HDFC Asset Management Company Limited (HDFCAMC) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q1 FY 2027 Earnings Conference Call of HDFC Asset Management Company Limited. [Operator Instructions] Please note that this conference is being recorded. From the management team, we have with us Mr. Navneet Munot, Mr. Naozad Sirwalla, and Mr. Simal Kanuga. I now hand this call over to Mr. Simal Kanuga, who will give us a brief following which, we will proceed with the Q&A session.

Thanks. Good evening, everyone. We'll begin with an overview of the mutual fund industry. Quarterly average AUM stood at INR 83.1 trillion for quarter ended June 2026, up 15% Y-o-Y. Equity-oriented AUM crossed INR 47 trillion, up 16%. And this 16% growth is during the year when there were bouts of challenges due to external factors and the impact of same on local economy and markets. On flows during the quarter, equity-oriented funds saw net inflows of INR 1,272 billion as compared to INR 911 billion, in the same quarter last year, increase of 40%. Liquid funds added INR 984 billion, though debt fund lost INR 757 billion. The other category, which includes AIF arbitrage and fund of funds investing overseas added INR 555 billion. SIP contribution stood at INR 318 billion in June 2026 versus INR 273 billion in June 2025, a 17% Y-o-Y growth. This, in our opinion, would have beaten the most optimistic estimate in June 2025. The number of [ folios ] has grown to 279 million from 241 million a year earlier. The industry added close to 6.6 million new unique investors over the last 12 months, taking the total mutual fund investor base to 61.9 million as of June 2026 compared to 55.3 million a year ago. Now we move to us. Our QA stood at INR 9.35 trillion, up 13% Y-o-Y, with a market share of 11.2%. Excluding ETF, our market share stood at 12.4%. Our actively managed equity-oriented QAAUM grew 16% year-on-year to INR 5.74 trillion. Our equity orientation continues to be meaningfully higher than the industry. equity-oriented assets accounted for 65.7% of our QAAUM versus 56.6% for the industry. On the fixed income side, net QAAUM stood at INR 1.66 trillion with a market share of 12.9% and liquid QAAUM at INR 851 billion, with a 10.7% market share. On unique investors, we added roughly 0.46 million during the quarter when the industry added 0.53 million, taking our base to 17.1 million. Our penetration in the mutual fund industry now stands at 28%, up from 25% a year ago, which means 28 of the 100 mutual fund investors have invested with HDFC AMC. Systematic transactions, which is SIP plus STP, stood at INR 48.1 billion in June 2026 compared to INR 40.1 billion in June 2025, a Y-o-Y growth of 20%. Beyond mutual funds, we continue to take further steps to build our alternatives platform. We'll close our private credit fund this quarter and have recently got an approval to launch a second fund on venture capital or private equity side. A marquee global investor has proposed to seed this new fund with a commitment of $50 million. Total alternatives AUM, which includes AIF commitment, portfolio management services business and advisory mandates stood at INR 148 billion, up from INR 60 billion a year ago. Now to our financials. Our revenue from operations grew by 14% year-on-year to INR 11 billion. Other income at INR 2.6 billion. Total cost for the quarter was INR 2.7 billion as against INR 2.1 billion in Q1 of last year. Operating profit for the quarter grew by 10% year-on-year with an operating margin of 35 basis points of AUM. Profit after tax stood at INR 8.4 billion, a growth of 12% year-on-year. Thank you so much. Navneet, Naozad and I are here for any questions. We can start now kind of queuing up questions. Thank you once again.

[Operator Instructions] First question is from the line of Piyush Kumar from Magnus [indiscernible].

Sir, basically, I have only two questions. First is, how are the SIP improve in your schemes in this quarter? And how are the SIP inflows month-on-month? So like do you see any trends or any sentimental changes in the investor psychology based on the numbers?

The loans remain very healthy for the industry. Over the last 6 months or so, they have been about INR 30,000 crores. We have a healthy share within that. What we disclosed is inclusive of the system it transfer blank. So we disclosed systematic transactions to include both and we have seen like healthy growth over the last 7 months and despite the market volatility.

Okay, sir. And sir, my next question is regarding which sectors are you most bullish on like do you have any sectors that are going to perform going forward? Like are the funded to -- I mean...

