IPO price was 1100. I am not a subscriber to their services, so I don’t know if they have utilized the proceeds to buy any other stock or not. They may have found many opportunities in the current falling market, and their investment may have been profitable for them if they have bought at the time of IPO.
Yes, their selling is a no event, as retail investors don’t have the constraints of fund managers, even something is available close its intrinsic value, if the waiting period is too long, funds don’t wait unless they are value oriented.
It seems that, DII and LIC have continued buying HDFC AMC till March 2022.
Following is screener data for LIC.
Dec 2020 Mar 2021 Jun 2021 Sep 2021 Dec 2021 Mar 2022
3.51 3.90 4.07 5.15 6.04 7.00
In fact now HDFC AMC seems to be trading close to more realistic valuations from an Investor perpective. With increasing competition and reduction in Expense ratios, there could be pressure on margins but long term trend of mutual fund industry should remain intact.
The way SIP has been holding up and recent saga of Axis mf. Matter of time HDFC mutual fund such start performing well. Not much downside hopefully their funds perform.
I would request experienced boarders and long time investors in HDFC AMC to share their thoughts on the changing dynamics of the MF industry.
-HDFC AMC is trading at 26 P/E after quite a long time that is below the average P/E (opportunity)
-HDFC AMC can continue to attract more investors through cross selling by leveraging HDFC bank (strength)
-Fintech companies like Navi and Zerodha are getting into this space with low cost offerings than can disrupt the MF industry (threat)
-Rise of ETFs and Passive funds (rose 13 times in last 5 years) with low expense ratio compared to Regular funds (threat)
-Large cap funds are consistently struggling to beat the larger index and hence more new age investors foray into direct equity investment or prefer passive funds (weakness)
-More new age investors are opting for instruments like passive/index funds where the (threat)
-Any recession or shift in the customer sentiment can result in a flat growth for the next few years. Huge FII holding can also have significant impact if they pull out of India when foreign markets become attractive (threat)
Considering the above factors, is there still a significant MOAT with HDFC AMC from a long term perspective?
Some more Weaknesses:
(1) AUM growth may be moderate considering all the above points, leading to lower PAT growth hence lower ROE trends may emerge.
(2) We may need to re-evaluate realistic valuations going forward compared to past 5 year Median P/E.
(3) Shift of younger investors to Direct Plans will also have impact on magins.
(4) Shift of younger investors to Index Funds will impact AUM growth to some extent.
Some of the strengths:
(1) If HDFC AMC can avoid governance issues (like Franklin, Axis in recent past), it may lead to positive opinion about this AMC with HDFC brand. Though HDFC management quality is beyond doubt, but they need to be careful going forward.
(2) Since markets have corrected and NIFTY is trading close to long term average P/E, HDFC AMC should able to buy stocks and Increase their Equity exposure if not done already, which may increase returns from their Equity MF(s) to some extent as compared to 2019-2020-21 when markets were overvalued except March-April 2020, and HDFC AMC being predominantly value oriented MF house, may not have given returns on par with other Growth oriented MF houses. Now, their Equity MFs may perform marginally better than in past 3-4 years.
(I may be wrong in my analysis)
Shouldn’t the difference in TER between a regular plan and a direct plan go to the distributor? If this is the case, we shouldn’t see any impact from a regular to direct switch.
Or is it second order thinking that most regular funds are push products (via HDFCB) which is a strength to HDFC AMC while younger investors invest in direct funds via Groww/Coin/Kuvera etc and this might result in HDFC AMC lose out on new customers?
AUM size & growth is the most important factor for AMC business. HDFC has high margins but hardly any growth for past 2 years. This is the factor they need to address immediately. I am hoping that HDFC bank gives a real push to this post or during merger process with HDFC. Another option to grow is via acquisitions. Somehow HDFCAMC has been quite reluctant in this (perhaps due to concerns of lower margins of businesses that are available for sale)
Growth depends on fund performance. HDFC as a fund house follows value investing strategy. Value investing doesn’t outperform in the bull market but works best in bear market. In the last 6 month, HDFC funds have returned to top 3 in most categories. AUMs will follow if such phase continues.
Fund performance is obviously important. And so is the push by sales teams (own sales, promoter banks using their network, MFD etc). It would be interesting to see how the AUM moves in the next few months.
Does this indicate a change in direction of the company by moving towards passive funds? Navneet Munot had been pushing this when he was in SBI. Perhaps this move gives him more freedom to make difficult decisions like that.
Prashant Jain has been selling his stake in HDFC AMC in 2020 / 2021 (source: insider trading data).
I have a slightly different take on this - while quarter on quarter top line / bottom line is effected a lot by market prices (the AUM is marked to market and they have recognised notional book losses on other income which is primarily due to increasing bond yields) - the overall performance seems to be stabilising and I dare say probably turning around.
Please see below the metrics dashboard (just cutting and dicing their presentation data) - split into growth and market share metrics. It may be a little early to state that the performance has started to turn (as one quarter is insufficient to justify a trend) - but the management in their call stated that it takes a couple of quarters from good fund performance to translate into improvement in metrics, it seems that it could be a possible a turnaround. This is assuming the thesis that the larger opportunity for AMCs are likely to be driven by growth in Individual’s allocating more to mutual funds and Equity Linked schemes (from a share of profit perspective - of course passive Index / ETFs are also important from an AUM perspective)
I think two areas where there seems to be further potential for improvement is share of SIP flows and share in B-30 markets - both of which seem to be identified as action areas
Metrics dashboard
Q4 FY21
Q1 FY22
Q2 FY22
Q3 FY22
Q4 FY22
Q1 FY23
Growth metrics
AUM Growth
Market AUM growth QoQ
1.3%
7.0%
9.2%
2.7%
-0.5%
-5.1%
HDFC Closing AUM growth QoQ
-2.8%
5.9%
4.1%
0.2%
-6.7%
-2.7%
Indiviudal share of total
% Individual AUM of Market AUM
53.7%
53.7%
54.5%
55.0%
55.2%
55.1%
% Individual AUM of HDFC AUM
56.8%
59.3%
59.3%
58.7%
60.1%
61.7%
Indiviudal AUM growth
% Market Individual AUM growth QoQ
6.8%
5.8%
11.5%
2.5%
-0.5%
-1.9%
% HDFC Individual AUM growth QoQ
6.0%
4.8%
5.2%
0.8%
-0.9%
-1.3%
SIP AUM Growth
Market SIP AUM growth QoQ
7.5%
11.6%
12.5%
5.6%
1.8%
-5.2%
HDFC SIP AUM growth QoQ
6.6%
12.2%
9.4%
0.9%
1.4%
-3.8%
SIP Flow Growth
Market SIP growth QoQ
9.5%
0.0%
13.0%
8.7%
8.8%
0.0%
HDFC SIP growth QoQ
14.3%
-5.8%
10.2%
10.2%
3.4%
4.1%
B-30 Growth
B30 Market AUM Growth QoQ
4.0%
7.7%
10.7%
1.6%
-1.6%
-1.6%
B-30 HDFC growth
10.4%
0.3%
8.8%
3.2%
2.2%
-1.6%
Market share metrics
AUM
Qtry close AUM market share
12.6%
12.4%
11.8%
11.6%
10.8%
11.1%
Qtry close Active Equity AUM market share
12.7%
12.4%
11.6%
11.2%
11.0%
11.1%
Indiviudal
% Market share Individual AUM
13.6%
13.5%
12.8%
12.6%
12.5%
12.6%
SIP
% Market SIP AUM
13.2%
13.3%
12.9%
12.3%
12.3%
12.5%
% Market SIP flows
11.3%
10.7%
10.4%
10.5%
10.0%
10.4%
B-30
Market share in B-30 Markets
11.9%
11.1%
10.9%
11.1%
11.5%
11.5%
Disc. Invested and likely to be biased. Despite this being one of my larger position sizes due to higher conviction - my historical returns on this continue to remain poor(-1.7% XIRR over a 2.7 year weighted holding period!)
There is a marginal increase in the market share on a closing AUM basis across all major categories - Total AUM, Equity, Debt, Liquid etc. Perhaps HDFC MF portfolios fell lesser than overall market. Perhaps it’s a bit early but hopefully they start increasing the AAUM market share.
Btw, from ICICI bank Q1 investor presentation, I could see the net profit of ICICI AMC is around 303 crores or so. Slightly less than that of HDFC but ICICI’s AAUM is almost 50,000 crores more than that of HDFC
Indeed agree on beauty of this forum.
Regarding the risk of Prashant Jain’s leaving the AMC, I think now most MF investors are pretty much well read and informed…HDFC AMC not doing well since few years is well known fact and this exit may actually not turn out to be a big event as it might have been had the funds been top performing since many years with all extra alpha, beta, Gama, delta seeking investors crowded…IMO that’s currently not the case…
Infact the exit might be counter intuitive as many were seeking growth rather than value strategy and with new CEO that had come from SBI MF, they could have already sensed big changes in strategy might come and may welcome it as well…
Not to mean Prashant Jain’s strategy is anything less and big respect for his strategy and ability to stick to it…but investors and market thinks with minds of their own and very difficult to predict or fathom…
Disc. 5% of portfolio invested in HDFC midcap opportunities fund and small position in HDFC AMC stock, hence maybe biased. Views only for academic purpose and I can be completely wrong in all my assessments.
