Ladies and gentlemen, good day, and welcome to Q2 FY 2024 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 Mr. Navneet Munot, Mr. Naozad Sirwalla, and Mr. Simal Kanuga. I now hand the conference to Mr. Simal Kanuga. Thank you, and over to you, sir.
Yeah, thanks. Good evening, and thank you for, for joining us today. Before we dive into specifics, we would like to highlight a change in reference to some of the data points in our presentation. As against our usual schedule, our results have been advanced by a week or two. The change was made to ensure synchronization with the quarterly results reporting of HDFC Bank. It is important to note that as of now, not all the necessary industry data for September is made available. In instances where September data is still pending, we have substituted it with August data. We have done this to present the most accurate and timely information possible.
We'll refresh our presentation in the forthcoming days once necessary data for the month of September is released, and the same will be made available on stock exchanges as well as our website. Let us start with some level of industry-level information. The quarterly average assets under management continued its impressive growth, reaching INR 47 trillion, marking a 20% YOY increase. Actively managed equity-oriented funds are getting nearer to the 50% mark of the total AUM, with QAUM of INR 23.1 trillion, a notable uptick of INR 18.4 trillion recorded a year ago. Signifying 26% YOY growth. During the same period, the Nifty 50 price return was 15% and the Nifty 500 price return was 17%. This indicates that the industry's growth outpaced the benchmark indices and attracted significant inflows.
Debt funds displayed healthy interest, with QAUM surging to INR 10.3 trillion in the quarter ending September 2023, up from INR 8.8 trillion in quarter ending March 2023. B-30 MAUM category continues to exhibit a healthy growth rate. This highlights the high level of acceptance of mutual funds even in B-30 markets. The share of B-30 in the overall MAUM and equity MAUM remained steady at 17% and 27% respectively. Systematic investment plans continued their upward trend, recording flows of INR 160 billion in September 2023, a notable increase compared to INR 130 billion in corresponding month of the previous year. Over the quarter, SIP flows totaled to INR 471 billion, constituting 27% of industry's total gross equity flows. Now we'll move to our company's performance.
Our quarterly average AUM crossed the INR 5 trillion for the first time and reached INR 5.25 trillion, a growth of 22% YOY. Our market share demonstrated positive momentum with overall QAUM market share of 11.2%, and when we exclude ETF, the number is 12.5%. Our actively managed equity-oriented fund, AUM based on closing basis, crossed the figurative milestone of INR 3 trillion and saw an increase of 14% YOY as against 28% for the industry, resulting in increased market share. Our quarterly average AUM for debt fund moved to INR 1.37 trillion, up from INR 1.18 trillion in March 2023, a growth of 16% or INR 0.19 trillion.
Our quarterly average asset mix continued its tilt towards equity, with equity-oriented funds now constituting 58% of our AUM, significantly higher than that of industry at 51%. Furthermore, even in terms of customer profile, we have remarkably higher tilt as compared to that of the industry in favor of individual investors. As for August 2023, individual investors' MAUM accounted for 68% of our total monthly average AUM, higher than the industry average of 58%. Our unique investor base continued to expand, reaching 7.9 million unique investors at the end of September 2023, as against 40.4 million for the industry. This suggests that nearly one out of every five investors have reposed their faith in HDFC Mutual Fund. Over the last one year, industry did add 4.4 million unique investors.
During the same period, we added 1.8 million unique investors. In September 2023, we processed 5.86 million systematic transactions, amounting to INR 22.4 billion. For sake of comparison, the corresponding amount in June was INR 18.9 billion, and for September 2022 was INR 14.3 billion. We have seen a growth of over 50% on YOY basis. We have further expanded our product portfolio, especially in the sectoral thematic space. During the quarter, we launched Non-Cyclical Consumer Fund, Transportation and Logistics Fund, Technology Fund, and Pharma and Healthcare Fund. We also launched the Nifty 1D Rate Liquid ETF. Our wholly-owned subsidiary in GIFT City has secured all necessary approvals and licenses. We have filed documents and plans to launch first set of funds during the current quarter, subject to necessary regulatory approvals. Finally, moving to financials.
