Ladies and gentlemen, good day, and welcome to Q1 FY 24 earnings conference call of HDFC Asset Management Company Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. From the management team, we have with us Mr. Navneet Munot, Mr. Naozad Sirwalla, and Mr. Simal Kanuga. I now hand this conference call over to Mr. Simal Kanuga, who will give us a brief, following which we will proceed with the Q&A session. Thank you, and over to you, Mr. Kanuga.
Thank you. Thanks, Neerav. Good evening, everyone. We'll start with the data for the industry. The quarterly average assets under management for the quarter ended June 2023, has now reached to INR 43.1 billion, a growth of 14% year-on-year. Quarterly average AUM for actively managed equity-oriented funds stood at INR 20.6 trillion, while equity-oriented index funds stood at close to INR 0.6 trillion. The net flows into equity-oriented funds amounted to INR 198 billion for the quarter ended June 2023. The breakup of this number is INR 172 billion in actively managed equity-oriented funds, while the remaining INR 26 billion came into equity-oriented index funds, approximately 13% of the net flows.
SIPs continued their journey, reaching flows of INR 147 billion in June 2023, compared to INR 123 billion in the same month of the previous year. Over the quarter, SIP flows totaled to INR 432 billion, which accounted for nearly 37% of industry's gross active equity flows. We now move to debt funds. Inflows into debt funds remained strong, even post the tax changes introduced in March. The quarter saw net flows into debt-oriented funds, including debt index funds and debt ETFs, adding up to INR 642 billion. QAUM for debt funds grew by 6% YoY, to reach approximately INR 10 trillion. The QAUM for liquid funds grew by 7% year-on-year. The category of others, which has ETFs, arbitrage funds, and fund of funds investing overseas, experienced a healthy growth of 15% year-on-year.
We now move to us. The company contributed the quarter with quarterly average assets under management of INR 4,857 billion, with equity-oriented constituting to 54.2%, relatively better than the industry in this regard. Our unique investor base grew to 7.1 million unique investors at the end of quarter ended June 2023, a share of 18%. Our market share in terms of QAUM reached 11.3%, and if we exclude ETFs, it stood at 12.6%. Our market share for actively managed equity-oriented funds, based on QAUM, was 12.1% and 12.2% on the closing basis. In debt funds, market share for quarterly average AUM, including debt index funds, amounted to 13.2%, while our market share for quarterly average liquid funds stood at 13.7%.
During the month of June 2023, we processed 5.03 million systematic transactions, amounting to INR 18.9 billion. For comparison, the corresponding figure in March of 2023 was INR 17.1 billion, and number for June 2022 was INR 12.8 billion. Continuing our commitment to meet the diverse needs of our customers, we expanded our product portfolio by launching an equity-oriented thematic stock sectoral fund, that is HDFC Defense Fund. The new offering garnered healthy interest and further enriched our range of investment strategies. Furthermore, we have continued to broaden our selection of passive strategies, reinforcing our dedication to be a one-stop shop for investment needs. Now we move to financials.
We closed the quarter with total revenue of INR 7.325 billion and profit after tax of INR 4,775 million. Our revenue from operations came in at INR 5,745 million, a growth of 10% YoY, and other income came in at INR 1,580 million. It would be important to spend a minute on other income. Firstly, we have investments of over INR 3 billion in equity-oriented mutual funds. This is to comply with the Skin in the Game Circular. We experienced healthy mark-to-market growth on this part of the portfolio during the quarter. Also, we experienced a mark-to-market growth on our fixed income investments due to downward movement of interest rates.
On the employee cost front, it grew by 7% to INR 838 million, as against INR 780 million in the corresponding quarter of the previous year. If we consider the number, excluding non-cash charge on account of ESOP, it stood at INR 728 million, as against INR 677 million in the previous year, a YoY increase of 8%. In terms of other expenses, we have seen an increase of 17% year-on-year. This can be principally attributed to expenses that we've incurred for our general business-related expenses and technology spends. Consequently, our profit after tax grew by 52% year-on-year and 27% quarter-on-quarter.
As you would have noticed, the effective tax rate is lower, primarily due to decrease in the deferred tax charge for the current quarter, mainly attributed to the holding period of certain investments transitioning from short term to long term. Our operating profit margin as a basis point of AUM stood at 34 basis points for the quarter ended June thirtieth, 2023, with operating revenue margin at 47 basis points. Thank you very much for your patient hearing. Navneet, Naozad, and I are available for taking questions from here on. Neerav, if you can just kind of start queuing up the questions, please. Thanks.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Swarnabha Mukherjee from B&K Securities. Please go ahead.
