HDFC AMC’s share price fell 9.1% to a fresh 52-week low on Wednesday after capital markets regulator SEBI revised the fee for mutual funds investments in a bid to reduce the cost of investing and bring transparency. During mid-morning deals, HDFC AMC’s shares plunged 9.1% to a fresh record low of Rs 1,396.50 per share on the National Stock Exchange. At this point, the asset management company’s share price is down 29% from its all-time high of Rs 1,970.
Securities and Exchange Board of India (SEBI) on Tuesday revised the total expense ratio (TER) slab structure for mutual funds since its introduction in 1996. Following the development, Reliance Nippon Life AMC’s stocks, too, cracked 10% on the domestic bourses on Wednesday. Reliance Nippon Life AMC’s shares slumped 10.28% to a new 52-week low of Rs 191.70 per share during the mid-morning trade session.
Notably, HDFC AMC had a blockbuster listing on the stock exchanges last month after a successful IPO. Shares of the HDFC AMC had listed at a premium of over 65% at Rs 1,725 and had zoomed to above 1,800 levels on the day of listing. Reliance Nippon Life Asset Management Ltd was listed in November last year. Upon listing, the stock had opened at a premium of 17.42% at Rs 295.9 on the NSE.
On Tuesday, markets regulator Sebi decided to cap the total expenses for investment in mutual funds to 2.25%. Sebi said all mutual fund commissions and expenses must be paid from the scheme itself and the mutual fund industry must adopt the full-trail model of commission in all schemes. At present, mutual funds pay distributors upfront commission as high as 2% against the 1% recommended by industry body Association of Mutual Funds in India (Amfi).
Sebi has cleared the proposal to cap the maximum total expense ratio (TER) for closed-ended equity schemes to 1.25% and other than equity schemes to 1%. The maximum TER for open-ended equity schemes will be 2.25%, said Sebi. TER is the fee that mutual funds collect from investors every year to manage their money.
Brokerages cut target price of AMCs
Morgan Stanley has cut target price for HDFC Asset Management by 14% saying the stock has been weak in anticipation of adverse regulation, and expect some further near-term weakness, said a Reuters report.
Nomura cut rating for Reliance Nippon to ‘neutral’ from ‘buy’ and target price to Rs 210 from Rs 315. The report quoted Nomura as saying that this TER cut clearly derails profitability for asset management companies. Nomura added that AMCs will have to also absorb a fair share of the impact and this will take away any operating leverage left in near term for the business.
Citi said while lower TER would mean lower revenues, mutual funds could cushion the impact by some pass through to distributors and by lower promotional expenses; over medium term, lower charges can make mutual funds more attractive for investors and aid penetration, the report added.