Our second quarter revenue growth from operations came in at INR 6.43 billion, reflecting 18% YOY growth, while other income amounted to INR 1.22 billion, as we did experience a healthy mark-to-market growth on our investment portfolio during the quarter. Our operating profit for the second quarter came in at INR 4.67 billion, a growth of 20% YOY. Operating margin for the first six months increased to 35 basis points as compared to 34 basis points in the first quarter of the current fiscal.
The effective tax rate has rationalized in this quarter. Last quarter, many of you would remember, it was lower, primarily due to increase in deferred tax charge attributed to holding certain period—holding a period of certain investment, transitioning from short-term to long-term. So thank you so very much. Navneet, Naozad and I are very much available to take questions. Nirav, I think we can open up for questions.
Thank you very much. We'll 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 your 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 Sandeep Agarwal from Naredi Investments. Please go ahead.
Thank you for the opportunity. My question is regarding SIP flow. It's approx INR 16,000 crore, and increased by 36% year-on-year basis. And so, HDFC SIP flow is increased by 56% year-on-year basis. Any specific reason you want to share for this higher growth?
So one, I think, it's been helped by a variety of reasons, including the improvement in performance, products getting approved across all wealth managers. Our focus on all each and every channel, be it the mutual fund distributors, be it RIAs, Fintech, banks, and of course, HDFC Bank. I think it's been quite helped by variety of other initiatives, be it on the marketing side, on digital side, product, communication side, et cetera. And this continues to remain a very high focus area for us, and we remain quite focused as a team on continue to build our systematic transaction book.
My next question is, so what percentage of growth do you expect in the next two years in SIP flow? Any rough number for industry and HDFC AMC? Yeah.
Yeah. So I mean, over the last several years, we have been seeing continuing, you know, improvement in the overall SIP flows in the industry. I think combination of factors, I think, great track record of the industry over a long period of time, which is acknowledged by a lot of investors. I think it's focused on, transparency, increased transparency of the product relative to any other, investment vehicle for people that's giving more confidence. I think it's technology making it easier for people to invest, easier to get more information. And of course, the tremendous focus of the industry and all of us, the players in the industry on investor education. So I think a couple of these factors have led to this growth.
Despite the volatility in the market over the last four or five years, the most heartening feature in our industry has been continuing to step up in the SIP flows month after month. We have always been highly focused. I think over the last five, seven years, industry has grown a lot on that front and we have grown. But even much, much before SIP or systematic transactions became a household name at HDFC AMC, we have always been very, very focused on promoting the concept of disciplined investing and then long-term investing through SIP and systematic transactions.
Thank you, sir.
Before we take any other question, I thought I'll take this opportunity to mention something which is very, very close to our heart at each and everyone at HDFC AMC. During the course of this quarter, we launched our HDFC Cancer Cure Fund. As everybody would know, the returns from the fund are shared with Indian Cancer Society. We could raise over INR 1.8 billion in this fund from over 1,600 clients, and we remain very, very thankful to each and every one of them. So I'm very thankful to SEBI, to our distribution partners, to our investors, and of course, the entire team at HDFC AMC and all the well-wishers.
We are very proud that the first fund that got launched in 2011, and then second series was in 2014, followed by 2017. After a gap of few years, we finally have been able to launch the fund and continue the great legacy. This has been one of the greatest innovation by any AMC in the world, and we are very proud that we are continuing that legacy. So I thought I'll take this opportunity to thank everyone.
Thank you very much. Next question is from the line of Kunal Sondhi from Banyan Tree Advisors. Please go ahead.
Hi, thanks for the opportunity. So I had two questions. One was on the debt side of the business. When we look at YOY growth for the industry in HDFC AMC, we have grown at a slower rate compared to the industry. Can you, you know, talk about, what's happening on the debt side for the industry and for us? What is the mix of growth in active versus passive, also on the shorter duration versus longer duration? So that's on the debt. And the second was on the yield. So when we look at our yield improvement, we have seen, like, you know, there has been a sequential improvement in the yields. Can you break this up for us? You know, what was the yield for the equity book and for the debt book separately? These are the two questions I had.
