Nippon Life India Asset Management Limited (NAMINDIA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Nippon Life India Asset Management Q1 FY '27 Earnings Conference Call, hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] I now hand the conference over to Mr. Kartikeya Mohata from Motilal Oswal Financial Services. Thank you, and over to you, sir.

Yes. Thank you. Good evening, everyone. On behalf of Motilal Oswal, I welcome you all to Nippon Life India Asset Management's Q1 FY '27 Earnings Conference Call. We have along with us Mr. Sandeep Sikka, Managing Director and CEO and 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 sir for his opening remarks. Over to you, sir. .

Good evening, and welcome to our Q1 FY '27 Earnings Conference Call. We have with us President and Deputy CEO, Saugata Chatterjee, CFO, Parag Joglekar; Deputy CFO, Amol Bilagi; Chief Digital Officer, Arpanarghya Saha, Head AIF Ashish Chugani, and Deputy Head AIF, Aashwin Dugal and Matsui-San, nominee from Nippon Life Japan. I would like to share the key highlights of our performance. And post that, I'll hand it 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 key highlights, I would like to start by mentioning that NAM India was the fastest-growing AMC in the top 10 AMCs in Q1 FY '27 on overall and equity AUM, both on year-on-year basis as well as quarter-on-quarter basis. This led to continued increase of our overall AUM and equity AUM market share. We had the highest increase in AUM market share in the industry in Q1 FY '27, both year-on-year and quarter-on-quarter. In fact, we even had the highest absolute AUM growth in the industry in Q1 FY '27. Our market share continues to grow and touched 9.04%, which is the highest since June 2019. Importantly, both our equity net sales market share and SIP market share remained well above our equity market share with SIP market share in high single digits and equity net sales market share in double digits for the quarter. Moving to our financial performance. NAM India achieved its highest ever quarterly profit after tax at INR 5.04 billion, a growth of 27% year-on-year as well as the highest quarterly operating profit at INR 4.94 billion, a growth of 31% year-on-year. Now I'd like to hand the call to Parag for further details on industry and our performance.

