We expect asset management games to benefit from the improved stock mix for the third consecutive quarter in Q2FY22e. End-to-end, outstanding equity increased 21% between March 21 and August 21. This was helped by strong stock flows (dominated by NFOs in July-August 21) of Rs 1.2 trn (ex-Index / liabilities and including hybrid funds) into 5MFY22-TD and the improvement in the SIP wallet (feeds and folios).
This resulted in a strong possibility of earnings revaluation during FY22. Taking into account the 5MFY22-TD performance, relative cost structures and RoE, we improve the profit estimates for fiscal year 22/23 for Nippon Asset Management (NAM) by 14% / 12%, UTI Asset Management (UTI AMC) by 14% / 20% and HDFC Asset Management Company (HDFC AMC) by 4.7% / 2%. We keep BUY on UTI AMC and ADD on NAM while we downgrade HDFC AMC from Add to HOLD.
Performance Assessment of AMCs listed in 5M-FY22TD: Based on the AMFI classification, NAM was able to increase outstanding equity and debt by 18% and 13%, respectively, in 5MFY22- TD. UTI AMC was able to grow similarly by 23% and (-) 8% while HDFC AMC increased it by 12% / 1%. We now take into account a 16% / 32% / 29% growth in AAUM in fiscal year 22E for HDFC / NAM / UTI AMC.
Maintain BUY on UTI AMC with a revised TP of Rs 1,410 (previously: Rs 1,200) based on 30x FY23E base EPS of Rs 37.4 and cash of Rs 288 per share. Maintain ADD on NAM with a revised target price of Rs 477 (previously: Rs 430) based on FY23e base EPS of 35x of Rs 12 and cash of Rs 58 per share. Downgrade HDFC AMC from Add to HOLD with a revised TP of Rs 3,350 (3,284) based on an FY23e base EPS of 45 times Rs 67.8 and Rs 298 cash per share. We take into account a 16% / 15% growth in AAUM for FY22E / FY23E with returns of 48.8bp / 48bp, respectively (vs. 48.7bp at Q1FY22). Higher than expected growth in assets under management can be a positive trigger for future earnings. However, a larger than expected drop in overall returns can lead to disappointment in earnings.
Strong NFOs characterized FY22-TD: On an ex-ETF basis, MFs raised Rs 172 billion and Rs 237 billion on July 21 and August 21, respectively. In FY 22-TD, the total amount raised by NFOs was Rs 479 billion compared to Rs 293 billion raised in FY 21.
Evolution of equity market share: Based on monthly closing data for assets under management, HDFC AMC AAUM equity market share increased from 12.7% in June 21 to 12.1% in August 21. The market share of NAM AAUM shares increased from 6.84% in June 21 to 6.76% in August 21. The same for UTI AMC went from 4.76% in June 21 to 4.82% in August 21.
Evolution of the debt market share: based on AMFI data, the AAUM debt market share between June 21 and August 21 increased from 14.4% to 14.5% for HDFC AMC, from 7.3% to 7.6% for NAM and from 3.8% to 3.7% for UTI AMC.
Flows dominated by the Flexi ceiling in August 21: the aggregate entries of August 21 in the MF regimes were Rs 330 billion against Rs 146 billion for the outflows observed in August 20.
Trends in the improvement of SIP: SIP flows of August 21 amounted to Rs 99 billion against Rs 91.6 billion in June 21 and Rs 96.1 billion in July 21. The industry added 2.5 million new SIP accounts in August 21 against 1.7 million monthly average in the first quarter of fiscal 22. SIP AUM stood at Rs 5.3 trn, up 5% month-on-month.