Hi, thank you. Good evening, everyone. My first question is on the yields. Just wanted to understand, in terms of the new flows that are coming in, how are the yield levels? Is this similar to what you have been mentioning in the prior quarters, or has there been a compression from that? If you could highlight the same. How was the experience in terms of yields for the NFO that we did during the quarter? That is the first question. Secondly, also wanted to understand that in terms of gross flows, how are we seeing the market share develop?
I think in terms of SIPs, we do see that the market share is curving up in terms of flows, but overall, how are you seeing the numbers? Lastly, on the other expense side, wanted to understand, that, you know, this slight increase in other expenses sequentially, is this pertaining to NFOs, or is this the kind of run rate that we should expect to see going ahead in the y+ears?
The first question on the margin on the new flows. I think we mentioned last time that we are seeing some bit of rationalization in brokerages in market. The pressure that huge number of NFOs that created last year and year before last, I think that seems to be settling now. You would have seen the direct line TR so far, recently launched NFOs of HDFC MNC Fund, recently the Defence fund, and also the overall numbers. That was the one. Second, on how the market share has been shaping up. You mentioned about the SIP flows and the we disclosed the systematic transaction flows, which include both SIPs and STPs.
That has seen a healthy growth in terms of incremental share in new folios, in the net new addition of new PAN. We have got a very high market share, and market share on equity across all channels, mutual distributors, banks, mutual fund distributors, fintech, direct, across all channels, we have been seeing our market share improving.
Right, sir. Just a follow-up on the first one. The slight softening in terms of the yields that we have seen this quarter, this is an entirely the, you know, there is no incremental universe, right? It is more, I mean, entirely to the universe that you have mentioned previously, right, in terms of, you know, product mix and lower, you know, slightly lower yields in the new flows.
Sure. Let's talk about the overall margin. The number for this quarter is 47 basis points on quarterly average AUM. The operating revenue for March 2023 was INR 5,409 million, and the quarterly average AUM was INR 4,498 billion. The resultant operating revenue margin is around 48 basis points, net-net decrease of around a basis point. Some of you might have looked at our last full year number of 49 basis points, hence the fall might have looked more than what one would have estimated. Let me expand on the margin. When we are referring to margins, it is predominantly about our equity-oriented AUM. We have mentioned it in the past and continue to say that our book margin is higher than flow margin and would lead to margin dilution with every new rupee flowing in.
The impact does get further magnified when the existing low-cost AUM moves out. This is structural. Of course, the pace of dilution has slowed down meaningfully, which I mentioned earlier, due to rationalization of brokerages that has happened in market. Secondly, the TR formula does clearly entail fall in TR with increase in AUM. To make it easier to understand, I've pulled out data for our schemes in terms of AUM and the TR. The TR here is regular plan TR and is computed based on SEBI's formula. This is gross TR number, so no impact from distribution cost, et cetera. Say, if I take HDFC Balanced Advantage Fund, for example, the AUM was approximately INR 52,000 crores, and the TR as on 31st March was 1.5%.
AUM of INR 52,000 crores and TR of 1.5%, as on 31st March. The AUM moved to over INR 57,000 crores, which is a combination of mark-to-market gain as well as the fresh flow, as on 30th June, and the TR fell to 1.47%. 3 basis point fall on entire AUM due to change in the AUM. And this fall is what, if you remember, even SEBI chairperson referred to in our last board meeting interview, that the economies of scale are being passed out to investors. As we saw rapid increase in the AUM during the quarter, the same is the case with couple of our other larger schemes, too.
That's just to explain the impact of rise in AUM and consequent impact on the TR. The second was on the flow side. I mean, the newer flows are coming at a lower margin than the margin that we are on the book. Let me make this point very clearly, that from our perspective, think about it, the example that I gave of HDFC Balanced Advantage Fund, INR 57,000 crores into 1.47% gives us higher revenue as compared to INR 52,000 crores at 1.5%. Clearly, I'm in a higher AUM, while will lead to a margin dilution given the formula, but for us, I think it's a higher absolute profit.
Now, I'm sure somebody may ask a follow-up question, why don't you cut the commission on the book every time this happens? Easier said than done. Also, market movement of 5%, 10% can make this swing one way or other, and hence, not practical. I hope that answers your question.
