Shares of HDFC AMC and Reliance Nippon AMC have rallied over 75 percent, becoming one of the top wealth creators in 2019. Reliance Nippon rose as much as 79.4 percent, while HDFC AMC advanced 75.2 percent during this time. In comparison, BSE Sensex rose 3 percent YTD, and BSE Finance was up only one percent.
In the last one year, HDFC AMC surged 58 percent despite the ongoing liquidity crisis post the IL&FS imbroglio, while Reliance Nippon AMC gained 25 percent.
However, in 2018, Reliance Nippon fell 47 percent due to negative news flow surrounding its promoter group — Reliance ADAG Group. However, things changed after its co-promoter Nippon Life Insurance increased its stake in the firm to 75 percent from 42.88 percent earlier. The company also announced Reliance Capital will sell the remaining part of the stake through offer-for-sale for repayment of loans.
HDFC AMC has been a consistent performer since its listing in August 2018. Despite that, Morgan Stanley recently downgraded the stock to ‘equal-weight’ citing a steep rally in its share price since the beginning of the year. The stock hit its record high of Rs 2,697 on September 3 on the back of constant re-rating by several brokerages following strong earnings in the past three quarters.
HDFC AMC has seen strong market share gains on robust inflows via systematic investments and in liquid mutual funds owing to the flight to safety from other mutual fund categories that were impacted due to exposures to stressed corporates and NBFCs/HFCs, cited a report by Morgan Stanley Investment Baking Company.
"Sharp re-rating to 41 times its FY 2021 P/E has likely been driven by free cash flow and balance sheet light business in tough macro conditions, but upside seems tough given weak markets,” said the brokerage.
The rating is also driven by an improved relative positioning within the financials space being a free cash flow, balance sheet light business, with many others facing funding and or asset quality challenges.
HDFC AMC's revenue was up 7 percent in the June quarter, while net profit grew 42 percent over the year-ago period. Meanwhile, Reliance Nippon Life Asset Management's revenue fell 5.3 percent in Q1, while the net profit was up 13 percent over the year-ago quarter.
“1QFY20 was a transition quarter for mutual funds to lower fee norms and Reliance AMC (and the sector) have done well in managing it with limited earnings impact by lower distributors’ commissions and controlling discretionary costs," said a CLSA India (Pvt.) Ltd note to clients.
A change in the ownership of Reliance Nippon AM has seen its share price rise 19 percent in the past month, while HDFC AMC gained 11 percent.
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First Published: Sept 10, 2019 2:19 PM IST
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