Sure. On the debt side, your first question. The debt market share has increased on a quarter-over-quarter basis. The loss that you see on the year-over-year basis is mainly due to our lower participation in debt index fund. We have mentioned it earlier that our market share is lower there. Some of the funds that got launched earlier have been able to raise much more money than what we have been able to raise. I wouldn't read too much into this. Our market share in debt, excluding index funds on quarterly average AUM basis for quarter ending September 2023 stood at 14.5% and was flat year-over-year. In actively managed fund, we continue to enjoy very healthy market share, which has been pretty stable.
I think the loss is on account of the debt index fund.
He was looking for the simple equity, debt and liquid yield. So I think, Kunal, on equity, we are at 67 basis points. We are at 27-28 on debt and around 12 basis points on liquid.
Got you. Okay.
Sure.
Simal, on incremental flows that you're getting, like, it will be lower than this? Have you seen any improvement in the incremental yields as well for the equity?
No, no, of course it is, it is lower than the book. So if we are not able to obviously get in, flows at, 67 kind of basis points. Those, the NFOs that we did, all of them were at, 90, 100 basis points kind of a yield. You can see the direct plan expense ratio. They are all in that kind of a range. But flows into our larger schemes, that is still in the band that we have mentioned in past, in that 50-60 kind of a range.
Sure. No, it makes sense. Makes sense. Okay, on the debt side, what I wanted to understand more about was on the overall industry, you know, how the debt as a category is doing, and how do we look at it from both, you know, shorter and the longer duration side of the thing, and active debt from a longer-term perspective? Because, like, in two, three, like, four, three quarters back, we have talked about, you know, passive gaining, growing at much faster rate. How, how do we look into the debt side of the business from a longer-term perspective?
So over a longer period, we have seen that, in an environment where interest rates are flat to declining, we see greater flows into the fixed income versus the environment where rates have been going up in last couple of years. That's why, in last two financial years, we have seen net outflows from fixed income. Last quarter was positive, but most of that money was at the short end of the curve. Over the next several years, if you ask me, there is a lot of potential for us, when I say us, meaning industry as well as AMC, for us to grow on the fixed income side, both at the short end and the long end.
In last couple of years, the greater growth has been on the equity side, but on, in the, on the retail side as well, there is a lot of opportunity. If you look at the overall fixed income AUM of the industry as a percentage of bank deposits, it has actually come down in last four or five years. So I clearly see an opportunity. Of course, as an industry, we would have liked the tax regime to continue, which underwent a change, as you are aware, in the last budget.
Sure.
But even, I mean, notwithstanding that, we would continue to work hard to promote fixed income funds among larger set of investors. There's tremendous potential.
Sure. Thank you so much. I'll get back to you. All the very best.
Thanks. Thanks.
Thank you. Next question is from Swarnabh Mukherjee from BNK Securities. Please go ahead.
Yeah, hi, good afternoon, and thank you for the opportunity, and congrats on a good set of numbers, sir. So, first, I think on the yield side, a couple of quick questions. One is that you were mentioning 67 basis points on the equity side, the yield is. So just want to clarify, does that also include index fund or would, would that be classified separately under passive? And if so, then what would the yields be for the passive side of the portfolio?
Actually, Swarnabh, that includes index fund. So index fund is a very small part of the overall pie, right? It is like INR 15,000-INR 16,000 crore on a INR 300,000 crore kind of a number. The index funds, like if you look at the larger index funds, the Nifty 50 and the Sensex 30, they would be around at whatever, 12-13 basis points kind of a yield, and the equal weights and et cetera would be at around 25 basis points kind of a yield. But that would not really move the needle. It's a small part of the overall equity book.
Right, sir. And also just wanted to confirm that what you mentioned, that the yields for the flows in the existing schemes in that 50-60 basis points kind of a range. So, does this hold steady or because, you know, there has been flows that have come in over this quarter, particularly, I mean, I see the Balanced Advantage funds also gaining traction. Additionally, I mean, it has, I think, now INR 60,000 crore plus. So is there some dilution because of increased flow and consequently, you know, sizes of this fund moving up one notch higher? If you can throw some color on that. And, also, I mean, so this kind of yield which we have seen this quarter, what would be your view?
