Is Nippon Life India the Best-Performing AMC Stock in India?

If you believe in mutual funds to create your wealth in the long term, then there are two options present before you: either pick between hundreds of mutual funds or buy the stock of the listed asset management company (AMC) in India.

Although mutual funds and direct equity investments serve different financial objectives and risk tolerances, the fates of AMC stock investors and mutual fund investors are tightly interconnected.

Among the 44 asset management companies (AMCs) in India, the leading ten manage nearly 80% of the total assets under management. Presently, only four of these AMCs are publicly listed: HDFC AMC, Nippon Life India AMC, Aditya Birla Sun Life AMC, and UTI AMC.

Among the four companies, Nippon Life India AMC has given superior returns when compared to their peers. Over the last year the company has given a return of 123.24 percent when compared to 115 percent return of HDFC AMC. So, does it make sense to jump on this multi-bagger run?

Nippon Life India AMC – Continued Growth in the Mutual Fund Industry 

In FY23, the Mutual Fund sector’s total assets increased by 5% to ₹ 39.4 lakh crores (₹ 40.5 lakh crores on a QAAUM basis). March 2023 saw the biggest monthly SIP flows ever, totaling almost ₹ 14,300 crore.

In March 2023, total SIP folios climbed by 21% year on year, while total SIP AUM increased by 19% to ₹ 6.8 lakh crores. In FY23, the number of active Demat accounts in India increased by 27%, reaching 11.4 crore. Industry MF portfolios increased to 14.6 crore from 13 crore in March 2022.

Despite low market returns, the asset management industry’s expansion has been driven by increased financialisation, more awareness, and enhanced access to mutual funds. 

Over the last decade, people have increasingly selected financial assets over physical assets to meet their long-term savings goals. After two years of COVID, the share of mutual funds in family financial savings has returned to more than 6% for 2021-2022.

Corporate Overview Of Nippon Life India AMC

Nippon Life India Asset Management (NAM India) is one of India’s major asset management organizations, with a track record of over 27 years and a total AUM of ₹3.77 lakh crores as of December 2023.

The company has the highest investor base of 22.5 million adding 1.2 million folios in Q3FY24. It also had 15.5 million unique investors with a 36.9 percent market share.

Its subsidiaries are Nippon Life India Asset Management (Singapore) Pte. Ltd., Nippon Life India Asset Management (Mauritius) Ltd., and Nippon Life India AIF Management Limited. 

The Company is sponsored by Nippon Life Insurance Company, one of Japan’s major private life insurers, with assets of more than $722 billion as of March 31, 2023.

Business Segments Of Nippon Life India AMC

The Company is involved in managing 

(i) Mutual funds including exchange traded funds (ETFs) 

(ii) Managed accounts, including portfolio management services (PMS)

(iii) Alternative investment funds and pension funds 

Mutual Fund

Nippon India Mutual Fund (NIMF) provides investors with a well-rounded array of products, including equity, debt, liquid, and ETFs, to fulfill their different needs. The company began its mutual fund activities in 1995 as the asset manager for Reliance Mutual Fund. 

It is continually striving to introduce innovative products and customer service initiatives in order to increase value for investors. As of March 31, 2023, the company had QAAUM of ₹2,93,159 Crores. 

The Company boasts the industry’s largest investor base, with 1.96 crore folios. As of March 31, 2023, NIMF administers 98 schemes (18 in equity and 41 in passive segments).

AIF

Nippon Life India AIF Management Limited (NIAIF), a subsidiary, is one of the most notable investment managers in the Indian Alternative Investment Industry. In FY23, the company’s commitment exceeded ₹5,000 crores, with the year ending at ₹5,600 crores.

NIAIF has launched 19 AIF programs, divided into Category II and III. NIAIF offers a variety of strategies, including listed equity, high-yield real estate debt, credit, and tech/VC FoF.

PMS

The company offers portfolio management services to high-net-worth individuals and institutional clients. It is one of the few AMCs in India that has previously earned and handled a number of prestigious government contracts. 

Currently, investors can choose from four stock strategies, and all PMS investment strategies exceed their benchmarks and peer groups over time.  As of March 31, 2023, the Company’s managed accounts business has a total AUM of around ₹61,600 crore.

Financials Of Nippon Life India AMC

In the fiscal year 2023, NAM India saw a drop in revenue, decreasing by 1.4% to reach ₹1,512 crore as opposed to ₹1,533 crore in FY2022. Analyzing a span of four years, encompassing FY2020 to FY2023, the company displayed a  Compound Annual Growth Rate (CAGR) of 8.25% in revenue.

Simultaneously, there was a minor downturn in net profit, experiencing a 3% decrease from ₹744 crore in FY2022 to ₹723 crore in FY2023. Over the cumulative four-year period from FY2020 to FY2023, the net profit showcased 20.33% CAGR.

In FY23, NAM India maintained favourable financial metrics with a Return on Equity (ROE) of 15.43% and Return on Capital Employed (ROCE) of 18.03%.

Future Plans Of Nippon Life India AMC

Focus On Retail

As a non-bank-funded AMC, NAM’s priority has always been on expanding in the retail market, as ticket size-based expansion would be difficult. This approach proved successful for NAM as their distinctive investor base saw a compounded annual growth rate (CAGR) of 26% between FY19 and FY23, surpassing the industry average of 18% and HDFC AMC’s 5.6%.

The retail-focused strategy has also resulted in portfolio additions. NAM’s expansion has outpaced the sector and its contemporaries. Folios for NAM experienced a 21% CAGR over FY19-23, compared to 15% for industry and 5.8% for HDFC AMC.

Being non-bank-backed, the objective was to delve further geographically. As a result, the company expanded in B-30, resulting in a higher B-30 share (percentage of active equity) than some peers. In terms of B-30 market share, NAM has also seen constant growth. From March 22 to December 23, the market share rose from 17% to 20%.

Leadership Position in the Passive Category 

The company has the greatest market share in the ETF segment with assets of ₹70,024 Crores. It provides the most diverse selection of passive products in the industry with 25 ETF schemes and 13 Index funds.

Nippon India Mutual Fund (NIMF) has successfully launched numerous new funds in this category, demonstrating its strong commitment to the ‘Investor First’ principle. With 102 lakh folios, NIMF holds 61% of the industry’s folio market share, having added around 17 lakh folios in FY23 compared to 62 lakh folios in FY22.

NIMF’s ETF schemes account for approximately 70% of total exchange volumes. HNIs have consistently participated in passive products, showing increased adoption by an evolved class of investors.

Conclusion

As Nippon Life India Asset Management Limited (NAM India) continues to strengthen its position in the Indian asset management landscape, investors face a crucial decision. With its focus on retail expansion and leadership in passive investments, NAM India has displayed resilience and innovation. 

As we contemplate the future of this dynamic company, investors must weigh its strategic initiatives against market dynamics. What do you foresee for NAM India as it charts its course forward?

Written by Nalin Suriya

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