Detailed Stock Analysis of HDFC Asset Management Company
In this article, we are going to discuss how will HDFC AMC Q2 FY2019-20 results turn out, what is the growth potential of the company in near future.
In our earlier article, we have covered analysis of insurance sector in India. Let us understand the how is the earnings visibility of the key listed player in mutual fund industry – HDFC Asset Management Company (AMC).
How Will HDFC AMC Q2 Results Turn out?
- HDFC Mutual Fund is one of the largest mutual funds and well-established fund house in the country with focus on delivering consistent fund performance across categories since the launch of the first scheme(s) in July 2000.
- The detailed analysis of HDFC AMC is covered in our stock subscription. However, here we are trying to let you know how the business is changing over time.
- It will be more rewarding as a shareholder of HDFC AMC stock than merely as an unit holder. Unit holders are the investors who buys the units of particular fund of the respective mutual fund.
- Mutual funds can be one of the best investment strategy in long-term investments for the retail investors. Direct stock investment is suggested particularly for aggressive investors.
Let us discuss how the business dynamics is changing in mutual fund industry.
Share Price Movement of HDFC AMC Stock
The Share price rise from Rs.1500 to Rs.2650 is seen from 1st Jan’ 2019 to 5th Sept’ 2019. Why the stock is rising so much?
Rise in Expense Ratio of HDFC Mutual Funds Will Add Value to HDFC AMC Q2 Results
A. Rise in Expense Ratio of HDFC Equity Mutual Funds
- HDFC Mutual fund has been increasing the expense ratio of its top performing schemes year-on-year. That too more specifically, direct schemes’ expense ratio is increased by HDFC AMC.
- Retail investors invest in direct funds directly through AMC and not through any intermediary distributors or financial advisors. The primary objective of direct funds is the cost saving for such investors.
- But as per above chart, we can see the y-o-y growth in expense ratio of top performing equity funds of HDFC.
- HDFC Mid-Cap Opportunities Fund : 27.37%
- HDFC Small Cap Fund : 73.47%
- HDFC Capital Builder Value Fund : 70.59%
- Asset under Management (AUM) of Direct funds are increasing y-o-y as well as m-o-m, due to the increased awareness among the investors in India. Investors are thinking that they can direct invest in direct fund by approaching to fund houses directly and not via any financial advisors. Here, the investors’ behavior management also plays an important role.
B. Rise in Expense Ratio of HDFC Liquid Fund
- HDFC Liquid fund is the largest fund of HDFC AMC in terms of Asset under Management (AUM). The AUM has increased to Rs.86,000 Cr in July-2019 from Rs.41,000 Cr in July-2018.
- The % increase in Expense Ratio (y-o-y) for both Direct as well as Regular fund :
- HDFC Liquid Fund – Direct : 33.33%
- HDFC Liquid Fund – Regular : 20%
- Due to the higher expense ratio, it will hamper your returns as an unit holder of HDFC mutual funds. However, the hike in the expense ratio will add to the earnings of the share and its increased profit margin number. Therefore, it will be rewarding for you as a shareholder of HDFC AMC due to the profit margin growth in Q2 FY2019-20 results.
- When the investors invest in stocks, they should check and analyse the earnings visibility and growth potential of the respective company.
- Mutual Funds industry in India is having penetration of just 4-5%. So, there is a high scope of growth of mutual fund industry. Thus, the market can grow faster in coming years.