Should it sustain in when this equity market continues to remain strong or would you still guide for some, you know, slow contraction in this?
So I'll just answer your question on balanced advantage, and then Navneet can give a bigger picture. So on, if the number that I mentioned of 50-60 basis points, that's on fresh flows. So what we do is when the expense ratio drops, because of the change in AUM, for future sales, we also reduce the commissions that we pay. So our yield thereby would be in that, in that broad band that I mentioned of 50-60 basis points. So, that was on your specific question. On overall yield, I think Navneet can throw better light.
I mean, so we have always mentioned that book margin is higher than the flow margin.
That continues. But of course, the flow margin is now better than where it was, but still lower than our book margin. The industry dynamic that most of you are aware of. Also you have to keep in mind the whole sliding scale structure. So we have seen our quarterly average equity AUM increase by 35% over the last one year. Many of the schemes have jumped multiple, so-called hurdles, and the TERs are lower than than where they were. So this, if you ask me, is a good problem to have. In fact, we have been mentioning this on every call because the absolute revenues are rising. But of course, as the size increases by multiple of INR 50 billion, you see a little pressure on margin.
But the other important point is that the pace of dilution has slowed down due to rationalization of the distribution cost. And I think somebody mentioned earlier that you would have seen the direct line TERs of some of the recently launched NFOs, not only for us, but even others in the industry. And I must appreciate, I mean, if I look at the Bajaj Finance AMC, where their first scheme, one would have thought that they would pay out the maximum to you know build a size, but their direct line TR, if I remember correctly, is close to 70 basis points. So we applaud them for standing ground. And at our end, I think some of our recent NFOs you would have noticed, have come at a much higher margins.
Understood, sir. Very clear. I just had, you know, wanted to know your thoughts on the expense side also. I think cost structure has slightly increased this quarter, both on the employee expense side and on the other expense side. So, if you could highlight in employee expense side, so is this because of increase in manpower that is largely playing out? And then which parts of the team are you augmenting, if it is an increase in manpower? And on the other expense side, is there anything else to read apart from maybe the marketing expenditure coming due to NFOs?
On the employee side, it has grown by 11% year-over-year. For quarter ended September 2019, which is pre-COVID, our employee cost was INR 57 crore. As against that, the employee cost for this quarter was INR 92.9 crore. If we take out the non-cash cost of ESOP, then the number is INR 79.8 crore. This is a CAGR of 8%. On the other expenses, they have grown by 22% year-over-year. If you look at in absolute amount terms, and this is a point that Naozad and I have been making in last couple of calls, it's about INR 12 crore of additional spend.
You would appreciate that the percentage looks higher on a lower base, and the increase is primarily due to increase in general business-related expenses, including travel, we had couple of NFOs, business development, trademark license fees, CSR expense, of course, and, and, and we continue to spend on technology and digital. We think this is necessary and will benefit business materially over a period of time.
Sure, sir. Sir, just wanted to know your thoughts that, you know, the employee expense part-
Overall, I think from the pre-COVID period, I think that this point was made in the last quarter, that from quarter ended September 2019, the CAGR on this front is 9%.
Mm-hmm.
Also, Swarnabh, if I might just tell you one thing, I think you need to look at also the six-monthly numbers. So I think 11% employee cost growth is September quarter 2023 over 2022. But if you look at a six-monthly number for the current financial year, the people cost has kind of inflated by 9% on a YOY basis.
Sir, I was actually looking at it a little bit sequentially, so first quarter versus this quarter, assuming that all the, you know, increments, et cetera, were baked in first quarter. So from there also, the number came in slightly higher, so just trying to delineate that.
Between the previous quarter and this quarter, the ESOP cost is higher by about INR 2 crore. That itself adds additional element of cost. We did mention that the employee headcount has also gone up, this was front-end level at the sales and front-end and distribution level, so that also has added a bit.
Okay, understood, sir. That, that's what I wanted to know. Very helpful, sir. Thank you so much, and all the best.
Thank you.
Thank you. Next question is from the line of Parvesh Jain from Motilal Oswal. Please go ahead.
