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India’s leading asset management companies (AMCs) reported an impressive average revenue growth of 38% year-on-year in the March quarter, driven by the continued financialization of savings that boosted their assets under management (AUM). This robust performance has led brokerage firms to revise their earnings forecasts for FY25 and FY26.
Kotak Institutional Equities has increased its earnings forecast for Aditya Birla Sun Life AMC, UTI AMC, and Nippon Life India AMC by 3-10% following the strong March quarter earnings. However, it has lowered its forecast for HDFC AMC by 2-3%, despite a 30% growth in core earnings for the quarter, which fell short of their estimates.
Brokerage firm Jefferies projects that leading wealth managers in India will achieve a 20-22% profit CAGR from FY24 to FY27, fueled by economic growth and the financialization of savings, particularly into capital markets. In the March quarter, the adjusted net profit of top AMCs, after accounting for extraordinary items, grew by an average of 62% year-on-year, supported by higher revenue and other incomes.
The strong growth of AMCs has made their stocks highly attractive. Kotak Equities notes that the sector is trading at a 55-60% premium to the broader market, thanks to strong cash flow generation, high transparency, predictability, and well-aligned incentives across investors, distributors, and asset managers. Goldman Sachs recently highlighted a trend of financialization of household savings, with allocations shifting from banks to non-banks. The AUM of retirement savings, insurance, and mutual funds in India has grown at a 15% CAGR over the past decade, outpacing the 9% growth in bank deposits during the same period.
Near-term risks and Long-term prospects:
While the long-term growth prospects remain compelling, some brokerage firms have noted potential near-term risks such as a possible reduction in the total expense ratio, adverse regulations, and yield compression. Nevertheless, brokerage firms believe that listed AMCs can achieve 15-20% revenue growth with relative ease over the next couple of years.
India’s top AMCs are experiencing strong revenue growth and market performance, driven by the financialization of savings and economic growth, positioning them for continued success in the coming years.