Global brokerage CITI expects HDFC Asset Management Company to post higher-than-expected divergence in asset and revenue growth sequentially but sees a brighter side for Nuvama Wealth Management Ltd.
Initiating pair trade on two asset management companies, CITI assigned an ‘overweight’ (OW) rating to Nuvama on the back of new momentum in fundraise and improving cost efficiencies.
On the other hand, the global brokerage assigned an Underweight (UW) rating to HDFC AMC due to lower-than-expected revenue and asset growth estimates.
In pair trade, an investor takes a long position in one stock and a short position on the other as the two stocks typically move in correlation.
Shares of both HDFC AMC and Nuvama Wealth Management Ltd declined up to 3% on Tuesday. HDFC AMC shares touched a low of ₹3,665.50 on BSE, down by 2.7% from the previous close. Nuvama shares dropped 1.3% to hit a low of ₹3,922.55 apiece on BSE at 11.16 am.
CITI in a report said that it sees higher-than-expected divergence in quarter-on-quarter revenue and Assets Under Management (AUM) growth for HDFC AMC owing to AUM slab changes since November 2023.
Additionally, the full impact of cost absorption owing to employee base and franchise expansion will likely be seen in the first half of calendar year 2024, CITI said.
On the flip side, Nuvama’s capital markets business will likely benefit from market tailwinds, the brokerage said.
“Robust flows in UHNI/HNI wealth management on the back of currently elevated monetization events, momentum in new fundraise in AMC and improving cost efficiencies in wealth management will likely support earnings,” the report mentioned.
“Nuvama’s steep 45% valuation discount to HDFC AMC remains unwarranted; expect convergence going ahead,” the CITI report added.
(Edited by : Asmita Pant)
