Systematic investment plan (SIP) inflows hit a new record high of ₹32,100 crore in March, rising 8% month-on-month. But this hasn’t been enough to mask the fact that net inflows into equity schemes have slipped year-on-year in FY26 against a growth in FY25.
Now, it’s not as if inflows typically spike in March, as it is the last month of a financial year. Note that SIP inflows in March have been flat month-on-month in FY25 and FY24. Clearly, retail investors have taken advantage of the dip in equities that started due to concerns around the West Asia war. SIP has helped push net inflows (new money coming in) into equities to an eight-month high of ₹40,500 crore in March.
Despite robust inflows last month, asset management companies (AMCs) are staring at a first quarter-on-quarter fall in average assets under management (AUM) in equity schemes in the past eight quarters at least. Quarterly average assets under management (QAAUM) fell by 2.5% to ₹33.85 trillion sequentially in the March quarter (Q4FY26). The sharp fall in stock prices in March also contributed to the AUM contraction.
Against this backdrop, one AMC has shown remarkable resilience. ICICI Prudential Asset Management Co. is the only AMC in the top three listed ones in the industry by market capitalization, that has shown growth in equity QAAUM of 2% in Q4FY26, per Kotak Institutional Equities. HDFC Asset Management Co. and Nippon Life India Asset Management, placed second and third on market capitalization, respectively, have had flat equity QAAUM.
Sure, one quarter’s performance shouldn't drastically influence investor sentiment in AMC stocks. From a long-term perspective, the industry’s revenue depends on two factors: AUM or volume, and the rate of asset management fees charged, commonly known as yields.
Management fees will continue to be under pressure due to competition, leaving AUM as the only key growth driver. Since the AUM growth’s mark-to-market (MTM) gain component (higher stock prices leading to AUM expansion) is unpredictable, the net inflow becomes crucial to track.
Net inflows into equity funds have declined 17% year-on-year to ₹3.46 trillion in FY26. This is a sharp reversal in trend from FY25, when net inflows surged 126% to ₹4.17 trillion. Now, some moderation from the triple-digit growth rate of FY25 would have been on expected lines, but the contraction certainly challenges the narrative of growing equity culture in India.
It appears that the narrative worked only as long as equities were buoyant and suffered as soon as the markets turned lacklustre. The Nifty 50 and Nifty 500 indices hit highs on 27 September 2024 at 26,277 and 24,573, respectively. Although Nifty 50 briefly managed to cross the high marginally, that did not sustain. Both indices are down about 9% even after almost 1.5 years.
Lower net inflows have meant that FY26-end equity AUM for the AMC industry rose by 9% year-on-year, a steep slide from 27% growth a year ago, even though lower stock prices might also have played a role.
If the AUM growth rate does not pick up, it could pose risks to future earnings growth for AMCs. So, the valuations need to be gauged in this context. AMC shares are quoting rich valuation with ICICI Prudential trading at a price-to-earnings multiple of 43, based on Bloomberg consensus FY27 estimate, while HDFC Asset Management Co. and Nippon Life India are at a multiple of 34 each.
Manish Joshi is a chartered accountant (passed in first attempt) with experience of capital markets spanning equities, derivatives, investment banking and private equity in various roles ranging from analyst to fund manager/trader. Previously, he worked with BNP Paribas, Karvy Stock Broking and The Financial Express. This rich experience has further helped him improve analytical skills and understanding of various businesses. At Mint, he writes on topics across sectors.<br><br>Over the last two years of his association with Mint, he has focused on sharing his knowledge accumulated over the years with the readers. Having deep knowledge of accounting standards by virtue of the highest qualification in accounting, he can evaluate corporate balance sheets better. He tries to give a differentiated perspective on valuation of stocks and corporate developments backed by sound logic.<br><br>His goal is to provide a unique value proposition to readers by blending fundamental views on a stock with shifting market dynamics, which is possible because he is an active trader himself. His columns are useful for investors and students who are pursuing management courses by demystifying complex concepts and analytical jargon. His mantra is to give maximum value for the money and time spent by the reader.