While the Nifty 100 and Nifty Midcap 100 indices have tumbled up to 12 percent from their peaks, stocks of AMCs have seen a 30 percent correction on the bourses over the past few weeks, reflecting the impact of greater fears of earnings impact of AUM declines and potential uncertainty on flows.
As a result, domestic brokerage Kotak Institutional Equities said, "We find the risk-reward more balanced on an absolute basis and relative to the market, leading to a more constructive stance."
"While market sensitivity remains a key risk, valuations along with conservative assumptions, provide comfort," added the brokerage.
On the asset management companies, the brokerage upgraded HDFC AMC and Nippon India to 'add' from 'reduce' earlier, while giving UTI AMC a double-upgrade, to 'buy' from 'reduce'.
Kotak expects HDFC AMC and Nippon India to continue to deliver higher AUM growth over the
next few quarters, as stronger flows are likely to sustain in the next 12 months, despite performance dips in certain fund categories.
Aditya Birla Sun Life AMC and UTI AMC have shown signs of performance revival in select large funds. "We await stronger signals to turn more assertive, given lower valuations and flow run-rate, which could offer a stronger upside," explained Kotak.
At 1.40 pm, UTI AMC shares were up 2 percent at Rs 1,081.2, while HDFC AMC shares surged 4 percent to Rs 4,018 per share. Aditya Birla Sun Life AMC gained almost 3 percent to Rs 700.4. CAMS stock jumped 8 percent to Rs 3,777.2 apiece.
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On the RTA front, Kotak noted that CAMS and KFin Tech shares have fallen by ~35 percent from peak, likely due to higher starting valuations. The brokerage upgraded CAMS to 'add' from 'reduce', given more reasonable valuations.
"KFin Tech’s execution has been excellent in expanding the non-MF segments (international, alternatives and issuer solutions). While we like the progress, we await better entry valuations, given exposure to capital market-sensitive segments and hence, retain 'sell'," said the brokerage.
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