HDFC AMC, Nuvama, Motilal Oswal, other capital market stocks fall up to 7% as SEBI proposes fee structure changes

HDFC AMC, Nuvama, Motilal Oswal, other capital market stocks fall up to 7% as SEBI proposes fee structure changes

Shares of capital market stocks Motilal Oswal Financial Services, HDFC Asset Management Co., 360 ONE WAM, Nuvama Wealth Management, Nippon Life India Asset Management, and Aditya Birla Sun Life AMC were down 3-7% on October 29, with analysts warning of a potential hit to profitability after SEBI proposed changes to mutual fund fee structures.

HDFC Asset Management Company, Motilal Oswal Financial Services led losses among pack with up to 7% decline. HDFC AMC is set to lose the most in a day since June 2024. Nippon Asset Management fell 5%.

Among other stocks that fell were Canara Robeco Asset Management Company, Nuvama Wealth Management, and UTI Asset Management Company, which were down 2-4%.

"As per SEBI, since AMCs already charge an MF fees, additional brokerage over and above 2 bps would lead to a dual impact on customer. This would certainly be negative for brokers," brokerage Prabhudas Lilladher said in its report. If implemented, the core earnings of HDFC AMC, Nippon Life, Aditya Birla, and UTI AMC will be affected by 8-9%, the broking house said, reported Informist.

Analysts at Jefferies said that the move could bring down profit before tax by about 30-33% for HDFC AMC, Nippon AMC in 2027.

The Securities and Exchange Board of India (SEBI) has proposed changes to mutual fund fee structures, including the expense ratio and the brokerage fee, as it sought a more transparent break-up of costs that investors are charged, according a consultation paper. Statutory levies such as the Securities Transaction Tax (STT) and GST, along with the stamp duty will remain outside the limit of total expenses.

Wealth management shares like Nuvama, 360 One Wam fell up to 4% as SEBI proposed complete overhaul of mutual fund regulations.

SEBI, on October 28, proposed measures to simplify mutual fund fee structure, including a plan to discontinue 5 basis points charge that mutual funds posed on equity funds where exit load is levied.

Consequently, the Nifty Capital Markets index was trading 2.3% lower at 4,533.85 with Motilal Oswal Financial Services, Nippon Life India Asset Management leading the losses by declining 7% and 6%, respectively.

Brokerage caps have been reduced to 2 bps for cash market and 1 bps for derivatives. The consultation paper noted, “to protect interest of investor and to ensure that expenses are charged fairly only once to the investors, the brokerage charge has been revised from 12 bps to 2 bps for cash market transactions and 5 bps to 1 bps for derivative transactions to bring clarity and transparency”. This cap may have implication for arbitrage funds who do the frequent churning.

Typically, the brokerage's expenses, including fees and transaction costs, among others, are deducted from the fund's net asset value (NAV) and is referred to as the expense ratio. A reduction in fees will mean less money deducted under the expense ratio umbrella, freeing up assets for the investor.

A significant reduction in fees is likely to hit brokerages' revenue, ICICI Direct said in a note.

Among banks, Kotak Mahindra could be hit due to higher brokerage-linked revenue, Jefferies said.

With inputs from Reuters