Thank you, Sundeep. Good evening, everybody. Let me start off with the markets. Equity market in Q1 FY '27 witnessed a rebound from prior quarter levels. The Nifty was up 7% quarter-on-quarter, while the Nifty mid-cap and small-cap indices were up 17% and 24% quarter-on-quarter, respectively. The repo rate was flat quarter-on-quarter at 5.25%, while the 10-year GSEC yield decreased by 29 basis quarter-on-quarter to 6.75%. Gold and silver prices declined 3% and 1% quarter-on-quarter, respectively. Now moving to industry AUM and flows. Industry quarterly average AUM grew by 15% year-on-year and 2% quarter-on-quarter in Q1 FY '27 to INR 83.1 trillion. The share of equity in overall AUM increased by 0.8% quarter-on-quarter, ending at 57.2% for Q1 FY '27. The equity category ex of index fund and arbitrage witnessed a gross inflow of INR 2.46 trillion and a net inflows of INR 1.13 trillion, both were lower quarter-on-quarter. Categories with the highest inflows were Flexicap, small-cap and mid-cap funds. The fixed income category that is debt and liquid witnessed a net inflow of INR 338 billion in the quarter after an outflow in the previous quarter. The ETF category had a net inflow of INR 291 billion, lower on a quarter-on-quarter basis. Quarter end unique investors in the mutual fund industry increased 12% year-on-year to INR 61.9 million. Moving to SIP. Industry SIP flows for the quarter stood at INR 939 billion, up 16% year-on-year and 1% quarter-on-quarter. Monthly SIP flows in June 2026 stood at INR 318 billion, near the all-time high levels. Contributing SIP portfolios for June 2026 increased 13% Y-o-Y and 1% quarter-on-quarter to INR 97.8 million. Now moving to our business performance. We closed the quarter with total assets under management of INR 8.62 trillion. This includes mutual fund managed accounts, offshore funds and GIFT City. Our mutual fund quarterly average AUM grew 22.7% Y-o-Y and 3.7% quarter-on-quarter to reach INR 7.52 trillion. We were the fastest-growing AMC in the top 10 in Q1 FY '27 on overall and equity AUM, both on Y-o-Y and quarter-on-quarter basis and had the highest increase in quarterly average AUM market share among all AMCs in Q1 FY '27. I would now like to share a few key highlights for the quarter. Our mutual fund market share increased 54 basis year-on-year and 15 basis quarter-on-quarter to 9.04%. Our equity market share increased 34 basis year-on-year and 22 basis quarter-on-quarter to 7.38%. We achieved a double-digit net sales market share in the equity segment ex of index fund and arbitrage. We continue to have the largest investor base in the mutual fund industry with 24.1 million unique investors. We are humbled to have over 1 in 3 mutual fund investors invest with us. I would like also like to touch upon some important aspect of our systematic book. I'm happy to share that there has been a continued momentum in our systematic flows. Our monthly systematic book rose by 12% year-on-year to INR 37.2 billion for June 2026. This resulted in an annualized systematic book of INR 446 billion. SIP market share stood at 9.84% for June 2026, similar to March 2026. Moving on briefly to ETF segment. We continue to be one of the largest ETF player with AUM of INR 2.43 trillion and a market share of 21.35%, which increased by 159 basis year-on-year. Our share of industry ETF portfolios and volumes remained strong at 45% plus. Our ETF category ETF average daily volumes across key funds remain far higher than the rest of the industry. This quarter, the industry witnessed a decrease in gold and silver ETF volumes. Combined closing AUM in these 2 ETFs for NAM India was INR 827 billion, down 2.5% quarter-on-quarter. In quarterly average AUM terms, our gold and silver ETF represent 32% of ETF AUM and 12% of mutual fund AUM. Moving on to our digital franchise. Digital purchase transaction and new SIP transaction rose to INR 4.49 million in Q1 FY '27, up 26% year-on-year. Digital business contributed 78% of the total new purchases transaction in the quarter. In Q1 FY '27, NAM India Mutual Fund digital business sharpened its focus on long-term investor behavior by driving initiatives to scale business and strengthen SIP habits, helping rebuild confidence in disciplined investing amid market volatility. I would like to briefly update you on our subsidiary and GIFT City. Starting with the AIF company. Under Nippon India AIF, we offer Category 2 and Category 3 AIFs and have raised cumulative commitment of INR 95.8 billion across various schemes, up 18% year-on-year. In Q1 FY '27, we raised INR 2.5 billion of commitments across various asset class. Fundraising is currently underway for our listed equity fund, private credit fund and direct VC fund. Nippon India Equity Opportunity Scheme 10, which is Neoen achieved its final close and is now fully drawn down. Nippon India Equity Opportunity Scheme 11 completely -- completed its second drawdown and the fund is currently 50% drawdown. Nippon India Credit Opportunity Fund with second capital call in Q1 FY '27 is drawn down to extent of 40%. On the offshore front, our managed AUM stood at INR 147 billion, up from INR 139 billion in previous quarter. Moving to GIFT City. As stated previously, we currently have 2 per funds, namely Nippon India ETF Nifty 50 Bees GIFT Fund and Nippon India Large Cap Fund GIFT. The AUM in these funds stood at USD 48 million. Now on to our financial performance. For quarter Q1 FY '27, revenue stood at INR 7.67 billion, up 26% year-on-year and 4% quarter-on-quarter. Other income stood at INR 1.7 billion, higher both Y-o-Y and quarter-on-quarter. Operating expenses stood at INR 2.73 billion, up 19% year-on-year and 11% quarter-on-quarter. Operating profit stood at INR 4.94 billion, up 31% year-on-year and flat quarter-on-quarter. Profit after tax stood at INR 5.04 billion, up 20% year-on-year and 31% 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 Mahak from Emkay Global.

