Despite HDFC Asset Management Company's (HDFC AMC) shares showing lower performance compared to major competitors over the past year, the company remains confident in its growth prospects. While the average return across all asset management companies is around 8 percent, HDFC AMC's return for this period was -13 percent. Decreased margins and rising costs negatively impacted the third-largest fund by assets.
During a recent meeting with analysts, HDFC AMC management expressed optimism about future prospects. However, the first quarter of fiscal year 27 (Q1FY27) results were moderate. The company reported that the quarterly average assets under management (QAAUM) reached 9.35 trillion rupees, which is 1 percent higher quarter-over-quarter, and market share stood at 11.2 percent. Returns increased by 2 basis points to 47.2 basis points, leading to a 4.6 percent quarter-over-quarter revenue growth to 1100 crore rupees. Meanwhile, operating profit decreased by 250 basis points quarter-over-quarter, standing at 77.3 percent, but net profit grew by 34 percent quarter-over-quarter to 837 crore rupees due to increased other income.
The increase in returns was driven by the transition from TER to BER (Base Expense Rate) plus established fees and accounting changes. Personnel expenses rose by 14 percent quarter-over-quarter due to increased ESOP and annual increments. Other expenses increased by 31 percent quarter-over-quarter due to rising Corporate Social Responsibility (CSR) costs. Other income of 260 crore rupees was generated through Mark-to-Market (MTM) gains and grew by 12.8 percent year-on-year.
The company plans to invest in new teams and platforms, as well as hire staff in international business, Portfolio Management Services (PMS), Alternative Investment Funds (AIF), institutional sales, digital technologies, artificial intelligence (AI), and marketing. AMC intends to launch funds in the Alternatives segment (HDFC Alternatives), and the Board of Directors has approved the launch of the Long-Short SIF fund.
AMC is increasing its share among unique investors, showing an annual growth rate of 33 percent between April 2023 and June 2026, which is double the industry average of 16 percent. Although the annual stock return has weakened, the three-year return remains high, providing the company with the highest share of net market inflow—12 percent.
The structural potential is based on India having a large stock market with over 12,000 listed companies with revenues exceeding $25 million USD, and the formalization of the economy attracting more savings into financial markets. HDFC AMC serves 17 million unique investors and has good growth potential given the mutual fund base of 62 million people and over 130 million registered capital market participants. The average SIP contribution size in the industry, amounting to 3000 rupees per month, could also increase.
AMC aims to develop all fundraising channels, although assets attracted through distributors show greater resilience. Despite 98 percent of transactions being digital, the company continues physical expansion in cities outside the top 30 (B30), as 65 percent of new fintech-driven SIPs come from these regions. Five leading schemes account for 66 percent of equity (and balanced fund) assets, but there is potential in underserved funds. Regulatory approval for SIF is in progress, and Paramprit Paul has been appointed as the head.
The Alternatives platform is actively developing: AMC is expanding the team managing PMS, private equity, and private lending, and is also broadening support groups for risk, products, legal matters, and sales. The balance sheet commitment volume in the Alternatives sector is expected to exceed 1000 crore rupees by the end of FY27. The first Cat-3 AIF and a non-discretionary portfolio management service (NDPMS) targeting family offices and ultra-HNWIs have been launched. HDFC AMC's private lending fund has partnered with IFC as the lead investor.
Key growth drivers may include an increase in SIP contribution sizes, cross-selling multiple products to clients, and reduced early redemption due to improved investor financial literacy. Despite the recent negative trend in stock returns, SIP flows remain very strong, with flows into small and mid-cap companies being stronger than those into large and flexi-cap.
Assets located in India (excluding EPFO) amount to $100 billion, and including the EPFO mandate, they total $160 billion. The total number of schemes is 110 (48 passive and 60 active), with 55 products launched over the last five years. Concentration is observed: the leading scheme accounts for 25 percent of AUM, and the top five schemes account for 75 percent of equity assets. Six schemes have 30 years of experience, and 13 have 15 years or more, providing a long-term advantage over competitors.
HDFC AMC intentionally avoided excessive fundraising through NFO to protect long-term investor returns. For instance, the Defence Fund NFO closed with a sum of 1100 crore rupees, although it could have raised three times more. Since then, it has grown organically to 11,000 crore rupees through SIPs. Collaboration with GIFT City has grown: 7500-8000 distributors are registered there, and two outbound funds sold in the US, Japan, and other countries are operational. HDFC AMC is actively engaging with IFSCA (International Financial Services Centres Authority) to simplify international investments through GIFT City. Thanks to this proactive approach, despite moderate results, HDFC AMC can leverage its brand, distribution, and long-term performance to increase AUM.