The equity assets under management (AUM) of the Rs 65 trillion mutual fund industry, which has been growing at 20-25% annually, is expected to reach the Rs 100 trillion AUM mark in six years, according to Raamdeo Agrawal, chairman and co-founder of Motilal Oswal Financial Services.
“The retail equity revolution in India is going to be unprecedented. In less than 3 years, equity AUM has doubled from Rs 20 trillion to about Rs 40 trillion. This pace of 20-25% growth for the industry is gonna happen,” said Raamdeo Agrawal at a media conference on Tuesday.
Agrawal sees massive opportunity in the equity mutual fund space, and expects the equity AUM alone to touch Rs 100 trillion over the next 6-7 years. This influx of equity capital and high liquidity has added to entrepreneurs’ confidence in coming to the market, he said, pointing out that the real problem is demand.
However, Agrawal said that based on the current earnings, valuation multiples are high in the market, which is driven by expectations of “bumper earnings” going ahead.
Navin Agarwal, group managing director at MOFSL, said that while there is some froth in the small caps, a significant portion of the market remains undervalued. “70-75% of the market (large caps) is reasonably valued. In fact, it is cheaply valued compared to its past,” he said.
Agarwal said that about 12% of the market is significantly overvalued. “This is not unusual, as 10 to 12% of markets worldwide are also highly overvalued, if not more,” he added. This overvalued space includes small and medium-sized enterprise (SME) stocks, but is not a concern for mutual funds, as these funds typically do not invest in SMEs. “There will always be pockets of undervaluation and overvaluation,” he said.
Motilal Oswal Asset Management Company recently announced that its AUM has surpassed Rs 1 lakh crore (as on August 26, 2024). The portfolio management service (PMS) and the alternative investment fund (AIF) AUM stood at Rs 14,556 crore and Rs 13,801 crore, respectively. The company’s focus is expanding across the country and grabbing a spot in the top five fund houses list going ahead.