Sir, we disclose 100% of our portfolio. So if you just kind of go to our website, it will be easier in sense we have our overweight positions well mentioned there.

Next question is from the line of Devesh Agarwal from IIFL Capital.

Sir, my first question is on the debt AUM. You've seen a 6% Q-o-Q decline and even the closing AUM is lower by 3%. So what exactly has happened way? Are we seeing such a strong outflow when direct schemes?

So thank you for the compliment, Devesh. But on the debt side, we have seen money coming into the liquid fund, liquid in the overnight while redemptions on the debt category last few months, the volatility in rupee, the volatility in interest rates, given the global environment, crude oil barges, et cetera, we have seen investors feeling from the expense, but we have seen incremental inflows into the liquid funds, for the industry as a whole. And we also have a decent share to get impacted by both lines in.

And second, sir, if you see on a blended basis, we have seen a marginal uptick in the yields for us. Is this purely because of the product mix? Or is there any other reason also? And has there been any impact of the new tier regulations which went live from first of April?

So as you know, I mean, there has been a change from the earlier TER methodology to be there is an accounting change. Industry has been adjusting to the new environment. I wouldn't like read too much into the movement in the first few months.

And sir, could you call out the revenues that we earn from the PMS and AIF segment. I think now it's increasing at least in terms of overall growth. So what could be the contribution? Is that -- can that be the reason for a sequential uptick in the revenue yields for the -- on a blended basis?

Yes, it's still very small, Par. The PMS does have a large mandate, which is one of the government of India mandate. So PMS and -- yes, sorry. Navneet?

So. I mean, the alternative side, the economics are slightly better than the mitral fund business. The fee engine between 80 to 90 points depending on the product. PML, the discretionary book is broadly in line with the equity margins. The nondiscretionary piece is very different construct because it operates in a very, very tight economic.

Understood. And sir, last two bookkeeping questions. One is asset-wise yield for the quarter? And second, just a clarification. If the CSR expense has been booked in the 1Q this year versus 2Q last year. Is that right?

I'll take the question on the -- so our equity total blended equities was 58 basis points. Debt was 28 basis points and liquid is 13 basis points monthly. Our CSR expenditure is actually a function of how our of CSR partners require a funding. So this quarter, we have funded to the extent that was required. It is more than what we funded in Q4 of last year or Q1 of the 3 years.

Would you be able to call out what on the CSR expense?

I mean it's not like a big number either, but it is a function of where I said the annual numbers are available for people what spend, right?

What I was trying to understand, we should assume a similar quarterly unrate further overhead. It's not that there's any one-off element of the CSR in 1Q.

As I said, it is not -- the CSR expenditure is not equally spread out through the year because that is a function of how our partners require the capital. So this quarter, the number we have invested or sort of spend on CSR is higher than what we went for Q1 last year as well as Q4 of last year.

Next question is from the line of Meghna Luthra from Credit Equities.

Sir, has there been any rationalization in [indiscernible] themes, the distribution commissioned during the quarter?

So I think Meghna, the one thing that we have done is, of course, because of the change from this TER to [ BER ], the rationalization happened starting first of April itself.

Okay. And can we get like which is the balance advantage?

Yes, across all schemes, because of 5 basis points that we were allowed to charge in view of exit load has now been taken off. And secondly, the whole accounting treatment change. So both of these things led us to revise the structure on the book itself starting first April 2026.

Okay. Okay. That's very helpful. Can we expect our revenue yield to benefit from it in the going 223 as well because it has kind of a lag effect, right, or paid over 2, 3 quarters?

I mean let me recap the changes. The first was the removal of the 5 basis points of additional PR that AMCs were earlier permitted to charge in [indiscernible] second shift from PR, which included Levi's to [ BER ], that [indiscernible]. And the third element is the rationalization of brokerage limits on the cash market transaction. . Our approach has been to offset this through optimization of commission structures, along with prudent management of direct and indirect costs. So what I can say is we have been able to maintain our margins.

And sir, one more question is on the market. Like our market share in the flow data on equity scheme is higher than our outstanding AUM and get in our active managed [ PD ] market share has dipped by 20 basis points sequentially. Sir, how do we link it?