Yeah, yeah, very clear, Sir. Thank you for the detailed explanation. Sir, lastly, on the cost side, so the other expenses, there's been a slight increase. I wanted to understand whether this is something that we should expect or this is such an one-offs in terms of maybe additional expenses for the NFO?
Are you talking of sequential quarter, from March 2022?
Sequential. Sequential, yes.
That's like a INR 4 crore increase, 5 odd percent. Some of it is actually because of TER expenses, I would assume that a 5% increase, an absolute amount of INR 4 crores, should be a sort of normal increase I would expect over here, right?
Okay, understood, sir. Thank you. Thank you so much. I'll come back in the queue.
Thank you. Participants, you may press star and one to ask a question. Next question is from the line of Dipanjan Ghosh from Citi. Please go ahead.
Hi, good evening. 60 seconds to my side.
It is not clear. May I request you to speak through the handset?
Is this better?
No, it's still the same. Sorry.
Just give me one second. Hi, good evening. Is this better?
Yes, yes.
Yes. Just two questions. First, you know, on your SIP book, now, your SIP flow market share has improved considerably, but if I look at the AUM market share, that continuously remains broadly flattish. You know, how should one read into that? Second, on the yield part, you mentioned that there has been some rationalization on payout, but just wanted to get some sense of what will still be the delta on equity between fresh versus existing book. Just give some color on that, because, you know, that will give us some color on incremental trajectory, as your flow market share improves. Lastly, I was just getting a strong question on the cost side. You have added a couple of fresh employees during the quarter.
Just wanted to get some sense of whether the fully diluted cost base captures it as a whole, or should we see some amount of upward pressure on that going into Q2 or Q3?
Of the SIP, anyway, the AUM outstanding is INR 7. Dipanjan, the SIP AUM that is outstanding is INR 7.9 trillion. If you look at for industry as a whole, right? For a delta to occur via increase in flows in terms of market share that you are referring to, will take some time to get really reflected, right? You've seen a substantial increase in our systematic transaction book or on a YoY basis. That kind of translating flow, translating into AUM and gain on market share tends to happen with a bit of lag. Does that help?
Sure, sure. On the other two questions.
Yes. That was the first thing. Second thing you referred to is the last point you made a mention about is increase in number of employees. That's what you referred to?
Yes, yes.
That's from 1,280 to 1,320 or so.
Yeah.
It's not a substantial increase. Mostly in sales, client services, I think some of the support staff and internal, et cetera. This will be the junior to junior, middle kind of employees. You will not see this kind of changing delta in terms of cost of people.
Got it. Lastly, on your fresh versus blended flow in equity, I think this question was asked by the other participant, but if you give some color on what will still be the delta between the two, so that we can, you know, get some idea of how much more breadth can be there, just because of the organic shift from flows to AUM.
No, I think, Dipanjan, we really don't get to that number. Having said that, I think Navin did refer to some of the direct plans of the newly launched NFO. So if you look at what we did in the MNC Fund, if you look at what we have done in the Defence Fund, you can even look at our Non-Cyclical Consumption Fund, which closed very recently. All these are running at a direct plan anywhere between 90-110 basis points. Having said that, we definitely don't have that kind of margin luxury when it comes to our bigger fund, right? Because we need to kind of also be well-placed in the market in terms of competition. So keeping that in perspective, I think you can get a broader idea.
If our book margin is in terms of the late 16, the flow margin is at a healthy discount to that number.
Got it. That answers my question. Thank you, and all the best.
Okay, thanks. Thank you, Dipanjan.
Thank you. Next question is from the line of Lalit Deo from Equirus Securities. Please go ahead.
Yeah, hi, good evening, Ashok, just have two questions. Firstly, like, will you promote?
Sir, your voice is echoing. Can you please speak through the handset?
Yes, sure. Hello? Is this better?
Yes.
Yes, I'm talking to, like, so now post the promoter change to HDFC Bank. Like, what are the initial changes, like, which we have done in terms of the distribution or like in the strategy formulation, in terms of cross-selling to their customers of HDFC Bank?
On the merger, we are very optimistic view of this opportunity. As you know, Bank is a formidable distribution machine, and we will put in enough and more effort to capitalize on it. We already are deeply involved with them across all levels, but alignment of interest can definitely be a big tailwind for us. We are seeing material improvement in the engagement, and we'll continue to work on strengthening it further. While HDFC Bank is committed to maintaining an open architecture approach, as a distributor, but given our range of products across various asset classes and brand familiarity, we are confident in gaining a share of HDFC Bank customer base. As you are aware, Bank has been expanding rapidly in terms of branch expansion and the number of clients that they have.
