Mutual funds’ profitability will come under pressure in the September on the back of mark-to-market losses in equity markets. However, steady flow into equity schemes through systematic investment plan (SIPs) and lumpsum investment can be saving grace.
The average asset under management (AUM) of the country’s largest fund house, SBI Mutual Fund reported 9 per cent increase in the September quarter to ₹13.09 lakh crore against ₹11.99 lakh crore in the same period last year.
ICICI Mutual Fund and HDFC MF asset jumped to ₹11.56 lakh crore ( ₹10.14 lakh crore) and ₹9.69 lakh crore ( ₹8.81 lakh crore).
However, on a sequential basis all the three fund houses – SBI MF, ICICI MF and HDFC MF – reported a 4 per cent rise in average AUM.
Average AUM
AMCs earn fees based on average AUM and the sharpest fall came in September and early October. Average equity AUM for the quarter was therefore still higher than in Q1, which may support y-o-y growth in fee income.
Shobhit Sharma, Research Analyst, Elara Capital, said it is going to be a sequentially weak quarter for asset management companies, primarily due to lower mark-to-market gains in assets under management.
Aditya Birla Sun Life AMC may be the exception, as the Employees’ Provident Fund Organisation mandate of ₹6 lakh crore will be reflected in AUM for the full quarter, he added.
SIP flows continue to support overall net equity flows, as it contributed 85 per cent of net equity flows in July-August, he said.
“Further, we believe distributors are increasing share of small schemes to sustain overall yield,” he said.
Aditya agarwala, Chief Investment Officer and Co-Founder, InvestValue, said while core earnings may hold up in September quarter, reported profits appears weaker and the bigger hit could come in December quarter if the correction persists.
“The pressure may show in other income. treasury and seed investments are marked-to-market, so gains could be lower or negative this quarter. Several AMCs could report a sequential fall in net profit even as core profit grows,” he said
Stock performance
The stock markets have already priced in weak September quarter with HDFC AMC down about 14 per cent over three months while Nippon India MF and ABSLife AMC are down about 11 per cent each.
Vinit Bolinjkar, Head of Research, Ventura said the Nifty declined about 5 per cent during the quarter, with most of the fall coming in September. Since AMC revenues are linked to average AUM rather than quarter-end market levels, the earnings impact should be lower than the headline market decline suggests, he added.
Moreover, equity-oriented schemes, which carry higher fee yields, sustained weakness affecting the blended revenue yields, said Bolinjkar.