So quarter-on-quarter movement you see here is largely attributed to MTM movement because the market share is a function of two things. One is the MTM movement and second is the flows. But I think, overall, if you see the MTM movement has resulted in the decline in the market share that you have seen -- on a year-on-year basis, the equity market share has held steady at around 12%.

And lastly, sir, on the employee cost also is the entire increase attributable to bonuses and increments? And what will be the ESOP component of it?

So we have disclosed and so confident separately by means of a node. If you exclude that, it is in the presentation. The increase in Q1 is largely on account of year-end incident that we have rolled out also certain employee benefits get actually valued at beginning of the year and sort of based on the market well. There's an element of that involved on the employee front as well. But we disclosed the noncash component of the ESOP separately and anal .

Next question is from the line of Prayesh Jain from Motilal Oswal.

Just wanted to understand from you on the ground reality as to what's really transpiring on the ground with respect to momentum, direct versus distributed, which is seeing any momentum change towards more distributed rather than direct. Any color because we've seen [ Simpkin ] of plateau. I know it, you've always been saying that this INR 30,000 crore number itself is a very good number. But as analysts always look at even small drops as something which is a slight negative. Just trying to see as to what's really kind of happening on the ground. And secondly, even on the debt and liquid front, we've seen lots of market share, what are you trying to do to kind of stat or improve that -- those are my two questions.

Sure. So first on the question on the SIP. So if you look at the industry, [ 2026 ] number was INR 318 billion, INR 3,180 crores. If you compare with June and this was like INR 27,300. So it is a 17% Y-o-Y growth in a year which has been like quite volatile. And we have seen [indiscernible] of global events, which have impacted the market. And in last 10 years, so you said that there is a marginal dip even on a month-on-month basis. We look at the last 10-year trajectory, we have moved from INR 3,000 crores per month to INR 30,000 crores per month. And during this period, we have seen so many market cycles, rate cycles, geopolitical shocks, team shaft actions in markets there have been phases of muted returns. And through all of these monthly SIP contributions have sustained and moved higher. I've put it just many times is like India's 401(k) movement and the investor behavior is very different than what I've seen as a fund manager or as a CIO for a long time where retail flows would ebb and flow with market sentiment. There used to be a time when typical question from a distributor or investor would be, should we invest now or should we wait? And after a year or 2, it would be -- should we book profit now or should we wait? Now it's very different. I think it's becoming a habit and habits on formed they would appreciate if they tend to persist. I think our view has been and it's been very consistent that penetration related to former savings base is still low, and which means the runway from here is very, very long. Another factor, which I'm sure people know, but not giving enough credit is a role of investor education I think the Cs initiative and the efforts of individual AMCs like us, I mean, look at some of the investor education initiatives we have taken to really spread the message far and wide to every strata of society across every nook and corner of the country. And the message has been very consistent that if you ride out the short-term volatility and still stay through cycles, long-term outcome would be very rewarding. Having said all of this, I think we remain watchful of our investor behavior evolves in a more extended market downturn. I mean if the downturn purses for several quarters or years, because I mean, that is one scenario. This cohort of investor has not really been through yet. So jury on that is still out. But my sense is that a large part of these flows are very structural.

Got that. Any color in terms liquid...

Yes. So the -- on the debt side, last 2 consecutive quarters, we have seen significant outflows. And I mentioned earlier maybe the volatility in interest rates. I think what's been happening on the crude oil, geopolitics, currency and all that. But we have seen very decent flows in the liquid fund in this quarter. Yes. But I think that, as an industry, we need to work a lot more. How do we make that fund more attractive to retail investors, earlier industry was more institutional, less retail. I mean, I'm talking about it's a decade back, it used to be more institutional, at retail. It was more fixed income, less equity. It used to be more lump sum flows, less -- it used to be metros, less of like other cities than B30, there are structural changes, dynamics. But it's this entire period, the one thing somewhere it seems that we need to do a lot more work is how do we make that fans more attractive for investors. And there are several cohorts and look at retirees, you look at several people who just want a regular income, more protection of capital, how do we make our products more attractive and recent categorization of paper by the CV circular by the CV has given us newer opportunities on life cycle funds, et cetera. And in the industry, we are all working hard how do we position that to our investors.

Just last question, what are the product launches .

One more thing that in last couple of years, we have seen investors participating in that through hybrid funds, asset allocation products. So the popularity of multi-asset fund, balance advantage, fund, equity savings, all of these categories are the work through which the investors are participating in fixed income.

