I don’t think it’s a positive development as there will be a lot of shares in the market and with the recent performance, I don’t think the market would be quite enthusiastic about picking such a big lot.
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Abrdn is selling 9.99% out of its 10.21% holding to one single buyer. So it won’t create additional shares floating in market
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Recently I had a chance to meet some of my friends who have moved out from main stream full-time jobs and working on part time basis, or on the verge of taking partial retirement.
One thing which emerged from such discussions is that, most of them prefer direct equity compared to MF(s). Their thought process is that, most of the time, MF returns are 8%-11% only based on their investment time period. This does not make much meaning to some of them since post tax returns are even less. So they consider investing in stocks as better option.
Also, there is general belief that, Real estate and other products should be also considered for child education and retirement. So shifting from this mind set is going to take some time in Indian context. Though we can see that, AUM of MF industry is growing rapidly, I think, it is concentrated among few investors only. Many people still prefer real estate as their first choice of investment and this trend is going to remain.
Considering all this, and also the slow growth of per capita GDP, I believe that, returns from stocks like HDFC AMC would be limited as compared to some other industries.
I may be wrong in my observations and things could be completely different actually.
Disc : Invested in HDFC AMC.
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A proxy to whether that is true or not, can be gauged by the number of new folios created. Given the high number of folios being created, it is unlikely that it is concentrated amongst few investors. On whether it’s a more urban than rural concentration, that may be true.
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New folios not necessarily mean new investors.
- If I already have SIP in hdfc amc funds and open a new SIP in UTI AMC, a new folio is created.
- If I already have SIP in Quant amc in Zerodha coin and if I start another quant amc fund in mfuonline (goMF) a new folio is created.
Above both are from my personal experience.
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Of course, I agree to your observations and this has been put out by AMFI cautioning on how to read the new folio creation numbers. A reasonable approximation would be to discount 30% of the numbers as dupes? Besides, all discount brokerages too put out numbers on my larger point of the spread of investors now.
More Than 80% Of Our Customers Are From Tier 2, 3 Cities Now: Upstox (inc42.com)
Not all individuals can invest directly and earn above-market returns for long-term. Buffet’s long-term CAGR is ~20%. I feel 15% CAGR over 15-20 year period would be excellent result. As such 12% CAGR for 30 years would be very good result too, which mutual funds can provide easily.
People like your friends all getting attracted to the returns achieved in last 2 years, the market won’t be like that forever. When bear phase starts, many will quit direct investing.
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That would be good, if some or all friends will deviate away from real estate to MF. It will benefit them as well, as they do not sometimes understand that, money gets locked in real estate and liquidating real estate may not be easy for Child Education or for other goals.
More and more people are buying 2-3 houses now-a-days thinking that, Real estate is the best investment avenue, so probably it will take long time to change this mindset. I was highlighting this point.
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@gsapte ,
It is always a cycle. I have seen this play out in Mumbai. Once, there was a large boom in real estate in Mumbai. A lot of investors invested in real estate then, Price of the flat prior to completion of construction itself used to grow fast. Even 20% increase in the price of the flat used to lead to 100% gains for the investors as these are leveraged purchases.
The cycle turned, market stagnated… for last few years all the investors ran away from the market. Existing investors are holding on to an asset that … though not deteriorating in price… did not have liquidity.
I heard that this is the story of real estate across few other earlier cycles in Mumbai as well… same was the case in other cities … same has been the case globally as well,.
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Article headline mentions exponential growth for industry while its mentioned AUM grew 5% in 2022. Is 5% exponential growth of industry?
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From some of these reports, it is evident that, MF industry in India is still at its early stages and lot of potential is there to grow. Many people still do not think of equity when it comes to investing. This mindset is changing slowly but it going to take time. So moderate growth in Equity AUM will be there for longer periods. My belief is that, Equity MF will grow as more and more people will realize that, their retirement corpus will fall short unless they start considering equity more seriously as an asset class.
Disc : Invested in HDFC MF, but with low to moderate growth expectations.
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Wouldn’t CAMS and kfintech or BSE (STAR MF) benefit from the increasing mutual fund investment trend than the individual AMCs?
More and more people are getting aware of passive index funds which are doing better than actively managed funds. So the income of these AMCs are getting lower and lower.
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Passive ELSS could be big
Today, there seems to have been a sale of 0.7% equity by some entity. Can we get to check the details anywhere in BSE or NSE?
Also, does anyone know when Abrdn is planning to sell it’s roughly 10% stake as announced by them?
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Abrdeen continues selling. Saath mein chota chota company ke CFP ne bhi nikala 
Disc:Invested. Didn’t post this for any advise. Just wanted to add another line in this business’s thread. Such events help describe the story in future. I had hoped that putting an emoji will convey this but people didn’t catch this.
