HDFC Asset Management Company Limited (HDFCAMC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '27 Earnings Conference Call of HDFC Asset Management Company Limited. From the management team, we have with us Mr. Navneet Munot, Mr. Naozad Sirwalla; and Mr. Simal Kanuga. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by being starter touchtone Ford. Please note that this conference is being recorded. I now hand the conference over to Mr. Simal Kanuga. Thank you, and over to you, Simon.

Thanks. Good evening, everyone, and thank you for joining us. Let me begin with a quick overview of the industry. The quarter began positively with NIPT 50 gaining about 2% in July, followed by a modest decline in August and a sharper 6% correction in September. Overall markets ended the quarter down around 5%. Equity-oriented funds attracted net inflows of INR 1,161 billion during the quarter. September marked the 67th consecutive month of positive equity flows a remarkable streak dating back to March of 2021. SIPs continued their steady growth with monthly contributions reaching a new high of INR 325 billion in September, compared with INR 294 billion a year ago and INR 318 billion in June of 2026. During this quarter, contributing SIP accounts crossed 100 million mark. And over the last decade, monthly SIP contributions have multiplied almost 10x. On fixed income, debt mutual funds recorded net outflows of INR 607 billion, while liquid funds saw net inflows of INR 457 billion. ETF attracted INR 367 billion. Arbitrage funds garnered inflows of INR 63 billion during the quarter. Turning to our performance. Our quarterly average AUM stood at INR 9.69 trillion, up 10% year-on-year and 4% sequentially. Equity-oriented assets stood at INR 6.51 trillion, representing 67.1% of our AUM compared with 57.5% for the industry. Within this, actually managed equity grew by 14% year-on-year to INR 6.08 trillion with a market share of 12.7%. On fixed income, debt AUM stood at INR 1.62 trillion, with a 13% market share while liquid AUM grew 10% year-on-year to INR 860 billion. Our live individual accounts increased to INR 32 million from INR 26 million a year ago. Our unique investor base stood at INR 17.7 million, representing a penetration of 28%. In other words, 28 out of every 100 mutual fund investors in India invest with us. Over the last one year, we have added 3.2 million unique investors, while the industry has added 6.3 million. Our systematic flows, comprising of SIP and STP that systematic transfer plans stood at INR 48 billion in September, up 6% year-on-year across 19 million transactions. During the quarter, we also launched 2 new AIF, a category 2 equity fund focused on private markets, we are anticipating first close in this quarter and also launched the Category 3 fund investing in listed securities, which achieved first close during the last quarter. We have started managing EPFO fixed income mandate during the quarter went by. With that, I now move to financials. Revenue from operations for the quarter was INR 11.7 billion, up 14% year-on-year. Operating profit was INR 9.1 billion, up 16% with an operating margin of 36 basis points of AUM. Profit before tax stood at INR 9.8 billion, up 12%. Also, please note that the reported PAT is not directly comparable year-on-year as the September 2025 quarter benefited from INR 468 million reversal of incomax provision which resulted in additional credit to the tax account and PAT. So that's where I would put a pause. Thank you very much. We can now open it up for questions. Navneet Munot and I are happy to take them. Thank you.

[Operator Instructions] First question is from the line of Devesh Agarwal from IIFL Capital.

Sir, my first question is on the blended yield, we see a sequential improvement in the yields. So just wanted to understand what are the drivers for this and also if you can share the asset quite yield.

So David, I'll share the yield for the quarter. So for active equity, our yield was 61 basis points for overall equity fund, this was 58 basis points. Debt is around 28, 29 basis points, a liquid 13 basis points. .

And what has led to this improvement on a sequential basis? Is it only the asset mix change or something else as well?

Largely, asset mix changes, it's not like a material movement. It's slightly upwards from previous quarter.

Okay. And sir, on the alternate business, we see an increase. I understand a large part of that is the debt mandate that we have won. But 2 things I would want to know what is the revenues that we are targeting this and the pipeline on the alternate. So by when we can reach INR 100 crores of revenues from the alternate business and what is the pipeline going forward?

It, the tally don't give guidance like this penciled a certain amount. All I can say is that beyond mutual funds now the alternative platform is working as a full stack so this quarter, we launched 2 new funds on alternative side. First is the DFC MC Select Opportunities Fund. This is a category 2 fund investing in late-stage venture and early-stage growth companies we have been in the process of raising money, have seen a very good encouraging perception from some of the global institution as well as domestic title investors, family offices and H&I. Second is the DFCC emerging opportunities on. This is our first category 3 fund and it has also seen a strong traction and fundraising continues. On the PMS side, you rightly said that a large part of the AUM is on account of the EPF mandate, which has gone live. And together with CFO, its mandate, it shows the depth of our fixed income capability. So IDI is like building a one-stop platform where an investor can pay with CMC for every need across in BMS, et cetera. On the margin question, is a margin-accretive business. So fewer sit above what we earn on our mutual coequitybook, in the range of 80 to 90 basis points depending on the product. Discretionary PMS earns broadly what our equity mutual countries are. Nondiscretionary PMS is a strategic plan. And government mandates like PFO and SPF, they are highly contested and the pricing reflects that. So we run them for the institutional credibility and capability they've built but those mandates open doors well beyond these mandates. So these are like highly prestige. But on all the other part of alternative and BMS, they would be margin exit.

