow between 12-16% over the medium to long term. There will obviously be interim spikes and dips but the average growth rate appears to be in that range.

Hence MF AUM can be expected to increase at 1.2-1.5 times the baseline financial savings rate over the next 7-10 years. This kind of sets the baseline expectation for the further posts to come

Data Set 2 - MF Industry AUM and market share

Category AUM 2010 2011 2012 2013 2014 2015 2016 2017 2018 Growth (%)
Liquid 80,354 93,392 1,33,280 1,62,562 1,99,404 3,14,086 3,35,525 29%
Debt 2,94,503 4,04,059 4,67,665 5,31,565 5,83,495 7,60,566 7,99,425 15%
Equity (exc ELSS) 1,58,433 1,49,777 1,65,560 3,05,669 3,44,707 4,82,138 6,69,207 35%
Equity - ELSS 23,644 22,731 25,547 39,470 41,696 61,403 80,583 29%
Hybrid 16,261 16,307 16,793 26,368 39,146 84,763 1,72,151 60%
ETF 11,493 13,124 13,204 14,715 22,409 49,916 77,694 43%
FoF 2,530 2,053 3,191 2,408 1,967 1,747 1,451 -7%
Total 5,87,218 7,01,443 8,25,240 10,82,757 12,32,824 17,54,619 21,36,036 25%
Market Share (%) 2010 2011 2012 2013 2014 2015 2016 2017 2018
ABSL 10% 11% 10% 11% 11% 11% 11% 11% 12%
Axis 1% 1% 2% 2% 2% 2% 3% 3% 4%
DSP 4% 5% 5% 5% 4% 4% 3% 4% 4%
FT 5% 6% 6% 6% 6% 7% 5% 5% 5%
HDFC 14% 15% 15% 15% 14% 15% 14% 14% 14%
ICICI Pru 13% 12% 12% 13% 13% 14% 14% 14% 14%
IDFC 4% 4% 4% 5% 5% 5% 4% 3% 3%
Kotak 6% 5% 4% 5% 4% 4% 5% 5% 6%
RMF 18% 17% 13% 13% 13% 13% 13% 12% 11%
SBI 6% 7% 7% 8% 8% 7% 9% 9% 10%
Tata 4% 4% 3% 3% 3% 2% 3% 2% 2%
UTI 13% 11% 10% 10% 9% 9% 9% 8% 7%
Total 98% 99% 92% 94% 90% 92% 93% 90% 93%

Source: AMFI data

Inferences

HDFC AMC, ICICI Pru AMC, ABSL AMC, RMF AMC and SBI AMC more or less define the market as the Top 5. All of them have grown AUM between 15-20% per annum since 2012 till date

HDFC and ICICI AMC’s appear to clearly derive some benefit from having a parent that is into the banking business and owns a captive wealth management arm. This is a massive advantage to have, one can see the spike in AUM’s of Axis and SBI AMC’s after their parents started focusing on the wealth management franchise.

I think RMF AUM dipped following a cap on how much parent or associated company can park in own MF, if you discount this dip in 2012, since then AUM growth has been healthy at 17% though it is not exactly industryleading

Key Message - Big getting bigger and preserving market share is likely to continue. Smaller players will find it very tough to scale and overtake any of the Top 5 any time soon. All these Top 5 players can be expected to grow AUM at the industry rate over the medium term. There can always be differences in their product mix but all of them appear to be well placed to benefit from the MF tailwind, assuming there is one

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