There is a lot of opportunity for us to leverage on that. The kind of support and welcome we have got from them is absolutely overwhelming.
Sure, sure. Sure, sir. Like, also, like you mentioned that we have been seeing improvement in our market share across channels. Just wanted to understand, like, in terms of like national distributors or the smaller distributors, like, could you quantify, like, as compared to, like, over the last one year, how is it and how much it has improved, and whether it is better? In terms of, like, the AUM market share, how much is the difference over there?
I mean, we disclosed at the stock level, but all I can tell you is that across all channels, and when you look at the equity inflows, MFDs contribute a little over 30%, MDs contribute a little over 20%. Banks would be around 20 odd percent, Barrick would be 16 odd percent, fintech would be around 9% or so. Across all channels, our market share has improved quarter-on-quarter as well as year-on-year.
Sure, sir. Lastly, like, any product pipeline which we are having right now in terms of like in equity as well as in the passive funds or in the alternate segment as well?
I think now with all the NFOs we have done in last couple of years, we have an absolutely best-in-class product range. There is one NFO, which is which we'll have now is the Transportation and Logistics Fund. The other fund, which in fact, I will take this opportunity to make a passionate appeal to everybody to look at, is our Cancer Cure Fund for a different reason. From an, I mean, incremental product range, I think we are more or less full on the product side when it comes to equity as well as fixed income. On the asset side, where we have done lots of product over the last 2 years, idea would be to grow all of those products over a period of time.
Little bit here and there could be some factor fund or a thematic fund here and there, but I think more or less, we believe we have an absolutely best-in-class product range.
Sure. Yeah. Thank you for the answer, sir.
Thank you. Next question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead.
Hi, good evening, everyone. Just a few questions from my side. Firstly, when you talk about the yield, you mentioned about the, you know, stock versus flow. Is it fair to assume that a good lion's portion, or you can say 80%-85% of the book would have churned by now in from old to new? That would be my first question.
What % of book would have got churned by now?
Yeah.
We don't give the growth number. I mean, earlier also, you remember people have asked...
Yeah
... about, like, when will your entire book be repriced? This is dependent on multiple variables, and it's difficult to predict. I think it depend on what part of AUM is going out. Is it more recent high-cost AUM or the older AUM?
Mm-hmm.
You also have to factor in the mark-to-market impact.
Mm-hmm.
Like, funds have different, I would say, vintage of money. Cross-sales as % of outstanding AUM will also guide the speed of dilution.
Mm-hmm.
The AUM grows multiple times from where it is today. The impact of old AUM on the margin will get fairly diluted. Yes, long way to go is what I would say.
Okay, okay. Got that. Could you talk us about or talk something about the customer behavior today on the equity side right now, given that the markets are at new highs? Do you think that a redemption pressure is that can be expected? Generally on upcycles, we've seen that happening, and even the SIP flow for the, in the month of June was flattish compared to the previous month. There are some statistics which kind of reflect that the net flows have been declining on the SIP side. Could you throw some light as to what's the customer behavior on the ground today?
I think over the last couple of years, we have seen Indian investors, becoming very mature. We have seen during times of stress in market, when valuations are lower, entry opportunity is better, we have seen flows increasing. Whenever market has touched a new high or valuation turning a little higher, we have seen a little slowdown in the flows. Amidst all this, the most heartening feature is the continuous increase in the SIP flows. So even in the month or last two months, when you talked about slowdown in overall flows, the SIP book has continuously been increasing for the industry. Number of accounts are increasing, the overall amount in the SIP, flow has been increasing, and that's the most interesting feature. I think that we really kind of get very enthused about.
As a house, if you ask me, what is our number one priority, for our entire organization, each and every one of us are fully determined to make the most of it. All of us have been working very hard to keep enhancing our systematic transactions book, because we think that that's the best way of, like, you know, generating flows and building an order book for the future. This is very good for the investors also, to create their wealth.
Great. Just a couple of more questions. Firstly, on the debt side, you know, post this taxation implication, what has been the behavior of the customers, and how do you see the debt segment kind of behaving in the, say, next couple of years? The last question would be on the ETF side. As to how do you think... Now, you've launched a variety of products, but how would you kind of or what efforts or what strategies would you kind of implement to raise the, increase the volumes on the exchanges? Because that becomes a critical element for the ETF portfolio to really grow. Those would be my two questions, sir.
On the debt side, very interestingly, after several quarters of witnessing outflows, we have actually seen, as an industry, I'm talking about.