Right, sir. And sir, 1 last question. If we see your SIP share, it has always been higher than your equity AM share now do you think this would continue like this? Or there is a risk to the share number market share number or the flow itself, given that some of the newer antes are now completing 1 year and 3 years of operations and we would kind of have this now a track record of 1 year and 3 years and that the flow can shift to some of the new ranges.

Davis, we have been one of the earliest players to talk about the merits of investing into IT mode. And much before the whole SIP momentum gathered pace. We have been highly, highly focused on building the SIP book. And while I mean at every point in time, we have seen this highly competitive industry from a number of players perspective. At various points in time, various funds would have done well. But at the same time, I think, thanks to the long-term track record of products, the product range, the pedigree, the partnerships that we have built with all the general partners and the refocus that we have on SIP. SIP share has been growing, and we remain confident. I think this is onw of the biggest area of focus for us and remain very confident on our SIP book.

Sure, sir. Thank you all the .

Next question is from the line of Mayora from Goldman Sachs. Go ahead, ma'am. .

Just 1 question. If you could tell the share of non-mutual fund revenue in the overall revenue mix, please?

It's not -- it's quite a small number, actually, not really.

Next question is from Nana Frank Chira from Orica Capital.

Just 1 question. This is not apples to apples, but if you were to look at your SIP number or the systematic numbers and you have to compare with the industry number, in the last 3 quarters, we've seen some this. Can you just directionally comment? Are we losing some share on the systematic flows, especially on SIPs just the STP insistent.

So I think I must clarify this. So what we report Ronak is systematic transactions combined and the industry number you are comparing it with is SIP only. So the 2 are not like-for-like. The softness we have noticed, has come from and systematic transfer are mostly set up by wealth managers who actively manage when money moves into equity. So they put money in a liquid fund or a may market fund and gradually transfer that to equity and particularly when markets get choppy, which happened in -- in the last couple of months, some of them all these transfers. And that's a technical call taken by these investors. If you strip out STP and look at SIP alone, our market share has actually gone up. I repeat. If you strip out STP and look at only the SIPs, our market share has actually gone up. If you look at number of transactions, that will tell you the same story. So our systematic transactions rose from about 17 million in June to nearly 19 million in September. And if we step back for a moment, monthly systematic transaction book has grown nearly 5x in about 5 years to around 48 billion, and industry in the same period would have grown 3x.

Right. No, sir. We've been long behind your team to just kind of split this number so we could analyze this number better. But that's the request.

Will Yes, we have noted it. Thank you. .

[Operator Instructions] Next question is from line of Sash impel from Nomura. .

Yes. My first question was on OpEx. This quarter, we have seen quarter-on-quarter decline both in staff cost and non-stock cost. What has been the reason for that, if you can explain, please.

Sir, maybe what we can do, if you want is give an overall perspective on how we are looking at costs. Do you want to do that? Or you want like to first number. Maybe we can run you through because I think this is 1 question that comes to us very often on this whole cost thing saying that costs higher, lower, whatever. So I think he will just try, It, if you can just address that 1. In this quarter, I thought I complemented for a very, very tight control on cost. But the question of cost, I think we address almost every quarter. So again, let me take a step back and explain how I think about cost and investment in our business. . Firstly, let me reiterate something that you've heard from us many times before, we watch every rupee we spend. We watch it very closely. Naozad often like quick to push back even on expenses that I would like to incur. That should give you a sense of the culture we have built around cost discipline. And I think when you look at our overall cost base related to the size, scale, complexity of our organization, the discipline is quite evident. So but there is another point I've made consistently, while we are extremely disciplined on cost, we will never shy away from investing in the future of our business. People are very important, and so is it like keep investing in the future. So let me explain how we distinguish between the 2. So -- the regular growth in operating expenses, if you look at some of this is like inflation linked. So some of it is driven by the growth of business in terms of size. And broadly speaking, these are like routine costs that we continuously monitor and manage. The second is the expenditure which I believe that far more important to understand, which are which are in the nature of investments we make today to build the capabilities and the capacity that we will need tomorrow. For example, somebody asked about what we are doing on the alternative side. So between alternative and PMS, when I say alternative, both private equity and private credit, we've got more than 20 investment professionals now and significantly expanding our capacity on investor servicing on operations, on the whole sales and then the distribution side, so on and so forth. Same thing is on the international side, where the AUM is not very large, but we are investing upfront because we see a lot of potential in that business. Same thing goes for all our investments on digital and technology and then those capabilities. So all of those I take as investment. Even though, I mean, I told you about the number of people that we have built on the alternative side, but even on the mutual fund side, team until a couple of years back, it was like 30 professionals. Now number is like closer to 40 and this will continue to grow. And we keep thinking that business today is, let's say, INR 9 lakh crore-INR 10 lakh crores, it will go to INR 20 lakh crores, then it will go to INR 40 lakh crores. And we have to constantly invest in people and technology and in distribution and so or -- so -- and then, of course, the technology where a team of engineers working on AI-led capabilities across major business functions. So this is like upfront investment, but in terms of the cost savings -- potential cost savings or the potential higher revenues will occur over a period of time. So I think when you look at our quarterly cost numbers, I would encourage you to look at them through this broader lens. But I mean, I've always said this, we are not compromising on call discipline. And you have seen in this quarter, and have always seen this. You've seen us maintaining like a very, very tight leash on costs. But at the same time, in a calibrated manner we continue to invest in future because we don't want to compromise on investing for growth. Does that answer your question?

