In the last one and a half years, the asset management industry is witnessing fundamental changes in operations, digital disruptions, new product categories and in its challenge to capture the exponential number of customers who have opened new demat accounts in the same period.

HDFC Asset Management Company or HDFC AMC is one of the earliest entrants in the asset management business and has one of the largest AUM (assets under management) of Rs 4.4 lakh crore. Though the overall size of the asset management business is increasing, HDFC AMC’s market share is down over the last few years.

In February 2021, the company saw a change of leadership with the new CEO Navneet Munot taking charge. He takes over from Milind Barve, who was the Managing Director of the fund house for the last twenty years. Munot, in his earlier role was the CIO (chief investment officer) of SBI Mutual Fund for 12 years, and during this period, the fund house soared to leadership position in terms of AUM and market share.

The stock is underperforming since the past two years. On the day of Q2FY22 results, its returns stood at 21% as against Nifty 50’s returns of 54% for the preceding year.

Quick Takes

• Overall AUM (assets under management) YoY growth of 23% in Q2FY22 to Rs 4.35 lakh crore

• Despite a declining market share, HDFC AMC had a market share of 12.1% in Q2FY22, second to SBI MF.

• HDFC AMC is planning to launch nine new passive funds including ETFs (exchange traded funds) 

• Equity MF (mutual funds) continue to be the strongest segment with 50% YoY growth and highest AUM contribution at Rs 15.6 lakh crore

• Other funds category which includes ETFs (exchange traded funds) and international funds have grown 60% YoY at Rs 4.9 lakh crore

Adapting to shifting trends and investor preferences

Investors’ preference for new and differentiated mutual fund products is changing the landscape of the mutual fund industry. A notable change in investor behaviour is allotment of a portion of investments to international funds via the FoF (fund of funds) route or the ETF route. A lot of investors' funds also got distributed among a slew of NFOs (new fund offerings) by several AMCs. HDFC AMCs market share of the overall AUM has declined YoY from 13.6% to 12.1% in Q2FY22.

Commenting on these trends, the CEO of HDFC AMC, in a conference call with analysts said ”Our redemption share has been more or less constant over the last three years or so. The impact that you see in market share is due to lower share in gross inflows. And the lower share in gross inflows may be attributed to a couple of reasons, one is that a large part of inflows in the recent past has been through as you would know NFOs.”

He added that there are times when one must be more prudent rather than just be part of what is happening in the market. HDFC AMC has been selective in launching NFOs. The last launch was for the dividend yield category in Q3FY21 and they plan to launch another multi cap fund post approval from the regulator.

Direct investing gains popularity with investors

There are many changes in the channels that contribute to inflows contributing to AUM. The ‘direct’ channel now commands about 45% of the share, followed by MFDs (mutual fund distributors). 

The banking channel contributes to less than 10%, with a 5.3% contribution by group company, HDFC Bank. The large percentage of direct channels hints at increasing awareness among investors, as a result of which they are carrying out transactions independently.

Equity MF schemes have historically been the strength of HDFC AMC. This is reinforced with the contribution of equity AUM up to 45% QoQ in Q2FY22 from 43% . Similarly SIP (systematic investment plan) flows rose to Rs 1,080 crore in Q2FY22 from Rs 980 crore in Q1FY22. The management indicated that HDFC AMC will continue to focus on active fund management and focus on adding value for investors.

The company’s new fund launches included a banking sector fund and an international fund in Q2FY22. The total amount raised via the NFO for the international fund was Rs 1,100 crore. Apart from equity schemes, the ‘others’ funds category (which includes ‘fund of funds and ETFs) is growing faster than debt and liquid fund schemes. In Q2FY22, the other funds category surpassed the quarterly AUM of liquid funds.

High margins and underpenetrated markets brings in lots of competitors

Asset management is a high-margin business and this is one of the primary reasons for the growth of the industry. In addition, data confirms that financialisation of savings is very low in India at present. This is expected to grow exponentially over the coming years. Not to miss out on this opportunity, at last count as many as ten new players have filed applications for new AMCs with the regulator and some of these have got a green signal to launch operations since the beginning of the CY21.

Many of the new entrants are planning to offer investors passive schemes. In order to offer similar products, HDFC AMC in Q2FY22 applied to the regulator to launch nine passive funds. These include ETFs on Nifty Growth Sectors 15, Nifty IT, Nifty Next 50, Nifty Private Bank, Nifty 100 Low Volatility 30, Nifty 100 Quality 30, Nifty 200 Momentum 30 and NV 20.

Replying to a question on new schemes during an analyst call, the CEO said, ”Over the last couple of quarters, we have launched a few products. We are going to have some more products over the next several quarters. We believe that all of these efforts, including the performance improvement, would be noticed by the market and we should be able to see a gradual improvement in the market share.”

With rising competition and changing investor preferences, the task for the new leadership is cut out towards regaining lost market share. The next few quarters will be exciting for the asset management industry with new entrants trying to wrest market share. How well-entrenched players like HDFC AMC respond to the competition is something that will be keenly watched.