Strong outlook for AMCs but high valuations pose risk

Given gains in equity prices, it is not surprising that the earnings of asset management companies (AMCs) are growing quicker.

- DEVANGSHU DATTA

The earnings momentum looks set to continue. Good fund performances have thus led to AMC earnings upgrades although valuations are high.

Recent market performance and net flow trends have led to earnings upgrades by between 3-8 per cent for FY25-27. Stronger equity AUM and earnings growth is expected for HDFC AMC and for Nippon (NAM), given superior fund performances. Both have strong systematic investment plan (SIP) books and manage several highperforming funds.

Valuations reflect this. AMCS trade at 50 per cent premium to the broader market-the AMC industry is at a one-year forward price-toearnings (P/E) of around 33x versus a Nifty forward P/E of 22x. HDFC and NAM are at valuation premiums to sector peers like Aditya Birla Sun Life AMC (ABSL) and UTI AMC. For both ABSL and UTI, higher performance in mainstream funds remains a key monitorable. ABSL may deliver a comparatively better performance and it has a higher SIP contribution.