I personally think that he just has too much AUM (70K Cr plus), which makes manouvering quite difficult. Before COVID, the likes of Edelweiss and SBI changed their portfolio asset allocation increasingly to pharmaceuticals. For him to exit ICICI, SBI, PSUs is quite difficult - liquidity losses itself would be 5-10%. I think HDFC should stop taking AUM for certain funds if they grow too big
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When AUM goes sky high their profits jump disproportionately and hence bonuses but investors start suffering. Did they stop taking funds? no Did they amend strategies? no. Are they considering it? no - given their latest interviews.
Investors are worried that once fund investors start deserting which is started incrementally, it will become self fulfilling prophecy. More exits from PSU basket mean more underperformance and more redemptions. This is a clear signal for all VALUE seekers to be careful in their expectation unless govt. comes back with a bang and unlocks value by selling them off.
I found it interesting that in this industry large size and being a market leader is a problem. HDFC AMC and I-Pru jointly have 25% market share. Despite them, they may outperform sometimes. But odds do not favour them given large size. Eventually, may be investors may move to other funds or atleast incrementally may not like to stick to HDFC AMC. Their scheme performance has been below satisfactory. So unlike other HDFC brands, here the business lacks inherent strengths IMO.
India or any developing economy growth is about midcapsâŚsmallcaps are largely unproven but midcaps are something which have passed some tests and are daring to face the country, first, and eventually globe.
Above is my thought.
Now coming to AMC and lot of things I hear about underperformance, if you see the long term performance of HDFC midcap opportunities fundâŚ10 years and aboveâŚit is industry leading. Also, how many Mutual fund companiesâ units we invest in and can be sure that 10 years down the line even that company would exist or not? Very fewâŚalthough investor rights are somewhat protected and such companies are eventually sold/consolidated etc. (I would suspect whenever that happens, long term performance would be impacted as strategy changes with new management/culture. Although, I have no data points and not researched this aspect).
Point is, if a fund house is industry leading in 10 years and above, then my every penny, if at all goes to an AMC for mutual fund investment, would be HDFC AMC. I will not mind in between fluctuations but would rather take them as opportunity. Otherwise, why would I invest in mutual funds if horizon is not long and discipline is not right from my side.
I think maturity is needed from the consumers/mutual fund investors perspective and as long as their education happens in right direction and HDFC AMC is a long term outperformer in their mutual funds, I would hold its shares and also its mutual funds units, if any.
Disc: Not a buy/sell recommendation. Hold HDFC AMC shares and HDFC midcap opportunities units, hence biased.
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There a lot of buzz going around the performance of the HDFC MF scheme which have performed poor compared to new kids on the block like Mirae, PPFA which are growing but if you check there total aum is around 29k to 40k cr compare to mammoth Hdfc Amc 320kcr. The performance of the fund keep changing YOY today certain fund are performing well tomorrow some other will. Also in coming years the expense ratio will fall and for small MF group it will get difficult to compete with big MF house there are chances of many firms will sell out there MF businesses in future as currently we saw Yes Bank & l&t finance alredy looking to sell there MF business so in future there will be cut throat competition in the MF industry same like brokerage business where Zerodha has changed the entire brokerage industry and it can survive due to huge customer base which is difficult for other firm to compete.
Disc: Holding HDFC Amc shares and having maximum exposure in MF industry
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For those pondering over the shift to passive investing, there is a fundamental difference between an ETF and an Index fund.
An Index fund is still a mutual fund
An ETF is something which only a person having an active demat account can participate in
Number of investor folios with Mutual Funds in India is > 9 Cr
Number of demat accounts in India is approx 4 Cr of which only 25-30% are active
The shift to passive investing (if and when it materializes) is more likely to happen through the index fund route rather than the ETF route. An Index fund still charges 0.3% per year expense ratio and is highly profitable since the expenses involved are minimal, though this will bring down the average yield to AUM for leading AMCâs. An index fund still charges higher expense ratio than liquid and ultra short term funds.
The risk of HDFC AMC getting affected a lot due to the shift to passive investing is thus minimal. Relative performance ceases to be a consideration when one goes the passive investing route, if anything HDFC AMC should be able to mop up more AUM compared to other AMCâs if they wish to under the passive investing theme through index funds.
As a rule, differentiated products in asset management can charge a higher expense ratio due to the novelty factor (until investors realize they are falling for a narrative that does not necessarily deliver higher return). The current novelty factor in Indian MF is the interest in global markets through the fund of funds route where the expense ratio is higher, under the AIF route the novelty is long short funds. The ICICI Pru US Bluechip equity fund charges an expense ratio of 2.59% per annum, one of the highest expense ratio ICICI Pru AMC charges across equity funds.
