Nippon Life India Asset Management Limited (NAM-INDIA.BO) Q1 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Nippon Life India Asset Management Limited Q1 and FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Meghna Luthra from InCred Capital. Thank you, and over to you, ma'am.

Thank you, and good evening, everyone. On behalf of InCred Equities, I welcome you all to Nippon Life India Asset Management's First Quarter FY '26 Earnings Conference Call. We have along with us Mr. Sundeep Sikka, Executive Director and CEO, along with the senior management team. We are thankful to the management for allowing us this opportunity. I would now like to hand it over to Mr. Sundeep for his opening remarks.

Thank you very much. Good evening, and welcome to our Q1 FY '26 earnings conference call. We have with us our CFO, Parag Joglekar; CBO, Mr. Saugata Chatterjee; Deputy CFO, Amol Bilagi; Chief Digital Officer, Arpan Saha; Deputy Head of AIF, Aashwin Dugal; and Matsui-San, Nominee of Nippon Life Japan. I would like to share key highlights of our performance. And post that, I will hand over to Parag to speak in greater detail on the recent industry trends as well as our performance, post which we will move to Q&A. Coming to the highlights. I would like to start by mentioning that NAM India has achieved its highest ever quarterly operating profit at INR 3.78 billion and profit after tax at INR 3.96 billion. Further, NAM India was the fastest-growing AMC in top 10 AMCs, both on quarter-on-quarter and on a year-on-year basis. This led to an increase of overall AUM and equity AUM market share. We had the highest increase in AUM market share in the industry on a quarter-on-quarter basis with the market share increase across all asset classes. Our market share at 8.49% is highest since June 2019. Importantly, both equity net sales market share and SIP market share remained well above our equity market share. Our SIP market share has again greater -- our SIP market share was again greater than 10% in June 2025, and our equity net sales market share also moved into double digit for the quarter. Lastly, on the SIF front, we have a team in place led by industry veteran, Mr. Andrew Holland, and we will be launching our products in due course. Now I will hand it over to Parag for further details on the industry trends and our performance.