Mm-hmm.
We have seen positive flows in the last quarter. More at the front end of the curve in products like ultra short, money market, and those kind of funds. Not so much at the long end. Maybe at some stage where people have more confidence about downward movement in interest rates, there could be more money into the longer-dated duration funds. As you are aware, in the last couple of days of March, post the announcement of changes in the taxation, the industry witnessed good flows in the long-term bond funds also, particularly in bond index fund. There was a question on the flows on the debt side, right?
Yeah. Just from a you mentioned about the 2 that in the near term, you expect the uptrend in the longer duration. Would that translate into better yields as well?
For the, you are saying for us, from a margin perspective, if more money comes into, credit funds or long duration funds?
Yeah. Yeah.
That the margin accretive. For us, I mean, I think maybe in a different manner, I would like to repeat this. See, for us, there are two ways to look at it. One is we get hyper-focused on blended margins.
Mm-hmm.
The other way to look at it, for us, we are an asset manager. Our mission is to be the wealth creator for every Indian. Every money that comes in adds to the absolute profit. Let's say, I mean, the bond index fund as a category becomes more popular, and we get a lot of flows, where the margins may be slightly lower than credit funds.
Mm-hmm.
The margin at the blended level in fixed income will look little lower, but for us, good, because it kind of enhances our overall absolute revenue and absolute profit.
Sure. My question on the ETFs, sir?
Sorry?
ETFs. ETFs, market making on the ETFs.
We've got large number of products. Some of them have got good amount of flows in last couple of months. You can see that our bank funds and our IT ETF, our private bank ETF, so on and so forth. We have put a dedicated lead and hired a couple of people to focus on growing that part of our business.
Sir, let me just on this, you know, because the market making and this, how do you scale up volumes on the exchanges?
As of now, the money that has come into some of the ETFs is from direct customers who are doing the unit creation at RTA. At the same time, we are also focused on enhancing our secondary market volumes and engaging with the market makers, and then looking at every possible way that we get a higher share in the secondary market volumes also.
All right. Thank you. All the best.
Thank you. Next question is from the line of Viraj from Banyan Tree Advisors. Please go ahead.
Hello, am I audible?
Your voice is coming muffled.
Yes. Okay. Yeah, is it better now?
Yes, it is.
Yes. On the distribution part, in the presentation, I see that we had, like the same quarter last year, we had around 80,000 plus, distributor partners, while in this presentation, we see it's, reduced to 75,000. Anything to read in, there?
No, nothing, actually, Viraj. It is basically just some of these kinds of what, like, kind of over a period, merged into some of the other entities, some have moved to platforms, so on and so forth.
Okay, got it. So, the PMS and SMA AUM has fallen for us since the last year. What is happening over there?
I think that was what we disclosed, I think, couple of quarters back. We had a large, global mandate, where the client decided to take money off the table, from the allocation to India along with it, and that's the reason which kind of has resulted in this change. If you look at our last couple of quarters, the numbers have been in line. This happened, I think, if I'm not mistaken, sometime in quarter ended September of 22 or December of 22, one of the two.
Okay, okay, got it. 1 more thing on the commission structure basically. For our mutual fund distributor, what we pay to them, remains the same, like, in terms of percentage of AUM, it remains the same for them, while the TER will fall for us. Is that right? Understanding right?
I think there is no one line answer to this, in sense it is different for different set of distributors. Even within the same distributor, you might see kind of it ebbing out over a period of time. First three-year commission can be different than the fourth year number might look different. It depends on product, it depends on distributor, so on and so forth.
Okay. Even for equity, we don't have a single line answer for this or how is it?
No, absolutely. No, Absolutely, you're right, we don't have a single line thing on to this.
okay. Yeah, that's it from my side. Thank you.
Thank you.
Thank you. Next question is from the line of Srinath V from Belvedere Capital. Please go ahead.
Hi. Just wanted to find out the blended equity yields for the quarter. I think last quarter was around 0.1%. Where are we in Q1 for equity schemes?
Q1 would be around late sixties, the equity.
I missed you. Can you come back again?
Q1, it will be in the late sixties.
In late 60s, is it like, since it's 0.7, for easy calculation, would it be like 0.68 or, you know, 0.65, some, you know, broad?
You can budget that in 68, 69 kind of a number.
Perfect. Thanks a lot. I'll get back to you.
You will have to just kind of be aware that this would keep changing depending on how the AUM also moves, right? What Navneet referred to in the kind when he explained the whole margin thing, where he mentioned that if the AUM increases very rapidly, you might see this going down faster because of the way the SEBI TER formula works.