Congratulations On good set of numbers. So first question was largely on the other expenses. So other expenses have increased almost 17% quarter-on-quarter. So could you just highlight what would be the exact reason for the same?

The other expense has increased, we continue to invest on the digital brand and technology side. So the other expense increase is mainly due to that we are investing in the technology, brand activities and on the digital platform increase. And we keep doing that. That is the idea that we need to build this over the period maybe next 6 to 8 quarters in the similar fashion.

Okay. And secondly, sir, the employee expenses should be -- so basically, you had Q1 hikes in the quarter. So should we -- should the employee expense be largely in the similar range for the coming quarters?

So the current quarter, there is an increase due to the increments which we happened in the first quarter and slightly on the ESOP side, which should remain similar whatever increase on the employee trend will happen, we will have a slight impact on the increase side. But otherwise, it looks to be in similar range.

And lastly, sir, on the SIP flows, I mean, your SIP flows have been quite healthy. So could you just call out which largely -- I mean, which funds are seeing large amount of flows on the SIP side? That would be my last question.

This is Sugata. So like in the previous calls, we have been communicating that we have been broad-basing our SIP book. Earlier, we had maybe 1 or 2 funds which had was entering the book. Now we have diversified that reasonably well. And hence even though the market is volatile, we continue to increase our SIP book. And we are also seeing a lot of SIP inflows coming through the fintech platform as well as through our B30 initiatives, which we are doing across India. The lending activity, which Parag did speak about the digital infrastructure support which we are is definitely helping us to increase our retail penetration.

Got it, sir. And one -- just I wanted to squeeze in one more. So basically, given the volatility, so are you witnessing any change in the behavior with respect to direct versus distributed AUM or [indiscernible] so if you could just give some color on that.

See what happens, any investor who is coming in, in these volatile markets, the investor remain -- the behavior remains similar, okay? Yes, the trends when it comes to DIY investors do have a different trend. They tend to have shorter cycles. But there is a lot of education program, which is happening from our side to elongate their cycle. So that's an ongoing process. But what we are seeing that in the last 2 years, the quality of the digital or the digital investors who are coming in is definitely improving from the average ticket size, from the longevity of the SIP, there is definitely, there is an improvement happening. So that's where we stand at this point in time.

The next question is from Prayesh Jain from Motilal Oswal Financial Services.

A few questions from my side. Firstly, what has been the flows on the ETFs on silver and gold? That's question number one. And how do you see kind of this panning out going ahead? Question number two is on the equity inflows. What is the kind of ground traction that you're seeing with respect to SIPs or any behavioral change in the last 3 months in the volatile environment that we've seen? Similar question on the debt front, we have seen industry-wide flows weakening. And do you see any revival out there? And last question would be on SIF. What would be your plans there and product launches trajectory there? Those would be my questions.

First question which pertains to the commodity side. I think both silver and gold, though the industry at an industry level, there has been a moderation in the flows, which we have seen, of course, on the ETF side, most of the industry players have moderated the restricted flows of INR 250 plus in the ETF scheme. It's an interesting trend. Even though moderation has happened, the industry continues to get net sales, which is positive. We also continue to maintain our market share as we had previously in both gold and silver, though volatile, but the nature of investors who come in gold and silver are very different. So that's the way the gold and silver. I think I missed your question after that. But coming to fixed income, I think the fixed income side of the business, though it has been volatile because of the interest rate movement. we have been trying to sort of broad-based fixed income awareness in the -- amongst the investors. It is all purely asset allocation, which we promoted in our company, either through asset allocation funds or create a pure debt portfolio from a medium to long-term point of view. So maybe industry will have seen some volatility, but we are trying to derisk the portfolio by bringing in more investors coming into the fixed income part of our business. But yes, there is definitely volatility in the fixed income from an industry point of view. When it comes to equity inflows, I think on the equity side, the -- if you break down the quarter gone by between April, May and June, April and May did see a moderation in the flows in the industry. June has seen a spike rather it moved up. So net-net, the flows are SIP plus it's not only SIP, SIP plus lump sum is definitely coming into the industry. And hence, it continues to be robust. From our point of view, we continue to have a higher double-digit net sales in the equity side ex of index and arbitrage and similar trend continues to be in the same. Behavior change from a behavior change point of view, what we are finding is that if the performance of general performance of certain categories, which are large cap, multi-cap and the larger cap categories continue to be stressful, then maybe there can be moderation in flows in times to come, but we'll have to wait and see. As of now, there is no investor concern, which we are seeing Finally, on SI, as we have been articulating, I think we are in a state of readiness. And as and when we get our approvals, we will definitely launch these funds. But we would like to have a wait-watch approach in this category.