Good evening. Thank you, Sundeep. Let me start with the markets. Equity market in Q1 FY '26 witnessed a sharp rebound from prior quarter levels. The Nifty increased by 8.5% quarter-on-quarter, while the Nifty mid- and small cap indices increased by 15% and 17.8% quarter-on-quarter, respectively. RBI cut the repo rate by 75 basis to 5.5%, while the 10-year G-SEC yield decreased by 26 basis quarter-on-quarter to 6.32%. Coming to data on the mutual fund industry. Industry quarterly average AUM grew by 22% Y-o-Y and 7% quarter-on-quarter in Q1 FY '26 to INR 72.1 trillion. The share of equity in overall AUM increased marginally quarter-on-quarter, ending at 56.6% for Q1 FY '26 from 56.3% in Q4 FY '25. Now moving to the industry flows. The equity category, excluding index fund and arbitrage fund, witnessed a gross inflow of INR 2.12 trillion and a net inflow of INR 0.82 trillion. Gross inflows were relatively flat quarter-on-quarter, while net inflows were lower quarter-on-quarter. Categories with the highest inflow were flexi-cap, small-cap and mid-cap funds. Moving on to SIP. SIP contribution for the quarter was INR 806 billion, up 29% Y-o-Y and 3% Q-o-Q. Monthly SIP flows in June 2025 stood at INR 273 billion, an all-time high. The fixed income category witnessed a net inflow of INR 2 trillion in the quarter after the net outflow in the prior quarter. The ETF category had a net inflow of INR 264 billion. At the end of the quarter, unique investor in the mutual fund industry increased to INR 55.3 million, that is an increase of 18% Y-o-Y. Now moving to our business performance. We closed the quarter with total assets under management of INR 7.44 trillion. This includes mutual fund, managed assets, offshore funds and GIFT City. Our mutual fund quarterly average AUM grew 27% year-on-year and 10% quarter-on-quarter to reach INR 6.13 trillion. We were the fastest-growing AMC in the top 10, both quarter-on-quarter and Y-o-Y in Q1 FY '26 and had the highest increase in quarterly average AUM market share on a quarter-on-quarter basis among all AMCs. I would like now to share a few highlights for the quarter, starting with the market share. Our market share increased 23 basis quarter-on-quarter to 8.49%. Our equity market share increased 12 basis quarter-on-quarter to 7.04%. Please note that starting this quarter, we have carved out arbitrage as a separate category for better representation. The share of equity AUM in our overall AUM decreased by 0.3% quarter-on-quarter to 46.9% for Q1 FY '26. We achieved a double-digit market share in net sales in equity plus hybrid segment in Q1 FY '26, which is the highest market share we have achieved in last 8 quarters. We continue to have the largest investor base in the mutual fund industry with 21.2 million unique investors. We are humbled to have over 1 in 3 mutual fund investors invest with us. During the quarter, we also completed the NFO of Nippon India Income plus Arbitrage Active Fund of Fund. As end of the quarter, the AUM of this fund stood at INR 5.8 billion. I would also like to touch upon some of the important aspects of systematic book. I'm happy to share that there has been a continued momentum in our systematic flows. Our monthly systematic book rose by 29% year-on-year and 4% quarter-on-quarter to INR 33.2 billion for June 2025. This resulted in an annualized systematic book of INR 398 billion. SIP market share stood at 10.07% for June 2025. Moving on briefly to the ETF segment. We continue to be one of the largest ETF players with AUM of INR 1.74 trillion and a market share of 19.76%, which increased 69 basis quarter-on-quarter. Our share in industry ETF portfolios is 52%. We also have a 51% share of ETF volume on the NSE and the BSE. Our ETF average daily volume across Q1 remained far higher than the rest of the industry. Our gold ETF is among the top 10 globally in terms of AUM as on June 2025. In Q1 FY '26, we launched 4 new products: Nippon India Nifty 500 Quality 50 Index Fund, Nippon India Nifty 500 Low Volatility 50 Index Fund, Nippon India BSE Sensex Next 30 ETF, Nippon India BSE Sensex Next 30 Index Fund. Moving on to our digital purchase. Digital purchase transaction rose to 3.57 million in Q1 FY '26, up 27% Y-o-Y. Digital business contributed 75% of the total new purchases transaction in Q1 FY '26. Nippon India Mutual Fund focused digital strategy in delivering results driven by a real-time intelligent platform, simplified onboarding, tailored communication and pioneering content design to engage Gen Z investors. Nippon India Mutual Fund robust digital distribution framework, data-driven targeted campaigns and best-in-class digital asset continue to strengthen its leadership across the overall digital landscape. Now I would like to briefly update you on our subsidiary, namely the AIF and Singapore subsidiary. Starting off with AIF. Under the Nippon India AIF, we offer Category 2 and Category 3 AIF and have raised cumulative commitment of INR 81 billion across various schemes, up by 25% Y-o-Y. In Q1 FY '26, we raised INR 7 billion of commitment being our highest quarterly fundraise ever. We have launched a real estate scheme, Nippon India Yield Optimizer with INR 3 billion of commitment raised. Fundraising is currently underway for 2 of our listed equity AIF, performing credit AIF, residential RE Fund and direct VC fund. Fund deployment across all strategies was robust in Q1 FY '26 with 9 active investments in performing credit and full deployment in our venture capital FOF across 14 funds with underlining exposure to 395-plus start-up companies. Our future product pipeline includes Empowered India long-only focused Flexicap strategy, Nippon India Credit Opportunity AI Scheme 2, second performing credit fund. On the offshore front, we continue to witness equity inflows in the quarter from international geography in Asia and Europe. Offshore AUM grew 10% year-on-year to INR 166 billion with our UCITS equity fund reaching an AUM of USD 543 million. We continue to expand our footprint in Japanese institutional and retail market in conjunction with NISA Asset Management Corporation Japan. We also continue to expand our footprint in new geographies in Asian, European and Latin American markets. Moving to GIFT City. As stated previously, in Q1 FY '26, we launched the Nippon India ETF Nifty 50 BeES GIFT Fund, which primarily offers Japanese investors greater access to Indian equity markets through the NISA scheme in Japan. This follows our first GIFT City fund the Nippon India Large Cap Fund GIFT launched in January 2025 to provide global investors access to our flagship large-cap fund. Our future product pipeline includes Nippon India Digital Innovation Fund IIb, our follow-on VC fund of fund for repeat Japanese investors and Nippon India Sharp Equity Fund, a long/short equity fund. Now on to our financial performance. For Q1 FY '26, revenue stood at INR 6.07 billion, up 20% Y-o-Y and 7% quarter-on-quarter. Other income stood at INR 1.46 billion, up 12% Y-o-Y and up 5.3x quarter-on-quarter. Operating expenses stood at INR 2.29 billion, up 16% Y-o-Y and 8% quarter-on-quarter. Excluding the impact of ESOP, operating expenses grew at 15.8% Y-o-Y for Q1, driven mainly by investment in talent, non-MF business and technology infrastructure. Operating profit stood at INR 3.78 billion, up 23% year-on-year and 7% quarter-on-quarter. Profit after tax stood at INR 3.96 billion, up 19% year-on-year and up 33% quarter-on-quarter. With this, I would like to conclude my remarks and open the floor for questions.