Yeah, I just a couple of questions. Firstly, on the SIP book, could you give some understanding at the industry level as to what is the... I understand a large portion or majority would be equity, but some specific as to what is the direct equity or hybrid at the industry level and for HDFC AMC?
You're well.
Hello.
Parvesh, we couldn't get your question.
The SIP share of equity and hybrid. What would be a share of equity hybrid in SIP at the industry and for HDFC AMC?
Okay, in the SIPP, equity.
In the total SIPP, it is 95.
It is 95%, plus in, in.
To give you the.
It is well into 90. Definitely well into 90.
Okay. And pure equity, hybrid will be included?
It'll be a mix of both equity as well as hybrid.
Okay. Got that, got that. You know, just extending the point on what, you know, the previous guy was asking about the employee cost. See, sequentially, we have seen an increase of 10% in employee cost, but you mentioned that there is, you know, some additional ESOP cost, which was, I think, closer to INR 2-2.5 crore. Apart from that, headcount increase would cause, which caused, 8% kind of an increase. What was the total headcount that went up during this quarter? Just trying to—even because the reason why I'm asking this question is to understand when do we see the scale benefits really benefiting the EBITDA margins, profitability, or, you know, you know, we've been investing into expenses over the last two or three years now.
When do we really see the scale benefits benefiting the profitability at the company level?
It's clearly benefiting. You are seeing the increase in market share. You have seen tremendous amount of, you know, the new products. Over the last two and half three years, we have done almost 40 new products. We are investing in our active. Continue to invest in our continue to expand our, our systematic transaction book. We have continuously been investing into, like, developing all, all, all possible channels. So I think it's clear the results are very, very visible, I guess.
Actually, Prayesh, on a lighter note, we've been kind of asked by some of the global shareholders, saying that: How are you guys managing 229 offices, 1,500 people, INR 5 trillion assets under management by spending under INR 700 crore a year?
Servicing tens of thousands of distributors.
Yeah. So if you look at it, I think our, and I think even on people cost, I think our inflation, if you look at it, it's been in that just about double digit kind of numbers, right? If you look at both 10%, 11%, 12% is what the people cost we are talking about. See, we would request you to not look at a q-on-q, because there are certain things that kind of get accounted for. We're kind of looking at how the dynamics of the business are playing out. We kind of provision for bonuses, because, of course, people are the key to our business, and we need to be fairly sensitive on that.
Also, you would have noted that our operating expenses as a percentage of AUM is now 13 basis points against 14, and thanks to higher growth in AUM as compared to growth in cost.
Great. Good. Just one more question. I know we have almost now closer to INR 6,000 crore of investments and balance. Any thoughts of utilization of that, that would be it?
Yeah. Our dividend payout ratio for financial year 2023 was increased to 72%, right? We obviously can't second-guess what the board would decide, but we should continue to see an upward sloping internal dividend payout ratio. We of course need capital for skin in the game, skin in the game compliance. Currently, that number is about INR 500 crore is skin in the game investment from into our. We are intending to see some upcoming funds in GIFT City. From our balance sheet, we already invested a lot of capital from our balance sheet in the AIF strategy that we have launched. We do look at all acquisition opportunities that come by. Having cash on hand does help at that point.
Great. Great, great. Yeah, I think that would be it from my side.
Thank you. Next question is from the line of Lalit Deo from Equirus Securities. Please go ahead.
Yeah, good evening, sir. Thank you for the opportunity. Congratulations on the good quarter.
Lalit, we can hear you, but your voice is not coming clear. Can you please speak through the handset?
Yes. Yeah. Is this better?
Yes.
Yes. So just wanted to understand, so, like, if we see the equity AUM channel mix, so we see that the share of direct channel, the share of direct, directly owned, originated equity AUM has increased. So just wanted to know your thoughts on, on the channel-wide market share on the flow side, like, where we are seeing the most improvement in our market share across which channels? That would be my first question, and the second question will be, so now with the change of control, to HDFC Bank now, so what are the changes which we have done at the ground level, to improve, the mix, to improve the contribution from HDFC Bank to HDFC AMC?