Yes. Yes. It's very clear. Just wanted to understand how do we think about cost and OpEx growth in that sense? So year-on-year, of course, we have always maintained operating PBT yields in the range that we always see -- but how do we think about growth in the cost? That is what I wanted to understand.

So I mentioned, I think split into 2, 1 is like the regular -- the operating expenses, that should be like inflation linked as the business grows and in line with growth in the business in terms of size and broadly speaking, these are like routine calls that we continuously monitor and manage. .

Would be, sir, 60%, 70% of the total cost?

We don't split like this is for future and this is for the current business. But I think about it, the scale of operation that we have managing 16 INR crores of AUM, INR 9 lakh crores on the mutual fund side, another INR 6.5 lakh crores on the PMS side, the capability we are building on alternatives on the international. I look at our website, look at the quality of app that we have got the entire footprint that we have got, both physical and the digital and the capabilities that we have put in place. And related to that, the overall cost is like really, I think people should be appreciating the way we run our business. .

Yes. So I was very surprised positively this quarter.

How should we look at it. One way to look at it is I mean go back and see our history over the last 5 years, 10 years, how the costs have increased and how conscious we have been of both, I mean, ensuring that we're on a very tight ship, but at the same time, keep investing as markets give us the opportunity to do that. .

Point taken. Second, just a bookkeeping question. What was the ESOP or nonexpense cost noncash expense for this quarter?

So for this quarter, it's already disclosed it's about INR 186 million for the quarter. So INR 18.6 crores sorry as a footnote on Page 27.

Sure, sure. My second question was on SIF. Where are we in the process of expanding into SIF, -- when can we expect new products in that category, many of the competitors have already been in this space. And they say that it is very lucrative opportunity as such. What -- where are we in the process there?

So it is a category definitely gaining prominence and some of the funds that have got launched have done well through the period, though it is too short to talk of performance. We have taken our time to set up systems, processes, putting the right people in place. This is a new category. Some of them are complex strategies. So we have also hired like 2 senior investment professionals -- we've got the hub delay and Paul Parfet. We are now well set and you will see a couple of coal launches in this space over the next couple of quarters. So all the ingredients are in place have been working a lot in terms of continuous training of our people of -- on the sales and distribution side, similarly for our distribution side and should be able to get our share over the next few quarters.

Got it, sir. As such, the question was on specifically small and mid-cap space. What we have seen in the last 5, 6 months, is that most of the flows has been anchored towards this space. While we do have a huge and large mid-cap fund, the small cap fund is comparatively smaller, the flows in those funds have been decent, however, not to the industry-leading mark. Where do we see -- the point was, first, in terms of HDFC AMC. How -- I mean, the flows that come into these schemes, how do you see that as an industry? Do you think that these flows will continue to be like that -- and how these flows will turn around? What is your outlook on small and mid-cap flows?