[Operator Instructions] The first question is from the line of Shreya Shivani from CLSA.

Congratulations on a good set of numbers. I have 3 questions. My first question is a data keeping question. Can you help us with the yields for the different segments for the quarter? I can see that sequentially, your yields have really stood up. There has not been any decline. So any commentary around that? Second is on the volume data for the systemic book. The systemic folio -- systematic folio, sorry, seems to have declined sequentially. Any reason, any explanation for that? And my last question is actually on the ESOP cost. You had guided that the ESOP cost for this year would be at about INR 48 crores, INR 49 crores. We were expecting the ESOP cost to be about -- I mean it should have been more than the -- what you've reported in this quarter. There's a sharp decline between last quarter and this quarter and the run rate is such that it looks like the remaining quarters would see a much higher ESOP cost coming through. So if you can help us with that data as well.

Thank you, Shreya. I will take the yield and ESOP cost question, and then I will ask Saugata to take up the SIP book question. So yields for the current quarter, the blended yield is 36 basis, the equity yield is 55 basis. Debt yield is 25 basis, liquid is 12 basis and ETF is 17 basis. On ESOP costs, the yearly ESOP expected is around -- in the range of around INR 46 crores, which we mentioned earlier. The current quarter cost is around INR 4-odd crores, for INR 11 crore overall for the new segment is INR 4 crores.

Okay. So sorry, sir, this quarter, the ESOP cost is INR 11 crores plus INR 4 crores, right, INR 15 crores or so?

INR 11 crores total, INR 7 crores plus INR 4 crores.

Okay. Okay. INR 11 crores total. All right, all right. And for the full year, it will be at about INR 46 crores or whatever, INR 47 crores, INR 48 crores, whatever you have mentioned. And for next year, sir, FY '27?

Next year, it will be around INR 26 crores, INR 27 crores.

This is Saugata here. With regard to SIP, actually, SIP book for us this quarter on a month-on-month basis actually has gone up. What has happened in the industry in March, April, there was a onetime cleanup, which the industry as well as we had done on the number of SIPs which were inactive. So hence, there was some impact on the numerator, which, of course, has settled down in June, and July also -- so the numbers will now stabilize at an industry level as well as for us. What we need to see is the flow. That book is increasing on a month on basis. So we did not have any impact of the inactive folios on our SIP book because they were as it is inactive, and they were not contributing to this SIP book at any point in time. And market share on SIP folios continue to grow rather than our discontinuation percentage is much better than the industry as we speak.