What is the right of product launches across mutual funds, SIS, PMS, AIF?

So me, over the last couple of years, we have significantly expanded our product booking on active funds, on taxes side, both I mean in acne, most market cap-based indices and spans products. We have launched a couple of sectors and thematic funds. On the PMS side, we have hired senior resource and have launched product on that in the process of raising money in that category three products, we have got the approval we are -- I mean, we have mentioned earlier about our private equity venture capital fund of funds. On the RF side, we have hired a senior resource for our FI efforts. In fact, today, only our Board has approved our first SR offering, which will be [indiscernible] ex top and the long short fund, which would be long in the near term. This is just the start. Our aim is to build a full suite of as products over time. Yes. The whole idea is that our exploration is to be consistently be a trusted investment partner for every investor across life stages, across income levels, across investment [ optician ]. And B, actively managed funds, passively managed funds, SIS, BMS, private activity, we would be private credit, we would be present across all segments, full-scale platform.

Next question is from the line of Swarnabha Mukherjee from 360 ONE Capital.

Just I had a couple of questions. One is in terms of the yield. So the yield increase, and apologies if I'm repeating because I have joined a little bit late, so that is increasing, I just wanted to understand from your side that whether this is -- the increase is more outcome of ship from to BER or also -- I mean there is some component of the 5 basis point pass-on there. Anything you can give some color on? And whether we should consider this to be the base line number now and then think about the gas gradual dilution that we with increase in EU and [indiscernible] from this level. If you could give some color on that. And in terms of how we broadly expect the yield to -- kind of come off going forward. If there any color you can give, that would be careful. That is the first question. Second is in terms of the SIP number. So what I understand is that our trends have been fairly in line with the industry, how the numbers moved over the quarter? As we move ahead in June, and I think I just wanted to understand the trends that you were seeing in terms of SIP and overall net flows, how it is succeeding? And would we have any leave place to basically increase our market share in terms of growth. If you could give some color on that. This will be my question.

Also the first I mentioned earlier that we have moved to a new regime earlier, it was PR, which included levies to [ BER ], which is we are the statutory levies. So our approach has been that the changes, how do we offset through the impact, whatever it is, through optimization of commission structure on the one side and prudent management of course, both direct as well as indirect costs. So all I would say is that we've been able to maintain our margins. There has been like, as I said, accounting change and a new structure. So I wouldn't really read out much in terms of quarter-on-quarter, a little bit of movement. Our endeavor has always been to ensure that distribution partners are fairly compensated for the efforts that they put. I mean we believe in our long-term partnerships. At the same time, ensuring that we maintain these command ins. The second question on the SIP growth. I think you have seen over the last several quarters, the growth in the system at book versus the industry, while the industry itself has seen a healthy growth. And within that, we've been able to gain market share, one of the biggest focus for the fund house, not only in last few years where SIP flows for the industry has grown, but for the longest period, we would have been one of the earliest players in the asset management industry. to talk about the benefits of long-term investing to promote the concept of SIP much earlier than any other. And yes, we think the benefit of that and trying our best to optimize through every single channel.

Next question is from Ankit Bihani from Nomura.

I have two questions. So given that India currently remains under participated MP market, and AMCs have so far been able to defend their margins through distributor negotiations. Do you think the pricing power with distributor is sustainable over the medium term? Let's say, we entered into a scenario where in the market do not deliver significant returns over the medium term. So does the economics change? This is my first question. . And my second question is, how do you see the opportunity in the alternative evolving in India over the next 5 to 10 years? And what role does HDFC AMC aspire to play in this market? Those are my two questions.

