After attaining levels exactly where India’s mutual fund business presently stands, Australia’s Mutual fund AUM grew 36% CAGR in the following 10 years.
India’s mutual fund business could be sitting ideal at the starting of a huge development cycle, analysts at Citi Research say. The penetration of mutual funds in India remains low when compared to worldwide peers, leaving abundant ground for different asset managers to cover. “India’s AMCs should deliver healthy (~15%) AUM/profit growth in the long term, given a large untapped base of savers and high operating leverage – a view reinforced by our analysis of the performance seen in other countries at a similar point in the industry cycle,” a current note by Citi Research stated.
Massive development cycle ahead
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The investigation arm of the worldwide investment bank stated that AUM/GDP of Indian asset mangers is at just 12%, compared with 63% worldwide typical. They added that other nations saw more than 15% AUM CAGR for 10 years following touching this level. “In India, currently less than 2% of the population invests in mutual funds which should rise given AMCs provide a seamless/transparent investing experience,” the note stated. Equity mutual fund AUM/GDP is at 5% in India against 34% worldwide typical and debt mutual fund AUM/GDP is just 6% against 24% worldwide typical.
After attaining levels exactly where India’s mutual fund business presently stands, Australia’s Mutual fund AUM grew 36% CAGR in the following 10 years. Similarly, South Africa gained 24% CAGR and USA soared 20% CAGR.
Three listed players
Looking at asset managers that will advantage from this, India has 3 listed AMCs. “UTI clearly leads in B-30 AUM, with a 24% share in total AUM vs. 16% for the sector; though all three are ahead of the sector in B-30 equity AUM. Nippon leads in retail ETFs. HDFC is strong fixed income,” analysts at Citi stated. In terms of investment efficiency in 10 categories of equity and hybrid schemes, the report highlighted that HDFC and Nippon are outperforming the benchmark more than a 1Y/3Y horizons in 10-30% of the schemes and UTI in ~65% of the schemes.
UTI AMC — prime picks
UTI AMC is the youngest of the lot in terms of their stock exchange debut. “UTI AMC is our top pick – we believe a higher profit growth from cost optimization and market share gain can drive a rerating from below-peer valuations,” the note stated. UTI trade at 47x / 33x / 19x 1Y forward P/E. Analysts at Citi have a target value of Rs 680 per share on the stock, up from its present marketplace value of Rs 580 per share.
(The suggestions in this story are by the respective investigation and brokerage firms. TheSpuzz Online does not bear any duty for their investment assistance. Please seek advice from your investment advisor just before investing.)