Got it. Sir, just one follow-up on that systematic folios thing. So is this a cleanup a regular activity? Or -- I mean, just for my understanding, I've seen it first time in the past so many years, but is this something which would happen on a regular basis going ahead? Or this was -- I mean, this was just a one-off? How you think about that?

So at an industry level [indiscernible] had taken a stance that they want to do it one time for all AMCs. This was a large cleanup, which has happened over a period of 3 months. And across all the AMCs, everything was done. So it's not only pertaining to a particular month or a particular AMC. And we feel that this is an activity which has been done. Probably, the industry might take a view after 6 months, 12 months if the data again throws up some numbers, which needs attention. But as of now, it's a onetime cleanup.

The next question is from the line of Mohit Mangal from Centrum Broking.

Congratulations on excellent set of numbers. The first question is in terms of -- we have launched a quite passive funds in the last quarter. And even this quarter, we had launched an MNC fund. So just wanted to know how is the inflows in that? And if you could give a color on the passive fund, how much we were able to get into those things?

So thanks, Mohit, Saugata this side. So passive as a strategy, if you have been following our calls every quarter, we keep mentioning that we will keep seeding unique ideas in the market. And hence, some of the funds which we had launched in the last 3 to 6 months, have been unique, and we keep seeing a lot of interest as the fund is launched and it is open for subscription. We keep seeing flows coming into it. We don't target any volumes in this fund. So they predominantly will not show any size coming up. But over the period of time, it builds up as investors start flowing into these passive ideas. When it comes to the NFO, the MNC Fund, which is more July specific, of course, it's something which has just got closed. Our idea, again, aligning to our thought process in the past, if something is very unique, something is very distinct, as a strategy we will launch. And hence, this fund was aligned to our thought process, we came to the market after 3 years with a new fund in the active space. And we have got reasonably good response in this fund.

All right. In terms of the distributor commission, I think we have rationalized, but if I look in terms of yield -- in terms of the distributor commission rationalization, I think we have done for most of the equity schemes. And there have been around 2 bps decline in yields, if I look as compared to Y-o-Y. So just wanted to know in terms of yield decline, should we expect 2 to 3 bps going forward, for say, for the next 2 to 3 years as well?

So actually, yes, the yield decline is mainly due to the telescopic pricing where the size -- the higher the size, lower is the yield impact will be. And so we have communicated earlier also that on a blended, we should see around 2 to 3 basis year-on-year drop in the yields.

Okay. Understood. And lastly, in terms of you said in your opening remarks that we had a double-digit market share, which was the highest in 8 quarters. So I just wanted to know, I mean, if you can just throw a color as to how much we have gained that it was the highest in 8 quarters?

We don't disclose the numbers, but the overall growth is in the double digit on the net flows.

For us, the equity net sales has always been on the higher side. And last quarter was also in the double digits, which we continue to build on. And so that's the reason why the market share has been one of the best.

The next question is from the line of Lalit Deo from Equirus Securities.

Congratulations on a good set of numbers. So just again, the question was on the yield side as well. So like on the ETF side, you mentioned that yields have stood at around 17 basis points. Now in last quarter, it was around 15 basis points. So any -- like any particular reason why we have seen an increase in the yield on the ETF side? And secondly, on the equity book as well. So now this 2 basis points of compression. So like this is probably like as we are mentioning that the yield decline is roughly going to be around 2 to 3 basis points on an annual basis. But over the last 15 to 18 months, the yield compression has been slightly higher. So is it mainly because of the higher payout ratios to the distributors? Is that something which -- these are the 2 questions.

So, Lalit, thanks for the question. So on the yields, on the ETF side, our yields have gone up due to the composition of the various funds in the ETF segments and which has resulted in an improvement in yields where the higher expense scheme has sizably grown. So that has helped us to improve the overall yield on the ETF side. On the overall yield, yes, we always mentioned that we will -- there can be some drop in the yield on the consolidated basis, 2 to 3 basis. Last couple of years, we have seen a slightly higher drop mainly due to the -- our size going up significantly in the last 2 years, which has impacted the overall yields. Obviously, the new flows come at slightly higher cost compared to the stock, and that is also impacting. But that is not the only reason. The size is the main reason due to telescopic pricing, it will impact the overall yield on the AUM.

