Nomura initiates ‘buy’ call on HDFC AMC, NAM, bullish on rising retail participation

Financial savings make up around 46 percent of gross household savings, but only 6 percent of that is allocated to mutual funds.

Japanese brokerage Nomura has a positive outlook on the Indian asset management (AMC) sector, highlighting its strong growth potential. A few key factors contribute to this optimism, particularly the significant underrepresentation of mutual funds in India compared to other countries.

As a result, Nomura has initiated coverage, issuing a 'buy' rating on HDFC AMC and Nippon Life India Asset Management, while rating UTI AMC as “neutral.” With core-operating profitability remaining healthy, the AMC sector appears well-equipped to navigate challenges while capitalizing on the anticipated growth in assets under management.

At 9.25 am, shares of UTI AMC were quoting Rs 1,213.55 on the NSE, higher by 1.2 percent. HDFC AMC stock surged three percent to trade at Rs 4,324.5, while Nippon Life was higher by 3.3 percent at Rs 654.15 per share.

Nomura issued HDFC AMC with a target price of Rs 5,000, indicating a 21 percent upside, supported by its strong profitability and 13.3 percent retail AUM market share. Following its recent merger, HDFC AMC is expected to capture additional market share, projecting a 19 percent CAGR for AUM and core earnings through FY24-28.

Nippon Life India Asset Management (NAM) has a target price of Rs 785, benefiting from strong equity performance and market share gains. This implied an upside of 24 percent from the previous session's closing price. As India’s fourth largest asset manager, NAM is set to achieve a 21 percent CAGR in both AUM and core earnings, bolstered by its robust retail franchise and significant dividend payout policy.

In contrast, UTI AMC holds a price target of Rs 1,300 with an 8 percent upside, as it faces a declining market share and lower AUM growth compared to industry peers. While core earnings are projected to grow at 18 percent, net profit growth is expected to be soft at just 3 percent due to normalization of other income.

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Currently, mutual fund assets under management in India account for only 18 percent of GDP, while the global average is 65 percent. This gap suggests a substantial market opportunity for growth.

Increasing retail participation is another important driver for the AMC industry. As of the first quarter of FY25, there are around 47 million unique investors in mutual funds, representing just 3.2 percent of the population. This low percentage indicates considerable room for growth, especially as SIPs continue to gain popularity.

Financial savings make up around 46 percent of gross household savings, but only 6 percent of that is allocated to mutual funds. This indicates that there is still significant potential for growth in mutual fund investments.

Nomura anticipates that India's mutual fund AUM will grow at an 18 percent CAGR from FY24 to FY30, with the equity and passive segments leading this growth at CAGRs of 20 percent and 24 percent, respectively. While retail growth in the low-yielding passive segment may be moderate, institutional investments are expected to drive continued momentum.

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