The recent downturn in the Indian stock market has significantly impacted the valuations of various asset management companies (AMCs). However, as the dust settles, many analysts believe that these stocks are becoming increasingly attractive. With the anticipated rise in disposable income due to income tax relief, experts foresee a stabilization in mutual fund inflows in the medium term.
Analyzing the AMC Landscape
In a report released on March 21, InCred Equities expressed a bullish outlook on AMC stocks. They noted that the recent slowdown in net inflows and lackluster performance in the mutual fund sector have already been integrated into current valuations. According to InCred, "We now perceive more upside potential than downside risk."
Factors Influencing AMC Performance
The drop in equity inflows can be attributed to several factors:
- Stock market volatility
- Global economic uncertainties
- Weak corporate earnings
- Deteriorating macroeconomic indicators
These elements have contributed to the decline in stocks of major AMCs such as Nippon Life India Asset Management, Aditya Birla Sun Life AMC, UTI Asset Management, and HDFC AMC, which have experienced a drop of 6-25% over the past three months.
Valuation Insights
InCred Equities has observed that the one-year forward price-to-earnings (P/E) ratios for these listed AMCs have significantly decreased, nearing -1 standard deviation (SD) from their historical averages. "These valuation levels were last observed between late 2022 and mid-2023, making the risk-reward scenario appealing for investors, even if broader market indices continue to decline," they asserted.
Market Outlook and Adjusted Estimates
While InCred anticipates continued volatility in mutual fund equity inflows, they see this as an opportunity for established AMCs to outperform their newer counterparts. The firm has adjusted its Assets Under Management (AUM) projections downward by 5-8% for FY26-27 and revised its profit after tax (PAT) estimates by 3-9% for the same period in light of recent market fluctuations.
Despite market skepticism regarding the sustainability of inflows into AMCs, InCred believes that increasing disposable income will ultimately support steady inflow trends over the medium term.
Positive Ratings for Key AMCs
InCred has maintained an "add" rating on Nippon Life India Asset Management, revising its target price to ₹780 from ₹900, based on a valuation of 27 times FY26F EPS. The firm views the recent stock price drop as an overreaction.
Additionally, they have upgraded HDFC AMC from a "hold" to an "add" rating, with a new target price of ₹4,600, up from ₹4,200. This valuation is based on 32 times FY26F EPS, reflecting their belief in HDFC’s potential as a benefactor of current market volatility.
InCred also continues to hold an "add" rating for Aditya Birla Sun Life AMC, adjusting the target price to ₹800 from ₹850, valuing it at 22 times FY26F EPS due to its ongoing turnaround narrative. Lastly, they maintain an "add" rating for UTI AMC, with a target price revised to ₹1,250 from ₹1,350, based on a valuation of 16 times FY26F EPS, highlighting a potential acquisition.
For more updates on market trends and stock performance, stay informed with our latest articles.