Yes. Sure, sir. And sir, just lastly on this -- on the new asset class, which is the SIF category. So I just wanted to understand this sharp in the new fund, which is in the pipeline with the long/short equities. This will fall under this SIF category, right? Or this is the AIF piece?

So that is an AIF strategy. The ones which we spoke in the opening remark, which is the Nippon India Sharp Equity Fund, the long/short equity fund, that will be on the AIF side.

But I think under SIF also, we will be launching a couple of fund, different things. I think we are still awaiting the launch of these. But I think we remain open. I think we have built up a great team. And so I think you'll see for us, I think, SIF will be a very important category going forward.

The next question is from the line of Madhukar Ladha from Nuvama Wealth Management Limited.

A couple of questions from my side. Number one, so how has your inflow market share shaped up in this quarter? And two, there is this new discussion paper on -- for AMCs, which basically talks about if your scheme size crosses INR 50,000 crores, you can launch a new scheme and the new inflows would not be allowed in the old scheme. And the new scheme can charge a TER, which is up to the old schemes TER. That's sort of my understanding when I read that paper. If you could help explain what is the logic behind this? And it would seem that this would be marginally positive for the AMCs. Is that the right way to sort of think about it? Some background thought process will be helpful on this topic.

Madhukar, this is Saugata this side. So with regard to the -- with regard to the flows, compared to the previous quarter, last quarter flows has been definitely better. The flows are in the double digits, low double -- lower side of the double digit. And hence, we continue to get growth in our equity market share because our net sales market share is better than our overall equity AUM market share, which definitely helps us to grow our overall equity AUM. So -- and SIP flows and the lump sum flows are adding to this growth.

Madhukar, Sundeep this side. Touching on the SEBI proposal, I think there are different views, I think when we talk across the industry also especially launching of additional schemes in the same category when the AUM crosses INR 50,000 crores. One of the view is that with the increase in size, it becomes more difficult to move the portfolio. Our view is a little different. I think we are of the view that it's not about this size. I think it's more to be able to continue strengthening your research and the risk management capability to remain relevant for investors. So we actually do not have either very positive or either negative. But I think if you have to -- while we'll wait for the proposal to get through because it's still a consultation paper, but we do not see any negative in it.

Sir. And would this be sort of marginally better because given that you can launch a new scheme, with a TER which is equivalent to the earlier scheme, that would -- I would tend to understand it is that you would get a slightly additional yield. Is my understanding correct on this? Or am I missing something out of here?

No, I think we'd like to wait and watch for the final guidelines. But I think again, as I've always mentioned in the past, asset management business is a volume game. So I think whether I think it's a 1 basis point getting extra yield or reduction in yield, that is some short-term positive or negative. But the idea here is going to be that how can we scale up 2x, 3x, 5x from here, and that is where the actual growth of the AMC is going to come from. So -- but we'll wait and watch. But I think, like I said, there is nothing negative in it, there might be a little positive wise, and if it was to come in the formal manner as it has been proposed.

[Operator Instructions] The next question is from the line of Muskan Chopra from Motilal Oswal.

This is Prayesh Jain. Just a couple of questions. Sir, firstly, is there any change in behavior in customers, particularly in the last 6 months wherein we have seen that the markets have been volatile. And do you think that the preference for stronger brands versus purely looking at the returns and even amongst distributors, looking for brands over commission payout. Is that -- is there any change in the way the distributors and the customers are behaving or it's still based on return on...

