For asset managers, FY25 was a year worth forgetting. This year could be better.
Listed asset management companies witnessed slower growth in fourth-quarter revenue and profit amid a broader market correction that not only dampened investor sentiment but also squeezed earnings for fund managers.
The aggregate profit after tax of India's top four listed asset managers declined 0.24% year-on-year in the March quarter, sharply lower than the 42% increase in their collective earnings a year earlier. Total revenue from operations grew 16.8% in the latest fourth quarter, slower than the 22% growth reported a year ago, showed a Mint analysis.
Growth in their equity quarterly average assets under management (QAAUM) slumped to 22% in the fourth quarter from 63% a year ago. QAAUM is the average value of equity investments managed by a fund or asset management company over a three-month period.
During the January-March quarter, HDFC Asset Management Company's equity QAAUM declined 4% from the preceding three months (October-December) to ₹4.6 trillion, while UTI AMC saw a sharper 6.2% drop to ₹90,800 crore. Nippon India Life AMC's QAAUM fell 4.7% to ₹2.7 trillion, and Aditya Birla Capital AMC's fell 5.7% to ₹1.7 trillion.
Also read | HDFC AMC's valuation cooled off despite a strong quarter. Time to reconsider?
'Following the Nifty 50's all-time high on 27 September 2024, persistent market corrections created caution among investors," said Raj Gaikar, equity research analyst, SAMCO Securities.
Global uncertainties, including concerns around US tariffs, further dampened sentiment, said Gaikar, adding that many investors chose to book profits or reduce positions for year-end tax planning, contributing to outflows. This would have led to the decline in equity AUM during the January-March quarter.
That said, even with the market correction, growth equity schemes saw continued net inflows of ₹94,073 crore in the fourth quarter, up from ₹71,278 crore in the same year-earlier period, showed data from the Association of Mutual Funds in India (AMFI).
However, inflows into new fund offers, or NFOs, and debt schemes were more modest, Centrum Institutional Research said in a report dated 10 May.
NFOs in the equity segment remained subdued during the fourth quarter, with inflows of only ₹7,900 crore. On the fixed income side, debt mutual funds witnessed net outflows of ₹30,000 crore while liquid funds saw outflows of ₹49,800 crore.
Also read | Invest in domestic businesses to insulate portfolio from uncertainty: CIO of Kotak AMC
What's next?
Analysts remain confident of strong mutual fund inflows in the current financial year. 'We expect mutual fund inflows to remain resilient in FY26, likely in the range of $40-45 billion," analysts at Bernstein said in a note to clients on 13 May.
This, Bernstein said, will primarily be driven by steady systematic investment plan (SIP) contributions, with additional support from lump-sum investments expected in the second half of the fiscal year.
Bernstein added that although monthly flows appeared weak during the March quarter due to a prolonged market correction, they had significantly outpaced expectations and were stronger than what is currently reflected in the flow growth of listed asset management companies.
Alok Agarwal, head of quant and fund manager at Alchemy Capital Management, said the medium- to long-term outlook for the domestic AMC industry remains favourable due to low market penetration.
'With less than 6% of the population filing income tax returns and total unique equity folio holders estimated to be less than 5% of the population, there is significant headroom for growth, in our view," said Agarwal.
Also read | Kotak AMC targets extra ₹800 cr for new credit fund after initial ₹1,200 cr raise
As per capita income rises and mutual funds remain easy to access, investor participation in the equity market is expected to expand steadily, he said, adding that a structural tailwind is likely to drive strong long-term growth for the industry despite near-term volatility.
Shweta Rajani, head of mutual funds, Anand Rathi Wealth Ltd, too, said that despite a slight moderation in inflows, net sales have remained stable, reflecting growing investor maturity as they continue to stay invested through market volatility.
'With global uncertainties easing and a potential US-China trade deal on the horizon, investor sentiment is improving," said Rajani. 'Since April, foreign flows have picked up, and domestic sentiment remains robust, supported by low inflation, strong GST collections, and fair valuations, which will likely lead to an uptick in domestic inflows going forward."
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