The flow of money into small- and mid-cap funds has significantly decreased
According to Kotak Institutional Equities, flows into small and mid-cap funds have significantly decreased, while flows into other categories have increased.
The report said, “Our analysis of daily flows in March (up to the 21st) across large categories has a few takeaways: mid-cap funds have seen positive but lower flows, while the small-cap category has seen net outflows.”
According to the brokerage, there has been an increase in flows into categories including large-cap, flexi-cap, and hybrid funds, which may indicate a change in investor preferences.
Overall, AMC stock price performance has been excellent, although it has been highly varied within AMCs, with HDFC AMC (+110%) and Nippon (+110%) surpassing ABSL (+46%) and UTI (+23%).
Additionally, the industry is now trading at a 55–60% premium to more general markets. This illustrates the comparably stark variations in stock AUM growth across the four AMCs. Kotak Institutional Equities said that HDFC and Nippon had outpaced ABSL and UTI (30%) and the sector as a whole (50%) by 60% YoY.
Important characteristics, including robust cash flow creation, a high level of predictability and transparency, and well-aligned incentives among investors, distributors, and asset managers, are reflected in the valuation premium for AMCs. Key pushbacks, like the sustainability and predictability of fund performance and the structural fee pressure brought on by passives and regulations, counteract this.
