Asset management companies fall after market regulator, Securities and Exchange Board of India (Sebi), on Tuesday revised total expense ratio (TER) slab structure for mutual funds since its introduction in 1996.
Reliance Nippon Life Asset Management Ltd falls as much as 8.96 percent to hit a life-low of Rs 194.50, while HDFC Asset Management Co. ltd slips up to 7.6 percent to Rs 1,419.50, its lowest ever.
Sebi capped the TER for equity-oriented mutual fund schemes at 1.25 percent and for other schemes at 1 percent. The TER cap for fund of funds will be 2.25 percent for equity-oriented schemes and 2 percent for other schemes.
SEBI said all mutual fund commissions and expenses must be paid from the scheme itself, adding that the industry must adopt a full trail model of commission in all schemes without paying any upfront commission.
Morgan Stanley cut target price for HDFC Asset Management by 14 percent saying stock has been weak in anticipation of adverse regulation, and expect some further near-term weakness.
Nomura cut rating for Reliance Nippon to ‘Neutral’ from ‘Buy’ and target price to Rs 210 from Rs 315. The brokerage firm says this TER cut clearly derails profitability for asset management companies.
AMCs will have to also absorb a fair share of the impact and this will take away any operating leverage left in near term for the business, Nomura added.
Citi says while lower TER would mean lower revenues, mutual funds could cushion the impact by some pass through to distributors and by lower promotional expenses.
Over medium term, lower charges can make mutual funds more attractive for investors and aid penetration, it added.
CLSA says AMCs’ ability to pass on impact to distributors will be key to their ability to defend the earnings impact. If they pass 50-70 percent of impact then the impact on earnings would moderate to 10 percent.
HDFC AMC shares traded at Rs 1,428, losing Rs 108.20 in value, or by 7.04 percent on the NSE at 11.05 am. Reliance Nippon Life Asset Management ltd shares traded at Rs 193.95, down by Rs 19.70, or by 9.22 percent.
Benchmark indices traded positive. The NSE Nifty 50 traded at 11,309.40, rising by 30.50 points, or by 0.27 percent. The BSE Sensex traded at 37,361.87, higher by 71.20 points, or 0.19 percent.
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First Published: Sept 19, 2018 11:15 AM IST
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