UTI AMC – Will It Disrupt AMC Business?

 

UTI AMC is the largest asset management company (‘AMC’) in India in terms of Total Assets Under Management (‘AUM’) and the seventh-largest AMC in India in terms of mutual fund Quarterly Average AUM (‘QAAUM’) as of September 30, 2019, according to CRISIL.

The company caters to a diverse group of individual and institutional investors through a wide variety of funds and services.

The company has been active in the asset management industry for the last fifty-five years and is the first established mutual fund in India.

Now, the basic functioning of UTI AMC or for that matter any other AMC is to manage money.

These companies act as an aggregator and invest the pooled funds from clients/ investors into a variety of securities and assets. AMCs range from personal money managers, handling high-net-worth individual accounts, to large investment companies sponsoring mutual funds.

Their major source of income is the compensation in the form of fees, usually a percentage of AUM.

Now, let’s dive into the industry and the company analysis to understand better:

8th November 2016 was the day when Prime Minister Narendra Modi announced demonetization, banning high-currency notes, to curb the black money transactions happening in the country.

Amidst all the chaos that was created within the economy, there was one interesting feature that also happened within multiple households.

Multiple cash reserves that were saved in different parts, maybe, some in the kitchen, some in the closet, some in the bedroom, all of it suddenly re-appeared leaving multiple family members in a state of mixed emotions.

While all of those savings created added problems for any household, there was one silver lining that might have been missed.

The power of savings in every Indian household. India has historically been and is expected to continue to be, a high savings economy but these savings are of no use if they are not channelized in the right direction.

The AUM have been growing at a CAGR of 19% from March 31, 2013, to September 30, 2019, as per the data mentioned below and is further expected to grow at a pace of 17-19% and increase two folds in the next five years. Below is the data with respect to the same.

There has been a rapid increase in the AUM within the Indian economy but when compared to the savings rate within the economy, the above numbers could have potentially been much higher.

Just as expenditure spurs the consumption within any economy, it is also really important that all the savings that happen within an economy are routed back into the financial system.

These high savings can be used to finance investments, which can further reduce the strain on the supply-side constraints in the economy and give a push to the long-term economic growth of any nation.

Erstwhile, the savings pattern caused hindrances and created a big void in the financial system of the economy.

India has primarily been a consumption-based economy but if the segments of the economy start to save more, then the pivotal factor fueling the growth is paused.

Also, the savings not being channelized in the form of investment activities causes it to become a double blow for any economy.

The potential opportunity to channelize these savings into rightful investment opportunities and making these savings available to the economy (and thereby increasing liquidity) is one of the biggest reasons why the AMCs can see exponential growth in the years to come.

When we look into the above-mentioned table, we can identify that while the gross financial household savings are increasing, there has not been an exponential increasing in investments within the AMC.

An absolute change in the savings pattern is seen but when compared with the total gross financial household savings, the numbers remain stagnant since the last five fiscals.

Mutual funds have seen a robust growth within the country, especially in recent years, driven by a growing investor base across geographies, strong growth of the capital markets, technological progress, and regulatory efforts aimed at making fund products more transparent and investor-friendly.

In the last eighteen years, the Mutual Fund AUM as a percentage of GDP has grown from 4.3% as of Fiscal 2002 to ~11% as of Fiscal 2019.

Hence, when we look into all of the above-mentioned graphs and tables, it is evident that the asset management segment within the Indian economy is still in a nascent stage and could witness exponential growth in the years to come.

India’s AUM as a percentage of GDP (11%) is just one-fifth of the world average (55%) and meagerly over 10% than what is prevailing in the US (103%) and hence the room for expansion is immense.

The most important factor that could dictate the growth in the asset management business is financial literacy.

It is all about managing your money and making sure that an individual takes informed decisions related to money.

A survey conducted by Standard and Poor found out that three-fourth of Indians are not financially literate and have the lowest knowledge when it comes to risk diversification.

India has the lowest rate of financial literacy amongst the BRICS nations (Brazil, Russian Federation, India, China, South Africa) and has a lot of ground to cover when to comes to the world average.

The key is constant financial learning and making the knowledge work for you.

Once every household understands the importance of channelizing the savings into the correct form of investments, it could in turn benefit them individually (keeping the purchasing power at par with the inflation) as well as the economy (would prevent savings going out of the financial system).

The Competitive Landscape:

UTI AMC and its subsidiaries are nicely poised as the market leaders within the Asset Management Industry and have the largest total AUM considering mutual funds, portfolio management services and NPS assets.

When we look into the above-mentioned table, it can be noted that UTI AMC is the seventh largest AMC in terms of Mutual Fund QAAUM but is the largest (and by a very long margin) in terms of the Portfolio Management Service (PMS) AUM.

SBI Mutual Fund has the second largest AUM in terms of the PMS AUM but is still only roughly around 34% of the fund size of what UTI AMC manages.

Hence it is evident that UTI AMC has a really strong market share in terms of HNIs and Institutional clients. However, the company has immense room for expansion within the Mutual Fund QUAAM segment.

Sandip Ginodia , CEO

ALTIUS INVESTECH PVT LTD

We deal in over 60 unlisted companies with 15 years of experience 

For latest prices visit : www.abhisheksecurities.com/unlisted.htm / call : 09830271248 .

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