One bookkeeping question. I don't know if you've answered this, the asset-wise yield and what is the kind of guidance that you will have now you've been guiding for 1 to 2 basis points yield drop every year. Should we stick to that? And just extending that point, have you passed on the complete impact of the 5 basis points exit load in this quarter? Or is there a partial impact there?

Yes, the yields are equity is 54 basis ex of arbitrage. Debt is a 25 basis, liquid is 12 basis and ETF as a category, 25 basis. Overall, our yield remain constant at 38 basis currently on quarter-on-qu. On the changes which has happened, we have mostly passed on everything through the commission alignment, and there is no impact per se on the financial...

Equity yield, could you repeat what was the equity yields?

Equity was 54 basis ex of arbitrage.

53 with the arbitrage number, which is...

And you yes, we continue to think back to this pricing as this thing drop on equity as the size goes up, which will be 1, 2 basis on year-on-year[indiscernible] basis points overall yield on equity...

The next question is from Madhukar from JP Morgan.

Congrats on a good set of numbers. First, we had restricted flows to the bullion ETFs. What's the update on that? Do we still have the restrictions? What are the restrictions? And were there any changes on what's the plan? When can we see that being lifted? And second, what is our base TER on base expense ratio, sorry, on the bullion ETF and arbitrage Third, I'm not sure whether you covered this, but what has been the trend in terms of net equity inflow market share? So you gave a rough sense of what that number is. So if you could give that. And final question, sir, other income has shot up very strongly this quarter. Can you give some explanation in terms of debt equity, what has been the big driver -- and how much is it?

Basically, the commodity ETFs are more or less comparable with the equity numbers. So they are more or less similar line with the equity numbers. What was the second question?

No. And the bullion inflow restrictions, so where are we with that?

Madhukar, on the restriction, I think Sandeep this side, I think it was done with the backdrop more as from a country point of view because I think gold imports were higher, it was more from a national cost point of view. But if you see what we have done was also we have restricted inflows in excess of INR 25 crores. And in our gold fund, which is not ETF, gold fund, above INR 10 lakh. So broadly, the retail flows still continue. It is only some people -- investors used to take trading calls and other things for short term. I think we restricted that. So our idea is from a retail franchise point of view, our retail investors continue to have an access to commodities. And to your question on when will we open it, I think it will be difficult to give a date or this thing. But I think looking at the overall environment. But good thing is because this was voluntarily done by the company, we continuously keep evaluating and sooner than later open it.

Coming to equity flows, Madhukar, the -- as I mentioned earlier, the equity flows continues to be rather for us quarter-on-quarter, there's an improvement. Last quarter, it was higher single digit. This time -- this quarter, it has been higher double -- in the double-digit range ex of index and arbitrage. Good part is the NFO market has shrunk because of less euphoria in the market. That is good for the industry, and that's how we would like to continue that we don't launch NFOs coming to -- any other point which is pending?

The other income growth, Parag, sir?

So Madhukar, the other income is mainly driven by the market movement, mainly on equity side and softening of interest rate on debt. So that...