So I think I'll just take the first part of your direct plan. So I think we have always maintained the direct plan book share is around whatever, 22%-23%, but as against that, the flow share is in late 20s. So you are seeing the one reason for tilt towards more and more towards direct plan is because of that. Secondly, even if you assume flat market, flat, no flows, the direct plan does have a lower expense ratio, and thereby you will see a 20-30 basis points positive impact on, on the share there on an annual basis. So that is one part, and, Navneet would address the whole HDFC Bank part.
So, we are seeing the, material, improvement in the engagement with HDFC Bank, and we'll continue to work on strengthening it further. The kind of support we have been getting from the bank is encouraging. We are deeply involved with them, and, alignment of interest after the merger is definitely a tailwind. We all know, I mean, the bank is a formidable distribution machine, and, we will put in enough and more efforts to capitalize on it.... We have now created a dedicated vertical to look after, HDFC Bank channel.
While Bank has been maintaining an open architecture approach, as a distributor, but given the range of products across various asset classes, given the long-term track record that we have built and the brand familiarity and all the other efforts we are making, we are confident in gaining share in HDFC Bank system. I'm happy to state that our flow market share in Bank's book is higher than the book market share for last couple of months.
Sure, sir. Yes, sir. Thank you, sir. Thank you.
Thank you. Next question is from the line of Saijit Mittal from 3P Investment Managers. Please go ahead.
Hi, good evening, team. First of all, congratulations on a good set and commendable performance. So, if I look at your September. So I mean, for the first five odd months, you have been clearly sweeping the table in terms of net equity flows, right? But if I look at September number, September flows, net equity flows, there seems to be some sharp drop in HDFC AMC's market share. So is there any particular reason for that?
I think so. See, month-on-month, there could always be volatility. It depends on some of the NFOs that get allocated, allotted in that particular month or some other factors, so wouldn't read too much into it. But overall, the trend has been upwards for us, and as I mentioned, it's across channels and, and across products, and, and we have been very pleased by the trend that we have been seeing. In a particular month, there could be, like always, one or two NFOs of competition that can impact the market share. And flows, as you know, in September were lower than the flows in, in August. And within that, if there are one or two large NFOs by some players, that can impact few basis points here and there.
But otherwise, I think whether it's on the systematic side as well as on the gross lump sum flows, we have been seeing encouraging trends.
Got it. Got it. And on the staff costs, even.
Thank you for the compliment.
And if I look at your staff costs, even for the FY 2023, right, there's been some sporadic moments. So from here on, are we saying that the staff cost will remain at these levels, INR 93 odd crores, in the second half as well?
I think an annual increase of like high single digit, low double digit type, you should expect. And as I mentioned that you would have seen the increase in headcount. We continue to invest in our business. We remain very optimistic about the potential of our business. We mentioned about a new vertical for HDFC Bank and a couple of other efforts that we have been making to enhance our reach. So adjusted for both, I mean, increase for the existing set of people as well as the new headcount, it should be a I mean low double digit kind of number or high single digit kind of number that should be... And I also mentioned about the last four or five years, I think it's been pretty reasonable.
Got it. Got it. And some guidance on ESOP bit for the second half and for the next two years?
Actually, we had mentioned this in our call in April, when we allotted the stock options. That the annual cost, which is basically driven by Black-Scholes on the basis of accounting. The first year cost, if I remember, the total cost, if I remember correctly, of the entire issue is around INR 55 crore, and it roughly gets spread 60% in the first year, 30-odd% in the second, and balance in the third year. That's how the vesting schedule amortizes the cost of the option. That will continue. So to your point, next year, for example, the non-cash form would come down because 60% of the cost would have been taken in the first year of the issue.
Got it. Got it. Thanks, and all the best.
Thank you.
Thank you. Next question is from the line of Madhukar Ladha from Nuvama Wealth Management. Please go ahead.
Hi, good evening. Am I audible?
Yes, sir, you are.
Yes.
Hi. Congratulations on a good, all-round operating performance. You know, most of my questions have been answered. Just, you know, a couple of small ones. One, you've given your active equity AUM, and I think you also mentioned what the industry number was in the beginning, but I missed that. So can you give me what your market share is and how that has moved in active equity AUM, maybe, you know, last couple of years, what has happened on there?