So first, I think we must give credit to investors for showing a lot of resilience and discipline in the way people are investing. We have seen like 2 years of muted returns. There's still people not only continuing their SIPs but even topping up but taking advantage of falling market, so that's positive. . On the other side, we see some bit of momentum chasing. Earlier, I mentioned about how money came into silver funds when prices were high or in some of the sector and thematic funds when those teams had done well. At our end, all our fund managers, our large investment specialist team and everybody on the ground in sales and distribution they constantly guide our distribution partners as well as investors on focusing on the long term, focusing on asset allocation and focusing on the discipline and not having -- not falling prey to the recently bias particularly on the small and mid because you made a comment about MidCap is like very large. So fund size has grown due to long-term performance. In fact, it's our 20th year of the mid-cap fund. It's more than INR 1 lakh crore. And I think we take deep pride in what we have delivered over the last 2 decades. But fund and appears in the every fact sheet, and you see it. The market cap of the underlying renewal does not. And that is where the misconception starts. What matters is size relative to the opportunity. So if you look at, for example, the small cap fund and some of the people have heard saying that now it's INR 40,000 crores. But it was 0.5% of the small care universe market cap in June '19, if I remember correctly. And it's still like 0.5% of the market cap renewals today. And also the other thing that we constantly look at both for our mid-cap fund and small cap fund is the weighted average market cap of that fund visvis the benchmark and vis-a-vis the category average. And then our weighted average market cap in that sits below the category average. So this tells you that size has not pushed us up the curve or narrowed what we can own, fund managers feel very comfortable. Investor behavior is something where one is the institutional response, the view that we communicate and second is what investors and distributors prefer. In fact, off late, I've heard some of my fund managers speaking that the large care valuations have been like below long-term average, and that's something investors should not ignore.

Also, I think 1 you touched upon the size of our small cap fund is like Okay. So 1 small cap fund is materially larger. But at the second position third positions us and 1 of the other AMC. Both of us are at 40. So we are not small even in the small cap .

You mentioned that your mid and small care fund you're also.

Saying it can be large or small cap, we are small. So I think that's an opportunity for us to grow.

Next question is from Nano Jasin, Conversion Investor audio.

Audible.

Yes.

So my question is our passive product portfolio appears to have a relatively lower market share compared to other PsA when I also look at our products, I mean we don't have so many production assets to provide to an investor. So how do we look at that? Because if you been active to passive shift in the long term. So how are you positioning yourselves regarding that? How we are looking to expand your product offerings at all? That's my first question. .

So we have almost, if I remember correctly, almost 50 products on the passive side across market cap-based indices and smart beta across pain Manila, indexes versus sector thematic and across index fund and ATS and of course, some of the fund of funds, which feed into these -- so we are a fairly wide bouquet of products. Of course, we keep looking at the product basket and take a view from our investment team on the other side, we always assess whether a set of distributors or investors have a certain need for a product. And accordingly, we launch a product -- so I think we have 1 of the best in class. And also, I must mention, we have been 1 of the oldest player in the passive category. So our first index fund was launched in 2003 when I mean hardly people were talking about passive funds. So it's been now 23 years of building this category. And yes, so we have the full product look at .

And actually, just to add, index funds, our market share is very high. So I think the only place where you've kind of talked about market share, large government of India mandate, which we are not part of, but otherwise, our market share is a, Yes.

Events are retail like some of the peers have like more market share channels like...

Sir, actually, in index funds where large retail participation is there, we are the second highest in the industry.

And my second question is, how are you looking to make HDFC a one-stop solution and one-stop platform over time in the long term?

So we are a one-stop solution house. I mentioned about the white book products we have got on the passive side. Similarly, on the active fund, you would be aware of the CB classification and across almost all categories which are permitted to be launched by an asset manager. We have those categories. There could be like few funds here and there in the sector and thematic category that we will be launching over a bit of time, but otherwise, there are a few new categories that have opened up with the recent changes in semi-classification norms. So for example, a contra fund or life cycle points. And over a period of time, we would be launching that. On the other side, the nonmutual fund, we have got a fairly wide book products on PMS, more discretionary and nondiscretionary on the alternative side, you've got a fund of funds. We have got now a new private equity venture fund and private credit funds. So -- and then, of course, on the international side, we have just concluded the NFO of 2 outbound funds, and we have got a couple of inbound funds. So I think it's one of the best-in-class platform where every investor should be able to, I mean meet most of their investment needs through one single platform.

And sir, my last question is what are the areas where we are investing for the future?

I think I mentioned earlier, so I wouldn't repeat all of that, but across newer categories of products and also as the market opens up, CB has been over the last several years have continuously been coming up with new categories of products or the opportunities, we launched REITs, passive product, that's a new category that's building up. I talked about the opportunity on the nonmutual fund side. But to be very honest, I see tremendous growth opportunity in our core plain vanilla equity products where we have been a leader for and have got a track record over 30 years.

These new players present -- that to us.

Not Sorry? No, I think that the players only validates our thesis that industry has a huge growth potential. And I mean, for us, it is not appropriate to comment on any particular name of form, we have a comprehensive platform across active, passive, alternatives, we are continuously expanding the relationship and extremely well-developed distribution network for end. So -- we have our strength, and we continue to build on that.

[Operator Instructions] Next question is from the line of Adit Wendlinvestor.

So on flows, with the mid and small cap categories outperforming this year, could you give some color on how gross sales and reductions are trending in your large cap and hybrid schemes compared with the rest of your equity book?

So we don't specify flow data category-wise for HDFC AMC.