Mutual funds in India have been seeing an astronomic rise over the last five years, with the industry AUM growing at close to 16% CAGR over the last five years, with Equity AUM growing at a faster pace of close to 18%!
As fund houses expand to B30 cities which are deeply under-penetrated (Cities in India are classified under T30 (metros and top cities) and B30 (cities after the top 30), financial literacy and awareness about investing increases, and people move away from physical to financial assets, the AMC space could see a boom in a country that has a phenomenal propensity to save! [You can read an indepth analysis of HDFC AMC along with a detailed analysis of the AMC space under here ]
In today's post we explore how the sector has performed and grown over the last few years and who the primary winners have been and explore an unusual out performer in the mix!
India's top Asset Management houses - Elephants that dance
While the rising tide has grown most players with it, the top players have consistently grown AUM at a much faster pace. So who are these top houses?
Prashant Jain led HDFC AMC, S Naren Led ICICI AMC and Navneet Munot led SBI are the top 3 in India controlling a total of around 11 lakh crores in AUM! More importantly all of these houses have clocked impressive growth despite these huge base, growing AUM at 21%, 20% and 37% compounded over the last 5 years! In an industry that grows at 16% (an impressive number in itself), this gives these firms the unique position of growing market share in a booming industry.
But who stands out? - The dark knight
While private success stories are quite common in the Indian BFSI space, a name that should stand out in the list is SBI. Clocking an impressive 37% CAGR in AUM growth the firm now takes the top AMCs head on. But what has driven this astronomical rise from 1 lakh crores a year ago to north of 3.5 lakh crores now.
So what drives this astronomical growth? The Employee Provident fund Organization fund deserves atleast partial credit in driving steady AUM to the fund house. A strong brand that people have trusted over the years, and an unmatched B30 network provide fuel to a rocket ship already being propelled by the sector!
But with the praise out of the way, it is also important to know the value of this growth. AMCs make most of their money on Actively managed Equity AUM (something HDFC AMC is a market leader in). The result of the EPFO investment is that a large chunk of their equity AUM is in passive funds, which while great for overall AUM growth, contributes significantly less than active funds.
What lies ahead?
It is often easy to get caught up in all the noise. AMCs haven't had the most impressive run leaving quite a few shareholders disappointed and worries around passive funds. But as everyone fumbles over trying to make sense of the latest monthly folio growth, it is useful to remember the bigger picture.
We are a country that loves to save, in a market where alternatives are increasingly getting less attractive. Mainstreet is getting increasingly comfortable with mutual funds - not just the wide streets of Delhi and Mumbai but the bylanes and gullies of Middle India.
Interested in learning understanding the financials, business model, moats, growth drivers and risks of India's largest AMC in more detail? Join GSN Invest++ Last two weeks at current rate.