Sure, sure. So first question on the economics between asset manager and the distributor doesn't change depending on the market I mean, as you said, if the market is muted, then whether there is a shift in the pricing power between the meta [indiscernible] distributor, not necessarily -- and as I mentioned earlier, for us, we look at it as a partnership. They bring in investors , they do the handholding through ups and out of the market. And at our end, we deliver returns in line with the expectation. So it has a relationship evolved over decades. And we ensure that there is a win-win for investor, distributor or adviser. And your second question on the opportunate in [indiscernible] details as I said, I mean, these are like very early days of financialization of [ Savings ] India. I think all the factor the formalization of the economy, digitalization of the economy, digitalization of finance financialization of savings. And one important aspect, financialization of assets, which you are seeing the growth of REIT, growth of [ INWIT ], growth the way we have seen even on the commodity side, the way [indiscernible]. I think there are like tremendous opportunities in the asset management. One healthy and good integrating trend has been picking up of the SIP habit, I've put this several times that we are transforming from a nation of saver to a nation of investors. There is a large savings pool and over a period of time, it's going to get more and into the investment form. There would be opportunity similarly on the alternative side. I mean, I mean there is a large investable listed universe, but there are a large number of companies in the unlisted space, which over a period of time, will grow and for listing. And before that, there are opportunities to participate in that growth through private equity or venture capital. Private credit market is hugely underpenetrated very early days and over a period of time, there are tremendous opportunities for flexible and the private credit funding for a number of pets in India across whether it's mid-market or large corporates a variety of structures. Similarly on the segregated accounts, be the global investors, be it [indiscernible], family offices who are looking at more sophisticated spoke solutions. And as a house, we are building capabilities across the board. So what is our biggest strength as a house. Over decades, we have demonstrated great capability on the investment management on risk management and on product management. And the whole idea is that how do we -- I mean, without getting into the specific about whether it's on the mutual fund platform or alternative platform, whether it's active or whether a large institution or retail, [indiscernible] or [indiscernible], a lot of times the industry discussions are institutional retail distributed versus direct. But [ LPFT ], the core capabilities like investment management, risk management and product management. and we want to be like one-stop solution for all kinds of investors and building capability. We've built a large team we have got now 40-plus investment professionals on the mutual fund side. And it's not about the headcount, it's about the experience. Most of our fund managers have experience for 20, 25 years plus even all our analysts are like -- have seen multiple cycles, they are highly experienced. We have now got six people on the private equity VC side investment team, six on private credit side, eight on [ P&S ] across both debt and equity. I mean we are building like a lot of capability on the investment business side, similarly on the risk management and as I said, product management. So I've hired like investment specialists, which we already had for mutual fund, but now we have a specialist for on the client side, the interaction, whether it's an alternative side on the PMS side, I talked about like a couple of products that we have been looking at. So I see like tremendous growth across all segments in India, and we want to participate in those opportunities.

Just one last question. If I look at the gold ETF or silver ETF, one of our competitors is able to charge 4x 3.5 to 4x a PR, what other players are able to charge? And I suppose that has got to do with the liquidity they are able to provide or the impact cost would be lower in them? How do we see -- how do we expect to narrow this gap because this looks like a very distinct advantage that on AMC is able to have over so many other players?

3x or 4x our industry is highly competitive. And so be it investors or be it distributors, I think they all compare each other. And of course, I mean, a lot of pricing is kept by the regulation. But within that, were there is competition in some of the fixed income clients or the AIF, et cetera. I think we all do the right benchmarking and always try to optimize our margins everywhere.

Next question is from the line of Mohit Mangal from Centrum Broking.

My first question is basically just looking at the distribution offer, and I was looking at the bank sale, they have come down from 16% in [ Q1 '26 ] to 14.7% thing. Now I know that you have said that it takes a kind of grown faster than the bank. But do you think this trend will kind of continue or banks will kind of grow faster than the info?

[indiscernible] 5-year bank and numbers are negligible and particularly by building the site book. Now they have become very significant. And now that if you look at the overall net flows, a large share is coming through the SIP which is where their focus in the last couple of years and then become very significant. Of course, I mean, the total ad 200, so somebody's share will go down. not that banks have not been growing. In fact, a couple of them have been growing recently, participating in the growth, but there is another channel which has also grown significantly in last couple of years, which would impact the relative share of the other part.

Okay. And the bank's flow market share continues to go?

Yes. .

Sir, my second question is visiting on stopping on of growth. What we have seen over the last few quarters is that our markets where have kind of remained broadly stable with some kind of a margin decline as well. Whereas in this competitive intensity, we have seen kind of -- growing do we have kind of an internal target to grow higher or any strategy towards that?