While the shift to passive investing will eventually happen, there are some levers at hand for good AMCâs to keep control over their pricing power intact. Direct plans are more profitable to regular plans even if the expense ratio is lower.
The trick is to go deeper into understanding how the management can tweak these variables to keep the growth story intact. Thinking as an investor who just looks at financials is unlikely to reveal too many insights.
*Disclosure: Invested for self and customers, transactions in the past 30 days. *
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Hi there,
Can anyone help me understand why there is a huge selling in AMC by the FII and the DII.
Moreover, whatsâ the rational of the Mgmt decreasing itâs share from 82.8 in Sep,2018 to 73.93 in Sep,2020
The bigger worry is that they have been doing it at a steady pace over the years⌠which in my perception is not a healthy sign.
Whatâs the opinion of others? and if there is any rationale of the same.
It is a Govt. mandate for Listed companies to reduce Promoter shareholding below 75%.
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Apart from the fact that its a mandate by SEBI for public companies to have shareholding at 75%, the foreign partner, Standard Life still holds 20% plus and at regular intervals could offer its stake to the public. That is in due course since they have been shareholders for a longer period.
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Q2 21 presentation, bottomline improved from Q1 21 while flattish om YoY
Overall stabilizing and insecurity around performance should subside.
HDFC AMC CEO:
âWe have a fall in the AUM of active managed equity schemes because the schemes are not performing as people expected!â
Here comes the acceptance from Milind Barve!
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This is a known fact since long time. Many short vision investors are having tough time in MFunds these days. Nice, that a CEO accepts this and it is true for the industry. In which MF company are investors happy in last 5 years? I cannot think of any considering how short sighted and impatient most investors are.
Having said above, MF industry in India has indeed performed poorly in generating alpha in last 3-5-10 years. Like all things, good and bad, this will come to an end tooâŚwhenâŚthatâs anybodyâs guessâŚ
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Here are my thoughts on my personal experience with mutual funds:
- Fund houses had lost focus in between when they started to behave like a FMCG company. Sell the same thing with different name and packaging.
- Regulator probably understood this and fund houses happily acknowledged it too The recent changes such as consistent names etc. would probably help but it is going to take time for the performance to catch up.
- Hopefully, fund houses will now focus on basics to win back the trust
Otherwise, it is a positive story when it comes to asset management companies. More and more money will come to capital markets and good companies can benefit.
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A couple of snippets that are interesting -
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How many businesses have other income > 50% of total expenses?
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Run a query in screener - Operating profit margin > 70%, D/E < 0.25, Annual Revenue > 500 Cr and ROCE > 20%. How many results does one come up with?
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That is all fine and probably discounted. What Mr. market was looking at is growth which seems to be missing. They aim to reverse underperformance but only in the medium term. Secondly, I did not get the impression that they are adequately worried about AUM growth as yet. After listening to the call, I got the impression that maintaining existing AUM is more important due to its contribution to the PAT vs. incremental AUM growth. This is also a function of ongoing underperformance. Additionally, SBI has started to leverage its reach and distribution in every biz they are in. It is reflected in SBI life, Mutual fund and offlate credit card. Going to be difficult in the next one year.
Disc: Invested
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Like reading your posts, @zygo23554 - both succinct and detailed ones, helps learn from a different perspective. Invested in HDFC Amc from lower level and intent to hold.
ITC comes to mind on above parameters ( Op margin closer to 40% though consistently ), invested too. Not apple to Apple comparison but point being market not happy or convinced with both hence laggards as of now in recent rallies. Both have good dividend yield as well.
Struggle since have high conviction yet not being rewarded, at least for short term as of now for HDFC AMCthere seems to be headwinds( industry itself), would be good to hear your views
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Has all charteristics of compounder, but top line being a function of AUM and product mix( and mix increasing toward product with lower income), topline is showing decline - can they continue to show even single digit top line growth in long term basis? Ignoring noises around mf industry. Will there be a base building first/ what to watch out for?
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Ops efficiency and ability to control expenses helps cushion margins but still point#1 matters. Profit should have alpha from the revenue with scale and digitization etc.
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Mgmt pedigree and governance, capital light and finanancialization theme - all high score.
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Opportunity cost stares us with so many momentum stories playing out while holding HDFC AMC in core, how to handle such situations mentally?
Invested , couldnât add more as already in top 5 in PF.