Yeah, yeah. Fair, fair. No, just wanted a number so that it would be easier to calculate, you know, how yields are moving. Thanks. Thanks a lot. I'll get back to you.
Thank you.
Thank you. Participants, you may press star and 1 to ask a question. Next question is from the line of Madhukar Ladha from Nuvama Wealth Management. Please go ahead. The line for the participant dropped, so we move on to the next participant. The next question is from the line of Sahej Mittal from 3P Investment Managers. Please go ahead.
Hi, hi, team. Am I audible?
Yes, Sahej.
Hi, hi, good evening. Just one question from my side. What would be our, what would be HDFC AMC's, share in equity flows being, generated at, HDFC Bank?
Sahej, we don't comment on the flow data. We have commented on the AUM data, right?
Which is around 5.5% for the overall AUM and, little over 8% on, equity AUM currently on the stock.
Right. No, so.
Oh, sorry. That is.
For their flow, I'm asking. Yeah, yeah. For the overall flow being generated at HDFC Bank, what would be our share?
Yeah, that is in the handle of 30.
Sorry, at 30%?
Yeah, in the INR 30 handle.
Okay, got it. Thanks. Thanks a lot for this.
Thank you. Next question is from the line of Amit Jain from Axis Capital. Please go ahead.
Yeah. Hi, sir, can you hear me?
Yes.
Yeah. Hi, sir. Just wanted to check that, you said that, in the other income there was a component of MTM, is it possible to quantify that, sir?
Largely, the one to other income, I mean, largely for MTM, it's a function of between equity and debt. Since we have Skin in the Game, services come into play, we have a sizable amount of our investors in equity mutual funds, and they have given return in line with the market and based on our fund return, and the debt is largely as we exchange it to interest movements.
Sir, in that case, so how should we look at this income for the remaining part of the year? I mean, is it going to be in this ballpark range or any guidance you would want to give?
It is totally market linked, no. I mean, whatever the market will perform on the equity side, the equity funds will perform up to accordingly. The debt investment in mutual funds will go in line with interest rate movements, yeah. You guys can predict based on how market moves.
Got it, sir. Thank you, sir. Thank you, sir.
Thank you. Participants, you may press star and one to ask a question. Next question is from the line of Madhukar Ladha from Nuvama Wealth Management. Please go ahead.
Hi, good evening. Congratulations on a good set of numbers and more importantly, I think operationally, things are looking better every quarter for the company. Couple of questions. One, see on with these changes in taxation on the debt side, how do you expect investor behavior to change? You know, and maybe you can talk a little bit about corporate HNI and retail investors and over the longer term perspective versus, you know, pre this change in tax regime and now in this new tax regime, what sort of impact could it potentially have? I know it's not very easily quantifiable, but I would like to get some sense from you on this.
As I told you earlier that, you know, interestingly, in quarter ending June, industry had positive flows, large positive flows in funds like ultra short-term fund, money market fund, et cetera. A lot of investors, they wanted to kind of, like, take advantage of, declining interest rates at the front end of the curve, which is different than what we have seen in the previous 8, 10 quarters. While as an industry, we would have liked the tax advantage to continue, but I still believe debt mutual funds have a lot of benefits. In my opinion, we continue to make them a preferred alternative, both for institutional investors as well as retail investors. You don't have liquidity-related challenges. I think the debt mutual funds provide good liquidity.
The tax gets triggered only on redemption, still there is some tax advantage there. They have flexibility in terms of part redemption, you can also move across interest rate and credit curve in debt funds. I mean, a diversified portfolio of securities, where industry has delivered a very good track record for a long period of time. I think, still there is a lot of potential for the industry to grow that segment of the market.
Right. Sir, certainly
First of all, I mean, thank you for your compliments. I think the team is working very hard, and I pass on that to the entire team at RL. I mean, even on the equity side, it took a long time for the industry to convince people that in the long run, you get very good returns if you can stomach some volatility. It took, like, 25 years for the industry to reach, let's say, the first 5,000 or 6,000 crores of SIP book, and then the next 5,000 would have got added in few quarters. I mean, it's on the fixed income side, as an industry, the work is cut out for us.
If you look at the size of opportunity, I mean, if the bank deposits are INR 180 lakh crores, and we compare that with mutual fund debt AUM, debt plus liquid would be around INR 15 lakh crores. As a percentage, I mean, the debt and liquid AUM as a percentage of bank deposits has actually fallen in last 5 years or 6 years, if you compare with 2016, 2017 versus us now. Of course, I think in last 2 or 3 years, maybe the movement in interest rate, I think some of the credit events, so they also played a role in this.
