2 Mutual Fund Industry Stocks You Can Buy For Long-term Investment

Bank of Baroda Capital has recommended buying the stocks of Nippon AMC and UTI AMC as mutual fund stocks to buy from the sector in its latest report on the sector. According to Bank of Baroda Capital India's MF AUM on course for 11% CAGR over FY22-FY27E.

UTI AMC: Buy the stock for a target price of Rs 983

According to Bank of Baroda Capital, UTI AMC is the eighth largest fund house in India with QAAUM of Rs 2.3 tn, having consistently generated positive net flows since FY21. "The company yielded market share over FY17-FY20 from 7.5% to 5.4%, but has since partly retraced to 6% levels (+60bps) at end-H1FY23 as against steep declines for listed peers ABSL AMC (-190bps) and HDFC AMC (-270bps) since FY20," the brokerage has said.

UTI AMC: Key Advantages

Bank of Baroda Capital, in the non-mutual fund business (offshore, pension, private equity and venture funds), UTI AMC has a key advantage as one of only two fund houses appointed to manage India's Employee Provident Fund corpus.

"We model for a 10% CAGR in QAAUM over FY22-FY25 to Rs 3tn, with the proportion of equity rising to 43% and ETFs at 33% at end-FY25. The stock is currently trading at 15x FY25E earnings. We initiate coverage with BUY and a target price of Rs 983, set at 18xFY25E EPS -between the stock's long-term mean multiple and one standard deviation below the mean," the brokerage has said.

The stock of UTI AMC was last trading at Rs 819.65 on the NSE. 

Buy Nippon AMC, says Bank of Baroda Capital

According to Bank of Baroda Capital, Nippon AMC, is the No 4 fund house in India by monthly average AUM (MAAUM), has successfully leveraged its first-mover advantage in exchange-traded funds (ETF) to command 71%/60% of volumes/folios in the segment. The company has maintained 7% MAAUM market share over FY21-H1FY23, especially after Nippon Life took over in Sep'19.

"Also, despite being a non-bank affiliated entity (no captive clients), the company has built a strong retail franchise at 29% of MAAUM vs. a 25% industry average at end-H1FY23, backed by top-quartile scheme performance in the equity large-and small-cap categories," the brokerage has said.

Nippon AMC: Buy with a price target of Rs 347

Bank of Baroda Capital has a buy call on the stock with a price target of Rs 347. "We expect quarterly average AUM (QAAUM) to log a 10% CAGR over FY22-FY25 from Rs 2.8tn to Rs 3.7tn, with the proportion of equity rising to 45% and ETFs at 26% at end-FY25. The stock is currently trading at 17x FY25E EPS. We initiate coverage with BUY and a target price of Rs 347, assigning the stock a P/E multiple of 24x on FY25E EPS - one standard deviation below the long-term mean multiple," the brokerage has said. The stock of Nippon Life India AMC was last seen trading at Rs 251.60 on the BSE. 

HDFC AMC: Fairly priced, hold

Bank of Baroda Capital has a hold call on HDFC AMC, which is the #3 player in India's asset management industry with QAAUM of Rs 4.3tn and 11% market share at end-H1FY23. The company has key moats in the form of a strong brand (as part of the reputed HDFC Group), large AUM base and retail-oriented strategy (individual MAAUM constitutes 66% of its mix at end-H1FY23 vs. 57% for the industry).

"However, the company has yielded substantial market share to competitors over the last few years (-270bps since FY20-H1FY23), and we expect recovery to be a long slog amid intense competitive headwinds," the brokerage has said.