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Time to look at some data, all from the AMFI website -
| Category AUM | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Liquid | 80,354 | 93,392 | 1,33,280 | 1,62,562 | 1,99,404 | 3,14,086 | 3,35,525 | 4,36,224 | 4,24,233 | ||
| Debt | 2,94,503 | 4,04,059 | 4,67,665 | 5,31,565 | 5,83,495 | 7,60,566 | 7,99,425 | 7,29,667 | 7,55,924 | ||
| Equity (exc ELSS) | 1,58,433 | 1,49,777 | 1,65,560 | 3,05,669 | 3,44,707 | 4,82,138 | 6,69,207 | 7,96,082 | 5,48,913 | ||
| Equity - ELSS | 23,644 | 22,731 | 25,547 | 39,470 | 41,696 | 61,403 | 80,583 | 96,019 | 77,837 | ||
| Hybrid | 16,261 | 16,307 | 16,793 | 26,368 | 39,146 | 84,763 | 1,72,151 | 1,80,648 | 2,62,150 | ||
| ETF | 11,493 | 13,124 | 13,204 | 14,715 | 22,409 | 49,916 | 77,694 | 1,39,073 | 1,54,412 | ||
| FoF | 2,530 | 2,053 | 3,191 | 2,408 | 1,967 | 1,747 | 1,451 | 1,871 | 2,734 | ||
| Total | 5,87,218 | 7,01,443 | 8,25,240 | 10,82,757 | 12,32,824 | 17,54,619 | 21,36,036 | 23,79,584 | 22,26,203 | ||
| Equity (%) | 35% | 28% | 26% | 35% | 35% | 36% | 43% | 47% | 41% |
| Fund Wise AUM (Cr) | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2 Yr Growth (%) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ABSL | 62,343 | 63,696 | 61,142 | 77,046 | 89,051 | 1,19,751 | 1,36,503 | 1,95,049 | 2,47,529 | 2,46,695 | 2,47,687 | 0% |
| Axis | 3,551 | 8,301 | 8,814 | 12,114 | 16,153 | 26,623 | 37,687 | 57,699 | 77,325 | 89,768 | 1,38,508 | 34% |
| DSP | 21,490 | 30,600 | 29,298 | 32,342 | 31,966 | 39,060 | 40,151 | 65,199 | 86,325 | 78,363 | 80,421 | -3% |
| FT | 33,290 | 37,882 | 34,492 | 41,564 | 45,404 | 70,443 | 66,946 | 81,615 | 1,03,152 | 1,19,932 | 1,17,442 | 7% |
| HDFC | 88,780 | 86,282 | 89,878 | 1,01,720 | 1,12,962 | 1,61,634 | 1,75,779 | 2,37,177 | 3,00,548 | 3,42,524 | 3,70,113 | 11% |
| ICICI Pru | 80,989 | 73,464 | 68,718 | 87,835 | 1,06,821 | 1,48,559 | 1,75,880 | 2,42,961 | 3,05,739 | 3,21,281 | 3,58,141 | 8% |
| IDFC | 25,604 | 21,292 | 25,450 | 32,886 | 41,349 | 51,714 | 52,129 | 60,636 | 69,918 | 69,576 | 1,04,113 | 22% |
| Kotak | 34,681 | 32,202 | 25,738 | 35,361 | 33,079 | 41,377 | 58,495 | 92,216 | 1,24,690 | 1,50,271 | 1,86,371 | 22% |
| Nippon | 1,10,412 | 1,01,576 | 78,111 | 94,580 | 1,03,541 | 1,37,123 | 1,58,408 | 2,10,890 | 2,44,903 | 2,34,293 | 2,05,721 | -8% |
| SBI | 37,417 | 41,671 | 42,041 | 54,905 | 65,499 | 74,942 | 1,06,780 | 1,57,025 | 2,17,649 | 2,84,124 | 3,73,969 | 31% |
| Tata | 21,935 | 22,681 | 19,818 | 19,897 | 21,954 | 26,968 | 31,862 | 42,619 | 46,977 | 54,194 | 53,149 | 6% |
| UTI | 80,217 | 67,188 | 58,922 | 69,450 | 74,233 | 92,750 | 1,06,309 | 1,36,810 | 1,54,939 | 1,59,694 | 1,51,513 | -1% |
| Market Share (%) | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | Sep-20 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ABSL | 10.15% | 10.75% | 10.41% | 10.98% | 10.79% | 11.06% | 11.07% | 11.12% | 11.59% | 10.06% | 9.12% | 8.65% |
| Axis | 0.58% | 1.40% | 1.50% | 1.73% | 1.96% | 2.46% | 3.06% | 3.29% | 3.62% | 3.66% | 5.10% | 5.67% |
| DSP | 3.50% | 5.17% | 4.99% | 4.61% | 3.87% | 3.61% | 3.26% | 3.72% | 4.04% | 3.20% | 2.96% | 2.98% |
| FT | 5.42% | 6.40% | 5.87% | 5.93% | 5.50% | 6.51% | 5.43% | 4.65% | 4.83% | 4.89% | 4.32% | 2.87% |
| HDFC | 14.46% | 14.57% | 15.31% | 14.50% | 13.69% | 14.93% | 14.26% | 13.52% | 14.07% | 13.97% | 13.63% | 13.63% |
| ICICI Pru | 13.19% | 12.40% | 11.70% | 12.52% | 12.94% | 13.72% | 14.27% | 13.85% | 14.31% | 13.10% | 13.19% | 13.07% |
| IDFC | 4.17% | 3.60% | 4.33% | 4.69% | 5.01% | 4.78% | 4.23% | 3.46% | 3.27% | 2.84% | 3.83% | 4.15% |