So I think broadly, I think it's not anything has changed in the last 6 months, but there is a continuously to see industry has been evolving over the last 4, 5 years. What we have seen is Investors are maturing a lot. First, I think we have seen whenever there's a market volatility, they do not react or over-react the way we used to do earlier. We earlier, I think if we first to go 5 years back, there was a very high -- while fund performance remains paramount, but that was -- that is not the only thing. The brand and the comfort that you get from the brands, that also plays a very big role. That's why you have seen some of the bigger brands getting bigger. So I think overall, I think it's a package of performance. It's a package of brand and also the service experience that you're able to give. But 1 thing is very clear, it is not only dependent on brokerages. It is not only dependent on performance. It's a package that the investors are looking at, and that is what we decided -- which is differentiating between successful AMCs and not so successful AMCs.

Got that. And sir, with respect to your flow, could you give any color whether in a -- the flows are very widely distributed between the schemes or it's still kind of lopsided between the small cap, large cap and mid cap?

Saugata this side. So the flows from our perspective, I think the best part is we have been able to get flows across our funds, which if you see the various market cap offerings which are there, across all market cap offerings, we have flows. And that's primarily because we have a very strong SIP book, which cuts across most of these categories. And over a period of time, we have also seen that the more we are able to communicate with the distributors and the investors on the various categories which we offer to them, we are able to get reasonable flows in those categories. So for us, it's quite widespread. We have derisked our business flows over the last 2 years. And hence, the net sales growth is also very strong.

And also what helps us is a very granular SIPs, 75% of our SIPs by value are less than INR 10,000. So I think so that also adds to the stability and long-term profitability.

Right. Right. Just another question on SIF. So we could have got parallels between the existing team and SIF team or whether you've invested in a completely new team. I understand about the [indiscernible] with respect to the team. Could you have used the existing team or you need to build up?

I think your voice broke in between. But if I've got your question, I think could the existing team have been used for SIF? I think we are proud, I think, of our team, I think and what the kind of wealth they are creating for the investors, I think SIF is a different business vertical, and we do not want -- we want to take it very seriously. We do not want to be just one other product. We see that as a new business line for us. And that's the reason, I think, from our point of view, while the option, what you said was always there, but I think we thought of getting some of the best professionals for this. And we leverage wherever we can, wherever the regulations allow us to leverage internal research. But the idea is we see this vertical as a very, very critical separate line of business for us going forward. So I think we're investing in it very differently.

Got it. And last question. Sir, if I look at...

Sorry to interrupt, sir, but your voice broke in the middle.

Yes. I think from an investment book standpoint, there is a movement from equity-related assets and other assets to debt. Is there a change in approach towards the investment book in terms of how we are managing it?

So Prayesh, we have just rationalized some of our exposure on the equity side basis the seed capital which we have been investing. That is the only change which we have done.

Okay. Because even on your mutual fund schemes, while sequentially from about INR 510 crores to INR 480 crores on the equity side, AIF, you mentioned that there is some seed fund realignment. So just checking there whether some approach in terms of thinking about equities being at the top or some approach there?

No, I think I'll just give you a directional approach, rather than quarter-by-quarter. I think whatever is required for seed capital, we'll always have that. But broadly, I think what we want to do is from the proprietary book of the company, I think we don't want it to be volatile with the market conditions. So I think it will be basically more on the fixed income side rather than equity.

The next question is from the line of Ms. Meghna Luthra from InCred Equities.

I just had one question. How much scope do we have to cut down on distribution commissions? And what proportion is already -- like how percentage of the schemes have already been cut?

I think we don't have a target for that within that, that how much it has to be cut further and all. I think we'll continue evaluating. It also depends on the market conditions, various things. But I think the only thing I'd like to answer is I think it's a dynamic, and I think we'll keep evaluating at different points of time. So at this point of time, 3 schemes, which are 45% of our equity AUM, I think we have already cut there. So what -- again, I'll repeat, we don't have any target. It all depends on the market conditions, industry and various other factors.

Okay. Is there anything lined in this quarter that you would be cutting or maybe not?

If there is anything, I think in the next quarterly call, we'll share with you.

Thank you. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for closing comments.

So thank you, all of you, for joining this conference call. And for any question if you have, which you want any insights, you can touch base with Arash, our Head of IR, and we will be happy to answer. Thank you.

Thank you. On behalf of Nippon Life India Asset Management Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.