I think as an industry, what we have done on the equity side, I think if we do something similar on the fixed income side, then I, we were just talking about the inherent benefits of debt mutual fund as an investing vehicle. There is a lot of scope for us to grow in that space as well. Particularly for us in HDFC, I think given our brand and pedigree, I think there is bigger opportunity for us as and when that segment starts growing faster.
Thank you, sir. Thank you for the answers. All the best.
Thanks.
Thank you.
Sure.
Next question is from the line of Abhijit from Kotak Securities. Please go ahead.
Hi, good evening. When you look at your net flows in the context of excellent alpha generation that has happened, you know, what is your feedback or comfort around flows that you've been able to gather, you know, either on an absolute basis or relative to industry? Some, you know, broad thoughts would help.
You are asking from a deployment perspective?
No, from your ability to gather assets in the market, you know, in terms of the strong fund performance, whether based on your expectations, maybe 4, 6 quarters back, whether the incremental flow market share is panning out as per expectations or if there's anything that you would like to kind of share on that regard.
It's improved substantially relative to where we were. Of course, I think we always want a higher and higher share. We don't feel satisfied with any number, given the pedigree we have, given the platform we have, and you talked about the performance, which is absolutely best in class, and the product range that we have built. Of course, I think our expectations would be higher. If you look at the numbers in terms of, I think our increase in share across channels also, particularly the percentage of new bank creation that we have been able to garner in this quarter, the percentage of new folios that have got created in the industry, the share in systematic transactions, all of that are, like, very heartening to us.
Of course, I think our hunger is always much higher than. I mean, whatever we get, I'm ready for more.
I'm just thinking, I mean, is there a possibility or need for, you know, some recalibration on payout across any of the large channels? I mean, looking at some data which we can see from outside, it does appear that HDFC AMC is sort of at the lower end of the band in terms of payout ratios. In fact, some of the distribution channels even ask for, you know, higher payouts in the first year or second year. I'm just thinking whether in terms of the rules of the game, is there a need to be a little more aggressive on payout, or at the current levels itself, you are kind of happy and satisfied with the flows that you're able to gather?
I don't know, some of your peers are asking questions on margin. Are you paying more or are you paying less? If you simply look at from a holistic perspective, for us, market share is important. We want to garner as much share of the flows as possible. At the same time, I think profitability is very important to us. I think I've mentioned those three words several times in previous calls. I think being part of HDFC Group, what is important for us is to build a business that has scale, that has quality and that has profitability, not one at the cost of other. We constantly look at on three parameters, that's how we build our business.
There were times, I think last year and the year before last, on several calls, we would have mentioned that given the competitive intensity, we had to increase our payout, particularly when we were launching a lot of products, in the NFOs to garner our share. We had to enhance our payout. Now in last few months, when I think competitive intensity has come down, you can clearly see better margins on some of the NFOs that we have launched in last few months. We keep calibrating all the time. Idea is, as I mentioned, to have a healthy growth and look at the interest of all stakeholders. For us, our partners are very, very important. They bring, like, on more than three-fourths of our business.
They are our face to the investors, we ensure that they make good margins. At the same time, we ensure that we have a very healthy margin on every rupee that we gather.
Obviously, if I can just expand on that. See, there is not a direct correlation between paying higher brokerages and getting higher market share. One of our larger funds, where we pay the least possible brokerage, is seeing healthier top flows. That kind of proves a point. I'm not talking about one AMC versus other, within the HDFC AMC scheme.
Got it, gone. Thanks a lot.
Thank you. Next question is from the line of Anirudh Agarwal from Valuequest Investment Advisors. Please go ahead.
Yeah, hi. Thanks for the opportunity. First question was slightly over the medium term. There is going to be a structural pressure on you, as we've been discussing. What kind of delta do you think do you see between the AUM growth rate versus our top line and bottom line growth over the next, you know, three, four years in your estimate?
I think I've mentioned earlier, it really depends on variety of factors. I think our asset mix, between equity and fixed income and within equity, also different kind of products. The growth that you see from, mark to market versus, flows. Flows also, I think in existing products versus newer products. There are lots of, variables there, and, difficult to, I would say, predict that. Kanuga, would you have...?