| Kotak | 5.65% | 5.44% | 4.38% | 5.04% | 4.01% | 3.82% | 4.74% | 5.26% | 5.84% | 6.13% | 6.86% | 6.96% |
| Nippon | 17.98% | 17.15% | 13.30% | 13.48% | 12.55% | 12.66% | 12.85% | 12.02% | 11.47% | 9.55% | 7.57% | 7.29% |
| SBI | 6.09% | 7.04% | 7.16% | 7.83% | 7.94% | 6.92% | 8.66% | 8.95% | 10.19% | 11.59% | 13.77% | 15.28% |
| Tata | 3.57% | 3.83% | 3.37% | 2.84% | 2.66% | 2.49% | 2.58% | 2.43% | 2.20% | 2.21% | 1.96% | 2.04% |
| UTI | 13.07% | 11.34% | 10.03% | 9.90% | 9.00% | 8.57% | 8.62% | 7.80% | 7.25% | 6.51% | 5.58% | 5.62% |
| Total | 97.84% | 99.09% | 92.37% | 94.05% | 89.91% | 91.52% | 93.03% | 90.04% | 92.68% | 87.69% | 87.89% | 88.20% |
The two year growth rate for good AMCâs (including HDFC AMC) is > 10%, this is 2020 over 2018. Please note that the March 2020 end AUM is after a 30%+ fall in NIFTY 50
For all the noise surrounding HDFC AMCâs bad equity performance, their market share still hovers in the range of 13-14% steady since 2013. In contrast see the consistent market share drop of UTI AMC and Nippon AMC. The clear outperformers in AUM growth have been Axis and Kotak AMC, not SBI AMC. SBI has 1.1 lakh Cr ETF money which comes from EPFO which is a low cost, bulky AUM. If one discounts this chunky ETF inflow, the AUM of SBI AMC is around 2.7 lakh Cr. They have done well, but their growth in AUM is largely due to the EPFO inflows.
Even after a 30%+ fall in equity indices by end of March 2020, the equity AUM % of the overall AUM for industry is still 41%. This has been steadily trending higher over time and is likely to trend higher over the coming years as more and more domestic savings get funneled into the MF industry.
As for expectations of growth, the baseline expectation for growth in financial assets in India continues to be in the range of 10-12%. One can see the bank deposit growth rate as a proxy for this
Can the MF industry continue to outpace this baseline growth rate over the next 5-10 years?
Can HDFC AMC continue to hold onto itâs market share of 13-14% as the MF industry continues to grow?
Can PAT growth for good AMCâs continue to grow faster than revenue growth rate?
@Dev_S - Once the market categorizes a business as a quality business, we can either have good news or good prices. This business also will have higher crests and lower troughs as is the nature of capital markets. Financialization stories (including general and life insurance) have taken a pause in their stock prices over the past 6-9 months which is anyway par for the course after a steep run up.
Overall I donât see too many concerns right now on what is happening in the business.
Disclosure: Invested for self and customers, transactions in the past 30 days. I am a SEBI registered IA
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Thanks @zygo23554 for detailed data backed narrative, quite helpful to decouple with last few month price movements and bring focus back on longer term thesis and business growth prospects aligned to finanancialization theme.
Good results from insurance( hdfc life, sbi life, ICICI Lombard) for this quarter as well.
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The management needs to do the following:
Invest in consistently growing private companies rather than cyclicals and PSUs.
Investments of 4000 crores invested in debt and earning 9% to be invested in equity a la Warren Buffett for getting double the return.
Company is issuing too much ESOP which caps the upside.
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