Impact of COVID-19 Pandemic on Asset Management Industry

Note: Industry’s performance highly depends on market behavior; managements statements and below industry data proves it

The below analysis has done by reading the council of the following companies for the quarters Q4-2020, Q1-2021 :

1. HDFC AMC

2. Nippon AMC

3. PPFAS Mutual Fund

4. Motilal Oswal Financial Service

5. Edelweiss

Here is the link to all the documents of the above concall which is used for the analysis.

https://drive.google.com/folderview?id=1WJToUIg7JBTjmLvZhHKHf_2AJTK-eI4u

ParticularImpact of COVID-19 pandemic
  
AUMMarket fall of 27% in march lead equity AUM to fall, but the rise of markets in April & May had led to an increase in AUM and future revenues from equity assets would depend on how markets shape up over the next few months
  
 Fall in Equity-oriented AUM is attributable to fall in markets
  
 Due to fall in equity markets, product mix have detoriated for companies, that means if tha a ere was 50% equity and 50% debt in total AUM, the portion of Equity have decreased due to,1. Mark-to-market losses2. Inflows in debt and liquid funds3. Redemption from equity-oriented schemes
  
 In debt AUM, companies are now trying to get more exposure of AAA rated bonds in credit risk funds, instead of entire portion of low quality papers, which will decrease the yield of fund, but will provide assured or more stable return to investors
  
 Investor interest in equity products remains fairly sound, despite lockdown or pandemic
  
RevenueIn terms of the quarterly numbers, the last quarter of the financial year saw growing uncertainty due to the emergence of the COVID-19 pandemic and its effect on markets across the globe. This led to fall in AUMs across the industry affecting revenues negatively
  
 Fall of Equity market cause portion of equity lower in total AUM, which lead to lower high margin business for companies, which eventually affected revenues
  
 Other income got impacted significantly due to mark to market losses
  
SIPThere is a certain amount of cancellation that happened even when markets are good or whether they are good or whether they are bad, there is not any material change in SIP flows due to pandemic
  
CostCompanies are trying to save at their discretionary cost items, which leads to some savings at operating costDiscretionary cost refers to marketing expense, portion of salary which is variable etc; means expenses which company can hold, but not that will cause company’s future growth
  
 There is some bit of rationalization of employee cost, and companies have stop haring more new employees
  
 The new method working that is work from home and online transactions, lead to some savings in operating cost
  
Customer behaviorThere in increased number of Transaction happening online, although people can still make it physically 
  
 There is more inflows in liquid fund, because investors have seen some event in the industry which lead them to exit credit risk funds, and equity market fall lead them to think about staying safe, which cause liquid fund AUM to rise
Investor needing credit and liquidity to meet their expenses in pandemic, which may the reason of such redemption from capital market and mutual fund

Industry Trend:

Monthly total AUM of mutual fund industry in Feb 2020 (i.e. before COVID-19 pandemic) was Rs 28.28 Trillion

Which got a deep fall and came to 24.70 Trillion in March 2020, simultaneously reach at 23.52 Trillion in April 2020 due to pandemic

AUM Trend:

AUM trend From Feb 2020 to July 2020

Source: AMFI

Chart clearly mentions that mutual fund AUM got a fall in March and April, and it seems almost recovered due to recovery in equity market

Here’s the catagory wise trend of AUM (Category wise impact of COVID-19)

Source: AMFI

Interpretations:

1. Market fall of March 2020 lead Equity AUM to fall by 18%, Debt fund AUM fall by 9% and Index fund AUM fall by 13%

2. Fall in AUM is not fully attributable to redemption pressure, it attributable to redemption + M2M losses

3. As data shows, with the recovery of market, AUM of industry also get recovered

On the debt fund side, it is down by 9%, which is mainly because of credit risk fund – due to defaults happened in industry

Source: AMFI

Table shows heavy inflow in liquid funds, which suggest investor’s nature of staying safe in pandemic

Excel file:

covid-pandemic-imact-on-asset-management-industry-1Download

Published by Aakash and Meet

I am Aakash Raotole I am currently doing Bcom from Dr. Patel and Rb Patel commerce college I am currently studying at finnacle investment academy Recently done distance internship with windrose capital, Pune - for a period of 14 weeks I am Meet Bhatt Completed HSC in commerce Now studying finbridge program at finnacle investment academy and Bcom externals I had completed CFA institute's investment foundation course and distance internship with Windrose capital, Pune - for a period of 14 weeks

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Create your website with WordPress.com
Get started
%d bloggers like this: