India’s top listed asset management companies (AMCs) reported an average revenue growth of 38% on a year-on-year basis in the March quarter as continued financialisation of savings pushed their assets under management (AUM) higher. The strong growth propelled brokerage firms to raise their earnings forecasts for FY25 and FY26.
Kotak Institutional Equities revised its earnings forecast for Aditya Birla Sun Life AMC, UTI AMC and Nippon Life India AMC by 3-10% post the March quarter earnings. Meanwhile, the brokerage firm lowered its forecast for HDFC AMC by 2-3% despite core earnings growth of 30% during the quarter, which it said was lower than its estimate.
Brokerage firm Jefferies expects leading wealth managers in India to deliver 20-22% profit CAGR over FY24-FY27 riding on the wave of economic growth and financialization of savings, particularly into capital markets.
In the quarter ended March, the adjusted net profit of top AMCs after extraordinary items grew by an average 62% on-year. This was aided by higher revenue and other incomes.
The strong growth of AMCs has made their stocks hot products on the Street. Kotak Equities said the sector as a whole was trading at 55-60% premium to broader market on the back of strong cash flow generation, high degree of transparency and predictability, and well-aligned incentives across investors, distributors and asset managers.
“There is an ongoing trend of financialization of household savings, where within financial savings, allocations shifted from banks towards non-banks,” Goldman Sachs said in a report last week. It highlighted that the overall AUM of retirement savings, insurance and mutual funds in India has grown at 15% CAGR in the past 10 years, outpacing 9% growth seen in bank deposits in the same period.
So far in 2024, shares Aditya Birla Sun Life AMC, 360 One WAM, HDFC AMC, Nuvama Wealth and Nippon Life India AMC have risen 10-35%, sharply outperforming the benchmark Nifty 50 index, which has risen 5.6%.
While long-term growth prospects remain compelling, some brokerage firms highlighted near-term risks of moderation in earnings growth due to potential cut in total expense ratio, adverse regulations, and yield compression.
Nevertheless, brokerage firms believe 15-20% revenue growth will be a walk in the park for listed AMCs for the next couple of years.