Asset management companies are known for their consistent performance in the equity markets. In fact, the AMC stocks are known to perform better than most of the large caps even during volatile times. As a result of which Reliance Research also believes that the AMC business will provide huge structural opportunity in the future.
It said, "We expect the industry's AUM to clock 13 percent CAGR over FY20-FY23E to Rs 32.3 trillion. Ongoing evolution of financial inclusion in the economy, increased awareness about financial products, and a steady rise in young working class are expected to boost AUM of the domestic mutual fund industry, going forward."
Moreover, the AUM of the mutual fund industry (as a percentage of GDP) rose almost three times in 14 years, i.e. 12.5 percent in FY19 from 4.7 percent in FY05. However, the recent market correction owing to COVID-19 disruptions has resulted to the industry falling 10.9 percent in FY20.
Considering the steady decline in the interest of the investors, the companies with higher exposure to equity-oriented schemes are well-placed, suggested the brokerage.
The report also made an interesting point saying that people having high salary/income have not been impacted during the lockdown, which may have resulted in higher inflows given higher savings led by working from home.
Source: Reliance Research reportRationale Behind Stock's Bullishness
Among the three major players in the AMC business, the brokerage remains bullish on HDFC AMC, by setting a two-year target price at Rs 3,250 citing the strong earnings growth in the last 7 years and strong banking parentage as key growth drivers.
Since its March low levels, the stock has risen 30 percent.
"Going forward, with strong corporate governance, brand equity, pan-India distribution and steady stream of SIP flows, HDFC AMC is likely to see continued traction," the brokerage added.
Unique business model, strong balance sheet with no legacy issues, HDFC AMC is a favourable stock for the investors looking for a safe play, it added further.
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