HDFC Asset Management Company

I don’t see this much decline in other big AMCs, hence was wondering what’s happening with HDFC. I had expected a rebound in April month but that didn’t happen

I guess the fall in AUM is not because of any qualitative reasons, HDFC is not Franklin.

People usually invest with big fund houses when it comes to debt. And if the fall is because of the anticipation of a bond rating downgrade should reflect in all AMCs, as all AMCs more or less invest in the same type of bonds, and big AUM funds always have very big PF so the allocation to one bond is less.

Or you can check for previous AUM information, to see if this is a regular occurrence with HDFC.

SBI AMC numbers (just for comparison). Al though margins are less on a % basis, absolute profit numbers are increasing as the AAUM is growing fast. I guess parent SBI is doing a lot of push to increase AAUM size so they can do a good listing. SBI Life insurance was also growing very fast for a couple of years in the past and then slowed down

1 Like

If allowed ,above will cause re-rating of all MUTUAL FUND AMC’s

1 Like

This would mean more competition and competitive pricing, so not a great news for HDFC AMC?

2 Likes

Competition is already there ,the re-rating will be for positive since PE’s bring higher valuation to the table.

HDFC AMC mostly lost to market because of its leaner presence in Index Fund and ETF mostly in passive part also its fund performance has suffered in past. Significant inflows happened during last 18 months on passive side of the business even for that matter on debt index fund. AMC is coming up with multiple NFO to address this lean participation as well as focus on PMS and AIF(both are high margin business). Also fund house is increasing its partner engagement (read distributor here) making them aware that fund performance has gone better. But one stat (though available in public domain) management given on Q4 FY22 concall that Fidelity in US during 1970s used to manage 4 bn to 5 bn USD and today they are managing 4.5 trillion USD of AUM(21.5 trillion is current combined US AUM now). kind of 1000 times increase in asset in past 50 years.

2 Likes

Eventually many DIY investors and even the ones advised by someone would realize that passive investing is also not easy. In a bull market last 2 years, passive index investing looks very lucrative…

IMO these are mere cycles and will keep coming where investors move to index and then to AMCs and vice versa…overall all pie will increase…true test of passive vs AMC would come in bear markets…the longer ones…

3 Likes

Hi, I will tend to agree to this that, passive index investment is attractive mostly during the upturns and when ever market corrects then certain active funds tend to protect the downside better, which in turn leads to better returns across 10+ years. We need to look at longer periods to see whether index always outperforms active funds or not.

2 Likes

Agree, we might have an answer to that checking on US active vs passive returns over 10+, 15+, 20+ years (if passive was there 20 years back as well) where history of passive investing is greater.

Also, in index stagnant markets like Japan had been for some time, again that comparison would be interesting…

For investors, my personal opinion is that we should not work in herds and completely shun active just because narrative & performance of passive is better over last 2-5 years…a healthy portfolio mix & allocation maybe key even for active vs passive…many investors would realize this later when cycle would turn better for the AMCs…

Disc: I maybe wrong in above assessments. Invested in HDFC AMC stock with minor 1% allocation. Added during this week. Invested in HDFC Midcap opportunities Mutual fund with 5% portfolio allocation. No Index funds for me yet, lets see if I add later.

Update: I just checked, HDFC Midcap opp - Growth fund is down 11.4% from its top while BSE Midcap Index is down almost 16.5%. Although multiple metrics define performance but I can see the drawdown has been better for the AMC fund as compared to Index.

5 Year CAGR for the AMC fund is 10.54% and 10 Year CAGR is 18.57%. CAGR since inception (25 June 2007) is 15.47%. Post its inception it saw massive fall of 2008-09 and again in 2018 & again in 2020 & current correction in 2022…after all these cycles, CAGR is 15% +, what else do long term AMC fund investors need?

5 Likes

I have read comments of people achieving CAGR of 20-25% in 25 years, starting in mid 90s. But that is not the market we have today. So even if we stay put for 25 years, as the market matures more, the CAGR is bound to decrease.

I don’t have any data, nor I am not active in MF discussions now (I used to be in the past in Value Research comments section which does not exist anymore). For really long term investors who are informed of the volatility in the markets, have a plan before investing, and invest according to it, staying put through the ups and down makes sense. But if the investors are not informed, DIY kind or otherwise, and if they do now know about rebalancing when the equity has moved up, their gains will vanish with falls, and they will be back to square one, if not lose both capital and time.

Just like direct equity investors who are flocking to the markets these past couple of years, who are uninformed, there exist MF investors who are uninformed, I don’t know if these will stay if they see losses for a couple of years, or if they move to another AMC. Current generation and younger generation are relatively better informed, so I have no questions regarding these, and most if not all of these are direct fund investors. But if the majority chunk is regular investors, who are approached via different channels with promises but are not informed regarding the ups and downs of the market, what would these do is the question.