No, I think as Nami rightly mentioned, there are various set of factors that will determine our sort of top line growth, and then in turn, the operating profit growth. It's difficult to put a number onto it or a trajectory onto it.
The other thing is, like, given the regulators focus also now on getting the benefits of economy of scale passed on to customers, will we see significant operating leverage benefits playing out, with this kind of growth, or do you think a lot of that will have to get passed on in some form or the other?
You're asking about the EBITDA regulation?
Yeah. Not just from a regulatory perspective, but even in general. I mean, supposing top line grows at 15% for the next few years, do you see bottom line growth significantly outpacing that, or a lot of the operating leverage benefits will, in some form or the other, get passed on to customers or the channel and so on?
No, I think some part of the operating leverage will get passed out to the investor, and that is, I think, the regulator's clearly stated mandate. Having said that, of course, our business, the way this functions is the cost growth is not directly correlated to the growth in AUM, and thereby some bit of operating leverage advantage will also fall in our favor.
Right. Just final question on the competitive side. There are a lot of new players, essentially, that have either entered the industry or looking to enter the industry. Any changes on the ground that you're seeing in terms of competitive intensity, in terms of this?
At any point in time, there have been many competitors. If I remember correctly, our license number was 44 or so when we got set up 23, 24 years back. We were the 26th AMC at that particular point in time, and some people were thinking that a lot of multinationals who have a global experience would end up doing very well. Before that, in early 1990s, if you remember, some of the public sector banks that sponsored asset managers were doing very well because of the distribution franchise. At different points in time, people thought that competition would be from that particular space. Given the huge opportunity of growth, financialization of savings is such an early stage in India.
I mean, all said and done, we talk about, you know, the highest ever AUM and the growth in the industry over the last couple of years, SIPs, et cetera. The fact is that we have only 3.8 crore unique investors, so we haven't really touched the surface. I mean, if we compare with people who have passport or are filing income tax returns or doing the foreign travel or own a 4-wheeler, with all of that, the total addressable market is substantially higher. I'm sure people would be eyeing this space. It's a very beautiful business, from a, from a long-term profitability perspective. So this will, this will invite a lot of players.
Having said that, I think the strength that we have built in terms of our people, our processes, our product range, our presence, both physical as well as digital, and the partnerships that we have built, the platform that we have built, and on top of that, if I can add two more, I think the passion with which we are working and the deep sense of purpose that we have put for ourselves to be the wealth creator for every Indian, we believe we will continue to do well.
Right. Got it. Thanks for that, and all the best.
Thank you.
Thank you. Next question is from the line of Mohit from BOB Capital Markets. Please go ahead.
Yeah, yeah, thanks for the opportunity. Just one question. From the distribution network, if you see the bank share, it's kind of stable at 10.5%.
Mohit, your voice is breaking.
Hello. Yeah, is it better now?
Yes.
Yeah. I think the bank share in the distribution, you know, stands stable at 10.5%. If you see anything pre-2019, you know, this number used to be 13%, 14%. The bank as a parent, do you think the share will go up in the future?
That's what our expectation is. At the same time, I think we want to grow across all channels. One of our stronghold has been the MFDs, mutual fund distributors. We continue to grow there. The national distributors, I think we enjoy a very good relationship. We work very hard with them. With all the other banks, we continue to work with them. The fintech channel, which has been bringing newer SIPs, we continue to engage more with them. I think we'll continue to grow all of that, but of course, I think over the next several quarters, a lot of our focus will also be on how do we make the most of the opportunity that has opened up with the merger.
Given the network of HDFC Bank and the pace at which they have been expanding, we believe there is tremendous opportunity for us to grow together.
Perfect. Yeah. Thanks, and wish all the best.
Thank you. Next question is from the line of [unclear] from Zen Wealth Management. Please go ahead.
Thanks for taking my question. It was interesting to listen that the competitive intensity has reduced of late. Can you elaborate?
Okay, sorry, on the on the brokerage side, you are saying?
Yeah, exactly.
This industry has always been competitive, it will always be. I think, yeah, that was in the context of brokerages. Yes.
Okay.
Got it.
Yeah, that's it for me. Actually it was answered in the last question. My question was answered in the last question. Thank you very much.
Thank you. A reminder to all the participants, you may press star and one to ask a question. As there are no further questions, I now hand the conference over to Mr. Navneet Munot for closing comments.
Thank you all for joining this conference call today. We are enthused by the potential growth our industry has to offer. Thank you once again, look forward to speaking with you all again next quarter.
Thank you very much. On behalf of HDFC Asset Management Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.