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It is evident that, Abrdeen and few others have been consistently selling HDFC AMC.
Though as an individual investor, one should not read much into this and Continue investing, I am curious to know whether this trend will continue for some time.
HDFC AMC has performed better than UTI AMC and ABSL AMC which are listed players, in the past 5 years. Also, it has much higher ROE and ROCE than peers, so it was trading at Median P/E of 40, which has corrected now to below 30. This seems to be a good buying opportunity for Retail investors.
While this is true, it also means that, lot of investors are loosing faith in MF story, and they believe that, in next few quarters, AUM may not increase much as people are unable to save much due to various reasons. Though SIP amounts may look good but those have not increased much in past few quarters due to reduced incomes or various other reasons. There could be pressure on expenses hence people are unable to save higher amounts in Equity MF(s).
Also, I believe that, 5% growth in AUM is much below the expectations. All these AMC stocks were pricing in much higher growth in AUM. If GDP is growing at above 6%-7%, one would expect AUM to grow much higher than this even after considering market correction. Why are the trends changing now? Where are people saving the money? Will these AMC companies not able to grow any where above double digits? if this is the case, I believe that, valuations may undergo some more corrections.
I may be incorrect in my analysis.
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I have come to a similar view regarding valuations looking at it from another angle. If I focus only on the equity component which I suspect is a key driver (as this is likely > 55% of HDFC AMC revenues - based on share of AUM x approx TER), there seem to be several arguments to support the valuation or at least steady compounding going forward
- Equity AUM should theoretically grow ~14-15% in the medium term in nominal terms (9-10% AUM growth through market growth + 5-6% of new net inflows). Just equity should result in an 8-9% revenue growth (excl debt, liquid and ETFs)
- The above assumes market share remains constant - if market share grows this revenue growth would improve. Due to poor performance over the last 3 years, they lost 3.5% in market share - although this seems to be stabilising or dare I say even increasing slightly. The decline in market share has had an impact on AUM growth
- The large amount of cash on their books (> Rs 5000 cr?) may have some optionality in terms of M&A - or they might just return this as dividend by increasing payout above 65% / doing a special dividend
- Short terms cost improvement as other expenses due to several NFOs may reduce. I suspect that if revenue growth is sub-10%, there may not be too much operating leverage left in the business after this cost improvement
- January AMFI / HDFC AMC numbers show that the equity market share growth remains intact (perhaps growth is too strong a word)
All the above optimism is yet to transfer into any meaningful improvement in financials though. One analyst put it very well in the conference call asking why the management is unable to grow AUM and margin.
Looking for whether the MF culture is broken is a key red flag - in addition to the SIP, January numbers showed a very healthy number for Equity (and a very poor number for ETFs) - but a month isn’t a data trend
I agree that a low revenue growth will result in a valuation downgrade
Disc: Invested so likely to be biased
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Perhaps this is a cyclical sector rather than a structural steady one…4-5 years of solid upcycle followed by stagnation and in between some temporary blips…a study of listed AMCs from US would give some perspective on long term trends f such firms…
Logic tells us that over very long term, AMCs should do well…
What confuses me is that over the listed history of HDFC AMC - since around Aug 2018 to 2023 so far, market has moved up more than 50%, BSE midcap up by around 45%…but HDFC AMC is flat…so the fact that AUM might have increased significantly by virtue of market movements have resulted in negligible effect on HDFC AMC share price.
One reason for above may be valuation de-rating. HDFC group, like all others, listed both HDFC AMC and HDFC Life at very high valuations it seems leaving very little on table for minority investors till almost 5+ years now…
To me, AMC in particular looks like a structural growth story with very high cyclical undercurrents…
Disc: I maybe wrong in my assessments. Views academic. Have around 1-2% portfolio in HDFC AMC.
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I found few old articles on the co-relation between AUM and GDP.
It seems that, the MF industry is still under-penetrated in India. Though these files are dated, but it shows that, there are possibilities of good opportunities ahead of MF industry in India.
True potential of MF industry will be visible once the GDP growth comes back on track, and once we see massive jump in Per Capita GDP in next few decades. Substantial and serious efforts in this direction can improve the scenario for MF industry.
Some of the developing nations seem to be ahead in terms of Per Capita GDP and AUM / GDP ratio, and there seems to be room for growth in these 2 areas in Indian context.
Though most of these findings are known, I am researching this space to figure out the impact of sluggish GDP growth on MF industry.
Disclosure : Invested in HDFC AMC, but growth ahead looks low to moderate for the MF industry.
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