Come to think of it, it is easy in a sense, a person has a specific goal, with a specific amount in mind, with a specific timetable, invests in equity as the goal is 15 years into the future, Nikkei’s fall is yet to happen in India, so in this 15 years there will be a bull run, as luck would have it, it happens in 10 years, the person meets his target number in 10 years, and moves to the safe haven of debt. I know that there are a lot of moving parts, but broadly the idea is this. Are the AMC sellers informing this in layman terms, they do in ads, they mention in documents? If this happens, I guess there will be a better relatively structural financial assets theme, than what we have now. Of course, the numbers will put an end to my banter. I would love to see this happening, as I am a participant in the market, I would love for the market to perform, make everyone happy.

And on a side note, which I had mentioned before, the number of venues we have in India to invest are more, both practical and psychological, and will not cease to exist, and equity is just one among them. In one of the above replies someone has mentioned an AMC person talking about the growth of assets in US, I am not sure that data point is applicable in India. So it is a very long journey, of course, the numbers will reveal what is happening and what is not happening.

Not invested in this space, but interested as I started as a active MF investor, now into passive investing.

4 Likes

Idea in my above post was not to highlight returns of AMC fund in isolation but rather as a comparison to Indexes (Passive investing). A 10 year CAGR of 18% vs a 14% CAGR of BSE Midcap index sounds reasonable to me…rest of course growth rates and returns over timelines may vary & diminish as well, I agree with you on that…

Yes, but as the very AMCs disclaimer goes, that is past performance up until now. Our market is getting bigger, I don’t know if it is growing proportionately to the participants or now, but as the market gets bigger and gets matured, it will be hard for the active MFs to beat the index, although there exist certain intermittent time periods where sometimes active beats index, sometimes index beats active. But it is getting increasingly difficult to gain more on a consistent basis for active funds, may be the index composition has changed, may be the sectors in the index are relatively structural, so no huge losses, or even if one is in loss, the other will gain etc. So I very much think that it will be next to impossible to get 18% in the coming 10 years, midcap or otherwise. So I guess, as time progresses, there may not be any difference left with active and index.

Yes, there will be new industries, new technologies, unicorns, PE backings etc etc, but on a broad index basis, I guess the return could be 10-12% for the next 10-15 years. I would love to be proved wrong, as I will also get benefited.

I am interested to see how the listed AMCs will evolve, I don’t know if they will still depend on Indian retail or focus on other verticals of asset management, where they could gain more. Interesting space.

1 Like

Hi,

Very interesting discussion on MF industry.

Also, as mentioned by ChaitanyaC, I also feel that, many investors may not be investing in equity with focus on their financial goals, and do the equity-debt asset rebalancing as & when required. We keep reading this often that, if your goal is > 10 or > 15 years away you should invest in Equity, but the important element of this investment is that, you have to start moving funds from Equity to Debt after 7-8 years, and reduce Equity % to very low %, and Increase Debt % up to achieve the financial goals.

SIP should not be done till the end of the financial goal but need to be stopped after few years and let the money grow beyond that, and keep doing asset re-balancing.

In the long run, through good combination of active and passive strategies, as long as, person is achieving his/her financial goals, it should be all right.

Also, I am seeing that, after few years, underperforming funds some times start outperforming index and the overperforming funds start underperforming, except few ones which were any ways poorly managed. Hence, some underperformance may not matter in some cases. I may be wrong in my assessment.

Anyways, this is slightly away from HDFC AMC discussion, but just thought of adding my thoughts.

2 Likes

My primary reason to look at this industry is

  1. Long runway. There is nothing that indicates that the industry would be non existant. There would be fads as well as place for private equity, alternate wealth, NPS etc. There would be place for MFs as well.

  2. Growth. Investment growth should largely reflect GDP growth. Ofcourse it would be somewhat here and there.

  3. No BS risk. No debt, largely regulated and risks are minimal. Some cant be avoided - reputation, poor returns for a long period (happens ti every MF player)

  4. Established distribution with Banca channel as well.

This is a business with long runway. We will not have 25% growth, but we will have growth for atleast a decade…

That is how i view this.

5 Likes

Not invested.

He will simply sell underperforming stocks. Irrespective of fundamentals. There are good companies with good earnings visibility like MAS finance ltd, Sterling tools etc where he exited because of underperformance.

3 Likes

Read this and was really surprised to see them selling at rock bottom prices, for now.
I think its close to its IPO price currently or when they sold.

Not sure what must be their buy price and holding period…

Any idea did they come in cash or rotated this money in current fall?

Disc: Invested as small position. Added some recently. Their selling is a no event for me but a good to know information

2 Likes

Of course, it is part of their profession, buy and sell as per their plan. They cannot hold on to an underperforming stock for too long, more so when you have ample opportunities available in the current falling market. But it does give an idea about, maybe the next few quarters’ performance, if the market fall is not completed and the rise will take long time too.

On a side note, I think if there is earnings visibility prices don’t fall steeply, they will correct if the entire market is falling, but not more. HDFC AMC has been falling since the fall of the market last year, may be the price has bottomed out, I don’t know.

Shared because it might be useful to someone, not invested.