I’ve said this before and I’ll say this again, I’m hyper bullish on AMC- Assets Management Companies (Mutual Funds) stocks.
AMC stocks can lead the bull run really well thanks to the tail winds in Mutual fund sector as a whole. Right now there are only 4 listed Indian AMCs- Hdfc AMC @2200s, Aditya Birla Sunlife AMC @370s, UTI AMC @770s, Nippon @280s.
Here are the few reasons why I think bumper money will be made in Mutual Funds stocks:
1. Entire Indian mutual fund industry is still under-penetrated. Approx 5% of Indians invest in mutual funds. This number is bound to grow as India grows as a country.
2. As more people come & invest into mutual funds, more money is invested which raises the Assets Under Management (AUM) of these companies. The AMCs make money via charging fees on AUM. Hence, higher the AUM, higher the profits for these AMCs.
3. Also, as & when market rises, this naturally raises the existing AUM. Hence, whenever markets rise, AUMs increases therby increasing profitability. Rising market helps in 2 ways. i- Existing AUM rises. ii- It attracts other investors to invest money into stock market. Therby, a double booster for AUM.
4. Blackrock, US based company has AUM of ~$10 Trillion. ‘Entire’ Indian Mutual Funds Industry manages only ~$0.50 Trillion. I need not say further.
5. Similar trend was seen in 1960s, 1980s in USA where AMC companies minted money for it’s shareholders because of increased retail participation. Next 10-20 years, I expect similar trend to repeat in India.
6. AMC business is a low capex, high margins business. Though, barriers of entry are moderately high because of the networth’s & capital requirements to start a mutual fund company with approx 50 companies in this place in India.
7. The Mutual Funds Sahi Hai campaign seems to be taking off perfectly. I see the awareness growing among common man to invest into mutual funds. The money which was supposed to be locked in fixed deposits at low interest rate is now flocking towards mutual funds. Thanks to the awareness & risk taking appetite of Gen Z & Millennials.
Overall, I’m hyper bullish on mutual fund companies. Being in stock market business for over a decade now, I can clearly see the trend of how people are investing their money now vs way back in early 2000s & how this business works.
Most likely, the AUM of all these company should grow 3-4x every 5 years. This should flow down to earnings which will in turn get reflected into stock prices.
Disc: We’re holding AMC stocks in portfolio & also have recommended to clients too. Also, we bought 1 of the AMC stock even today.
