SIP boom & market rally push AMCs into spotlight: 4 Analyst-backed stocks to watch

Economic Times

3 days ago

iStock Experts note that AMCs are likely to face the least regulatory risks within the non-lending financial space. Should you buy a mutual fund (MF) scheme's unit or its Asset Management Company's (AMC) equity share? This question may well be asked by many when ICICI Prudential AMC, India's second largest fund house with assets under management (AUM) worth Rs.10.3 lakh crore (at the end of June 2025), gets listed.
The fund house has recently filed its papers to go public. The AMC is planning an offer for sale of 1.76 crore equity shares, where the foreign JV partner, Prudential Corporation Holdings, will offload around 10% of its stake. But what can investors gain from buying an AMC's shares, as opposed to its well-performing schemes that can diversify your money across multiple asset classes? How an AMC makes money? A fund house earns through the asset management fees it collects from investors for running the MF schemes. The AMC fees are a part of the total expense ratios (TERs) that fund houses deduct from their schemes' net asset values. The TER consists not just of AMC fees, but also comprises other charges like distributor commission, registrar and transfer fees, auditor fees, and so on. TERs vary from scheme to scheme; equity funds tend to charge higher TER (and by virtue earn more for the AMCs) than debt funds. The TER, and therefore the AMC fees, is charged as a percentage of AUM.Anirudh Garg, Partner and Fund Manager at INVasset, PMS, explains that the AMC companies benefit from operating leverage as the AUM grows, and the fee income scales up. With minimal capital requirement and low fixed costs, most of the incremental revenue flows directly to the bottom line, resulting in a high return on equity (RoE).
Share of equity AUM has jumped over last 10 years Equity-led growth drives profits. The revenues and the profitability of these companies are closely tied to market movements and investor sentiment. Bullish market cycles drive AUM growth via NAV appreciation and fresh inflows, especially through SIPs. Conversely, bearish phases lead to redemptions and stagnant or declining AUMs.After corrections of 8.3% and 0.9% in the December 2024 and March 2025 quarters, respectively, the domestic equity benchmark, Nifty 50, bounced back by 10% in the first quarter of 2025-26 (or the June quarter). AMCs are likely to be a beneficiary of the rebound in the equity market and are expected to report a strong performance in the June 2025 quarter. Costs down,markets volatile The jump in equity markets could be a positive trigger for AMC stocks. The June quarter delivered strong results. Aided by the equity market rally, mutual fund industry AUM grew 13.2% quarter-on-quarter, while SIP inflows rose 2.9% to `80,539 crore. A decline in discontinued SIPs versus new registrations (for the second straight month in June 2025), along with a steady rise in folios, signals robust retail participation and adds momentum to the industry's performance.Experts are optimistic about the long-term growth prospects of mutual funds. A recent report by Antique Stock Broking suggests that AMC stocks are poised for a re-rating, backed by improving RoEs, strong operating cash flows, low capex requirements, and steady earnings. The report projects a 20% compounded annual growth in active fund AUM over the medium term.Resilient SIP flows and the untapped mutual fund potential in both T30 (Top 30 cities) and beyond, driven by fintech expansion, are expected to bolster AMC revenues. A possible rise in discretionary income following tax cuts, along with improved liquidity from repo rate reductions, could further accelerate equity inflows.Kranthi Bathini, Equity Strategist, WealthMills Securities, says that the mutual fund investing culture is becoming stronger day by day in India with penetration into semi-urban and rural areas. This trend is expected to outpace the AUMs of AMCs in the coming years. Party spoilers Experts, however, advise investors to consider the risks involved. 'AMCs are marketlinked businesses—prolonged corrections can dampen flows and hurt profitability,' adds Garg.A key challenge facing the AMC industry is the persistent pressure to cut costs. TERs have steadily declined over the years. The latest review of TERs by the markets regulator Securities and Exchange Board of India (Sebi), proposed in May 2023, remains in limbo and, according to market chatter, is unlikely to materialise. The proposal marks the most significant overhaul since the 2018 reforms.The Antique Stock Broking report expects that AMCs are likely to face the least regulatory risks within the non-lending financial space as most major regulations regarding the telescopic nature of TERs are already implemented. However, the report also asserts that any changes to the TER cap, benchmarking norms, or distributor incentive rules can squeeze margins or require abrupt business model adjustments.The June 2025 quarter preview report from Prabhudas Lilladher also points to higher operating expenditures on a sequential basis as a risk that might impact performance. AMC heavyweights The optimism is visible in the returns generated by the biggest four listed AMC players: UTI AMC, HDFC AMC, Aditya Birla SunLife AMC and Nippon Life India AMC. The group of these four companies generated an equal-weighted average return of 37.9% compared to the 8.8% and 11.3% returns by the Nifty 50 and Nifty 500 indices between 1 April 2025 and 11 July 2025. Here is how the four listed AMC players are placed.
Nippon Life India AMC Expected first quarter 2025-26 revenue growth of 18.7% and Profit After Tax (PAT) growth of 6.4% year-on-year as per analyst consensus.
Strong AUM growth and declining operating expenses driving performance.
Gaining market share through better scheme performance, distributor engagement , and rising SIP flows, according to ICICI Securities report.
Strong passive investing position with ETFs at 28% of total AUM.
Distributor commission rationalisation in 2024-25 expected to boost future yields, according to Antique Stock Broking report.
Key strengths: Strong brand, parent backing, robust equity franchise, high operating leverage, and digital focus. Aditya Birla Sun Life AMC Expected June quarter 2025-26 revenue growth of 15.3% and PAT growth of 12.5% year-on-year per as per Centrum Broking.
Enhancing direct channel sourcing and expanding to 543 locations (from current 300), according to a ICICI Securities report.
Expanding alternate business (AIF/PMS) and offshore operations to boost profitability.
Focusing on debt fund investor awareness given strong market share in this segment. HDFC AMC Revenue and PAT growth in June 2025 quarter: 24.9% and 23.8% year-on-year respectively.
Gaining market share through stable positioning, enhanced fund management team, and strong product performance driving new customer acquisitions.
Strengthened prospects via retail focus, wider distribution network, and smaller city expansion.
Alternative business (PMS, AIF, private credit) and global expansion through GIFT City expected to drive growth. UTI AMC Expected first quarter 2025-26 revenue growth of 5% but PAT decline of 31.3% due to lower other income, as per Prabhudas Lilladher
Net equity inflows declined in 2024-25, but targeted fund launches and improved performance reviving equity flows.
Efficient cost management with 8% operating expenditure on compounded basis (FY21-25) vs peers' 11-14%.
Positive outlook driven by improving scheme performance, growing retail/SIP franchise, passive segment pickup, low cost escalations, and attractive valuations.