I see the same sort of arguments on every expensive but quality company thread. The facts that need to be acknowledged are that these are quality companies without a doubt and also the fact that they are expensive as well, without a doubt. I see the ones that have made up their mind on the expensive valuation trying to talk down the quality (especially moat) of the business and the ones convinced of the quality and hence invested with probably a longer-term horizon trying to imply that valuations don’t matter as the runway is long. Both are right and wrong unfortunately.
An AMC business will grow as its AUM grows which can happen when savings in financial instruments grow, and/or the company is able to capture a larger market share and/or the company is able to improve its expense ratios. There is a good probability that HDFC AMC can pull-off the second but the third could be under regulation while the first will inevitably grow in AMC’s favour. These are all of course longer term events.
In the short-term however, lets not forget the massive bull market in the last few years which has caused a significant increase in AUM. In a bear market, AUMs could take a mark-down along with inflows decreasing and outflows increasing causing a negative lollapalooza as well. Also, there is a reason why a lot of IPOs happened around the last few months. Some cyclical businesses debuted at peak earnings, some average businesses were sold at insane valuations etc. All that mattered was a good story, marketing spends and the IPOs were marketed like blockbuster movies - A lot of IPOs have ended up much lower than listing price - Be it Apex frozen foods, Vadivaarhe, Silly monks, Advanced Enzymes, Hudco, CDSL, ICICI Securities, BSE etc etc. For every Avenue Supermarts, there are a handful of these expensive businesses which didn’t make it.
Businesses whose recent fortunes were tied to the bull market like CDSL, BSE and ICICI Securities have done poorly, probably because the market expects their earnings to moderate in the current year and probably next few which will make them cheap. I think this is what is ailing HDFC AMC as well going by the similarities in price-action where there is significant post-IPO offloading but due to this being the fag end of the bull market, there isn’t enough buying power to absorb such large blocks, making it look like a falling knife. I have made up my mind to stay away, just as I did with Avenue Supermarts because I can’t sleep peacefully paying these valuations but that doesn’t make these bad businesses by any stretch.