So I mean, our endeavor is to ensure that we have scale. I mean, we optimize our market share everywhere. At the same time, we try to grow the market as a leading player across asset classes, across products, across channels, across geographies, on and so forth. And have that with the quality. And by quality, I mean a lot of focus on individual investors, a lot of focus on like building a new market like [ BT ], et cetera, trying to penetrate more among the existing investors and so forth. I keep the industry learning profit everything and we have a fair balance between the scale quality and profitability. And over a longer period, as I mentioned, that idea is to be a best-in-class platform. We have always been and continue to strengthen that platform. I mean we have I talked about the spend. We have the processes. We have one of the longest track record in terms of the track record of activity management, and what large bouquet of passive funds, the work that we are doing on PMs and alternatives and continue to grow all of this with a very tight control on the cost we have always done that aspire to do that continually.

My last question is on the employees. So is we are seeing looking at that...

Sorry to inform the audience is not clear. Can you please speak to the handset?

So basically, on the employee count, I was looking at your employee count and it has increased around 92% over the last 1 year, while our number of branches are kind of in stable around 280. So just wanted to know, I mean, will this kind of employee count in these further as well?

No. A good part of that increase is -- I told you about like building some of these new platforms hire people and like on the international business, on BMS, alternative, salon our domestic [indiscernible] side. . Of course, on the institutional sales in our digital, AI, marketing, across functions. And as I said, that we would shy away from investing in the business. And one of the biggest investment that we make is people right. So high-teens multiple talent and ensuring that we provide them the best possible environment to make the most of the opportunity, which is in front of us.

Next question is from the line of Dipanjan Ghosh from Citibank.

So first, a few questions from my side. If you look at your other expense data, that growth seems to be a little bit on the higher side. So just wanted to get some color on the granularity of that other expects. I mean I understand your cost ratio is quite top mats just from a quarter perspective, there was any one-off or anything out there. Second, especially from a tent channel perspective, I mean, we now have like maybe 3 to 5 years of data or customer vintage. So during this market volatility that has been there intermittently over the last almost 12 to 18 months. In terms of customer churn or customer wallet diversification across different schemes of products versus the traditional channels. What has HDFC AMC observed on some of those funds. Maybe if you can give some color on that. And finally, I joined the call I get to it. I don't know if you mentioned the product-wise field on the [indiscernible] business for the quarter.

I'll take the first and the third. On the -- we covered the question on operating costs as well. So the increase in operating expenses quarter-on-quarter. That's from March quarter to the June quarter. This is largely driven by CSR expedition. And to explain a year-on-year increase, it's a function of what we spent on CSR as well as certain IT tested. There is no one-off in the sense, but as I explained in the call earlier, the CSR expenditure is linked to when our partners require the money. So it is not evenly starter it all I would say. But there's no one-off. On the yield, we did mention yields earlier, but I will repeat them for our benefit, equity was 58, debt is 28 and liquid is 13, and active equity is about 61 basis points.

And your other question was on -- so there is a lot of incremental retail participation is coming from fintech, especially the younger and first-time investors, the way people discover, evaluate and invest in mutual funds is changing, and fintech platforms are at the center of that shift. We just see [indiscernible] 8.6 million SIPs in this quarter, right? To put this number in context, if I remember correctly, in FY '19, '20, with the number of fees they would have registered would be close to 400,000. So there has been a tremendous growth over the last 4 or 5 years in terms of bringing in incremental new investors, particularly through the [indiscernible] we made the decision early to treat these platforms as general partners and that orientation is paying off. So we are seeing good traction, both in terms of SIP registration and overall flows. Your question on the behavior of investors, I mean, we have seen significant growth in the number of investors. Good number of them are first-time investors, in another session pertaining to SIP flows and sustainability of that. I mentioned that we have to maybe watch the behavior over the next several years, how some of these first-time investors behave. But effort from them as well as from the industry from all the players is on bringing the right kind of investor education and ensuring that investor behavior is more -- has more long-term orientation.

Got it. So just one small follow-up, Naozad, I understood correctly, you mentioned equity, including Index was around 58% for the quarter. I think last quarter was around in 56%. So first, are you data points, correct? And secondly, if it's correct, then the increase quarter-on-quarter driven largely by next change? Or is there something else in that?

This question has been answered by Navneet already. I mentioned earlier that we have moved to a new regime -- and I explained that before, don't read too much from 1 quarter to another year.

Next question is from the line of Piran Engineer from CLSA India.