Mutual Funds

Highlights Strong AUM growth of 20% YoY, market share maintained Other income drags overall profit Core operating profit grew by 16% YoY Operating margins healthy but impacted by high employee cost Favourable asset mix is a key positive Key beneficiary of enduring growth in the MF industry Valuation at a discount to ICICI AMC, stock is a long-term compounder HDFC AMC (CMP: Rs 2,664; Mcap: Rs 114,065 crore; Rating: Overweight), the third largest AMC in terms of AUM (asset under management), posted a mixed set of earnings in Q4 FY26. Net profit declined by 2 percent year on year (YoY) mainly due to a sharp fall in other income. The other income, which mainly consists of investment income, was adversely impacted by mark-to-market loss on equity investments. These equity investments are largely made due to the SEBI’s skin-in-the-game circular which requires the AMC to put its balance sheet capital into its own fund in a pre-prescribed formula. However, the AMC’s core operating profit (excluding other income) showed a healthy growth of 16 percent YoY which was a key positive. Core profit growth was driven by a strong rise in AUM but was partially off-set by elevated operating expenses. A key negative was that the HDFC AMC’s AUM growth was a bit slower than the industry especially in Q4 FY26. So, while it managed to maintain the market share in terms of AUM, the closest peer – ICICI Pru AMC – gained market share in Q4 FY26 and FY26. Despite a relatively weaker performance compared to ICICI AMC, we remain positive on the stock. The key reasons for that are: superior product mix, strong brand value, and a relatively lower valuation compared to ICICI Pru AMC. Overall, HDFC AMC, being one of the leading players, will remain the key beneficiary of the structural growth seen in the MF industry. AUM growth slightly lower than the industry, market share almost maintained Despite the impressive 20 percent YoY growth in AUM, sequential data suggests a consolidating period for the AMC. HDFC AMC’s AUM for the March quarter end remained almost unchanged from December end, with assets moving marginally from Rs 9.24 lakh crore in December to Rs 9.27 lakh crore in March. In comparison, the broader industry showed slightly more momentum, growing 0.6 percent sequentially. On a full-year basis , HDFC’s 20 percent growth in QAAUM trailed the industry’s 21 percent expansion, suggesting the firm is currently consolidating its massive base rather than leading the market's incremental growth. Consequently, HDFC AMC’s market share stood at 12.6 percent as of March ’26 in terms of the quarterly average AUM (excluding ETFs) falling 10 bps compared to the corresponding period in the previous fiscal (March ’25). Asset mix favourable and better than industry While the overall AUM growth trailed the industry growth, HDFC AMC’s actively managed equity AUM grew by 23 percent YoY, a growth that was better than the industry. The equity-oriented quarterly average AUM, excluding index funds, stood at Rs 5,65,700 crore for the quarter ended March ’26 with a market share of 13 percent. Product Mix Profitability in the asset management business is fundamentally determined by the mix and HDFC AMC’s portfolio is strategically tilted toward high-margin categories. The company maintains an equity-heavy asset base, with equity-oriented schemes accounting for 65.2 percent of its total Quarterly Average Assets Under Management (QAAUM), a significant lead over the industry average of 55.9 percent. Operating margins healthy but impacted due to employee expenses By sustaining this high-yield asset mix, the company has successfully shielded its profitability from low-margin pressures of the broader market, maintaining resilient core operating margins at 35 basis points. Despite the higher equity contribution, the operating margin declined a bit by 2 bps in Q4 FY26. The employee benefit expenses which are a key cost for the AMC surged 29 percent YoY in Q4 FY26 due to non-cash charge towards amortised cost of outstanding Employee Stock options and Performance-linked Stock units dragging down the margin. The underlying yield dynamics further underscore HDFC’s strategic focus on profitability over pure volume. While the industry is seeing a structural shift toward lower-margin "Others" (Passives and ETFs), which now constitute 18.5 percent of the industry AUM, HDFC has kept this exposure to a lean 7.3 percent. Other takeaways – SIP flows strong, strategic move beyond mutual funds The company’s digital strategy has already achieved massive scale, with 97 percent of all transactions now being processed through digital channels, providing a robust foundation for operational efficiency. Beyond its core mutual fund business, the firm is aggressively expanding in the Alternatives space, recently announcing the first close of its Private Credit Fund. Further, the company continues to bolster its institutional credibility, evidenced by securing marquee investment mandates from the EPFO and SPFO during the year. With Rs 4880 crore flowing in SIP (systematic investment plan) monthly, the company has a "permanent capital" base that is relatively immune to short-term market corrections. Monthly SIP/STP flows surged 33 percent YoY. This stickiness is visible in its unique investor count, which has reached 16.7 million, reflecting a 27 percent penetration of the entire industry’s customer base. HDFC processed 16.5 million systematic transactions in March 2026 alone. Valuation at a discount to ICICI AMC HDFC AMC’s valuation reflects its status as a high-equity-oriented business, currently trading at a P/E multiple of 32x by FY28E. With a total Market Capitalisation of Rs 1.14 lakh crore, the company is valued at 12 percent of its AUM. This represents a notable discount compared to ICICI AMC, which trades at 16 percent of AUM, a premium largely justified by ICICI’s higher relative growth trajectory. Moving forward, the stock’s ability to narrow this valuation gap will depend on consistent execution; specifically, consistent fund performance, a revival in AUM growth momentum, and the successful management of TER (Total Expense Ratio). Regulatory shifts remain the critical metrics to monitor for long-term value creation. Given the sectoral tailwinds and reasonable valuation, HDFC AMC can be a long-term compounder.   For more research articles, visit our Moneycontrol Research page. 

Apr 17 2026, 12:28