Yes. When I look at your investment book, equity is not very large in the investment book, right? So that was what my confusion or maybe I'm missing anything.

So we have a large portion of small and mid-cap Madhukar. So the portion of map in our book is higher as the seed capital, which has given the benefit to us.

Understood. Understood. And final thing, just coming back on the gold ETF index fund. See, these are normally supposed to be backed by physical gold. So given the current environment, how are you sort of arranging for gold? I mean, is there enough supply in the domestic market or you import it? How does that work?

So as per SEBI rule, I think you're right, everything has to be backed by physical. And yes, we have not seen any disruption during this period. And otherwise, we would not be able to take any inflows. The fact that the inflows continue and every incremental rupee that comes in is backed by gold. So we do not see any disruption in supply chain.

The next question is from Rohan Nagpal from Helios Capital.

Just a clarification on the other expenses. So I gathered that you're investing more on the technology front and certain other investments. Is this the run rate that one should expect from this point onwards? Or are there certain expenses that will continue -- that you anticipate continuing for a certain period of time before they go back to an earlier level? Just want some clarity on that.

No, Rohan, we will keep on investing for some time because we think that there is a requirement to do investment on these -- so maybe for 6 to 8 quarters, we will keep on investing in the range of -- you can see a rate of 18% to 20% of other expense increase in the next 6 to 8...

Overall expenses, other expenses.

The next question is from Prayesh Jain from Motilal Oswal Financial Services.

I was asking on the overall expenses front, how should we think about the overall expense growth? You've been guiding for about 15% growth overall expenses. So is that the guidance that you would like to stick to for the next 1 or 2 years? And second question, -- sorry for that. Second question would be, again, on SIS, you just mentioned that you have -- so are the applications of products being filed with regulator or is that still in the process? There are quite a few things that are developing in the industry with regards to SIF. Now there are some distributor regulations also examination regulations also that have been changed, mutual fund and SIF examination to be merged. All those regulations are also being changed. So definitely, I think the industry is seeing this as a decent opportunity. Is it that we are just still waiting and observing or the pipeline is very clear for us -- and again, on the international front, any new developments or any new geographies that you're getting into or any scale-up or new launches that you're going to look at in the...

I think regarding SIF, I think as my colleague, Sata mentioned earlier, I think we're in a state of readiness. I think rather than getting into the nitty-gritty of what stage we are with the product and all. I think we are overall, I think in a state of readiness. We ourselves believe, I mean, like you, we remain very optimistic on this space. But we also feel typically, a lot of products which have been launched initially by the industry, they are very -- I mean they are the me-too kind of a thing. I mean most of them are very similar. I think it's just mutual fund plus plus. I think we believe, I think that I think this is a category because we have a very big retail franchise on the mutual fund side. we want to be very clear that I think the products we are going to be launching are very highly differentiated and from pure mutual fund play. And so you'll see us -- I think we already have a senior colleague, Andrew Holland and his team on board. They're working on various things. So you will see us launching and -- and we will -- for us, this will be a very important business strategy going forward. I think that's the only thing I can mention, I think point number one. To your second question on international, there are a lot of things that are happening. I mean, I think both for us, 2 markets remain critical. One is Japan being our home country there. And on the other side, a recent JV that we have announced for our AI business with DWS. So there are a lot of things happening starting from launching of funds and also approaching institutional investors. some of these things are VA 01, they take time to happen. Maybe in the subsequent earnings call, we'll have something more concrete to share. But I think specifically, and I'd like to touch on the JV with DWS, we believe, I think from Europe, a lot more money can come to India and DWS is the largest asset manager of Europe, and the JV has been done with that in mind.

Yes. And Prayesh, just to correct my earlier this thing, the overall expenses, we are expecting to go in the range of around 18% to 20% because we'll do the investment on technology and brand, which will be ESOP and any one-off if there are...