Yeah, it is there in the presentation, Madhukar. So we have gone to equity, active equity, September QAUM at 12.4%. A year back, this number was 11.5%.
But isn't that the total on a total AUM basis?
Oh, that is actively managed. If you go to slide number 11 on the presentation, it has the details.
Okay, okay. Maybe I missed that. Second, if you mentioned 67 basis points is Q2 yield on equity, that also includes the index fund yield. Can we get the number for the last quarter? What has happened quarter-over-quarter?
I think it is same. I think, it is just 67, 68 it is?
Sixty-eight.
68, it is. Yeah, yeah.
One or two basis points. We've mentioned the reasons also. There are two main reasons. One is that the book margin is higher than the flow margin, and second, also the sliding scale structure. If market has gone up and some of the funds have crossed that INR 50 billion hurdle, then you will see one or two basis point impact on margins on those particular products. In last two quarters, we have seen a couple of our products crossing that hurdle, which is like a good dilution to have. I'm happy with that dilution, because in absolute terms, we are making more money.
Right. Right. Sure, those were the only remaining questions. Thank you, and all the best.
Thank you, Mukul.
Thank you. Next question is from the line of Sagar Doshi from Fintuit Investments. Please go ahead.
Good evening. So I would like to ask, what is the approach for ETFs? So HDFC is playing a bit defensive on ETFs and index fund? So don't, or what is your view of increasing the share of ETFs in our portfolio? Or what is the structure like, say, five years down the line, how do you see ETFs as a part of the overall book? If you can throw some light on it.
Yeah, I mean, we have always mentioned that, active and passive investment strategies will coexist harmoniously rather than competing at each other's expense. India is, substantially under-penetrated, so Indian markets will chart their own course. And, I think we don't need to move assets from active to passive the way it may have happened in some of the markets where institutions would have moved their assets. Our stance on active is very well established. We hold a very strong belief in its potential. We see substantial alpha opportunities that are still available in India. If you look at, all our equity products, I think I remember two, three years back, a lot of people used to say when there was a period of one or two years where active funds were finding it difficult to generate alpha.
But you look at, all our products in last, one year, two year, three year, they've been able to generate, very good, very, very decent alpha. But on the passive side, we have significantly expanded our product offering, and, now we would have around 20 index fund and almost 20 ETFs. So like 40 products. It's absolutely best in class. We continue to invest in, in the distribution capability on that side, if you look at our, our, our, digital journey or, or the efforts that we are making on content, marketing, everything. So our, our goal has been to serve as a one-stop destination, offering a complete product range to cater to all our customers' investment needs. So I mean, a customer needs an active product, we have best in class, portfolio.
A customer needs passive. We have an absolutely best in class portfolio with best in class journey.
Okay. So you are not looking to increase your ETF market share, if I say?
No, so large part of the ETF book in India has been built through the flows from pension fund, which, as you are aware, goes to a couple of AMCs, which is based on the allocation by the APFO. And some of the exempted funds also follow the same pattern. And then you have some of the other ETFs, like the Bharat 22, CPSE and then Bharat Bond, et cetera, where I think none of the other AMCs can participate. But barring that, as I mentioned that we have done large number of product launches, and we have got a dedicated channel with a senior person leading it and people across functions kind of like trying their best to enhance our presence. And then that's where...
You've seen a couple of our products, like our Bank Nifty, which was a very small product, less than INR 100 crore or so, is now over INR 20 billion. We continue to look at the potential of each and every product on an independent basis and trying our best. We have been also doing a lot of efforts on promoting the concept of ETFs, index funds, to set of investors who are looking at that segment.
Okay. That is helpful. Thank you.
Thank you. Next question is from the line of Abhijeet from Kotak Mahindra Bank. Please go ahead.
Hey, hi, good evening. So question on net flow market share in equities. So if it's possible to quantify how that has trended now versus 12 months back, so that would be a helpful number to look at. But more importantly, you know, given the excellent fund performance, do you think the flow market share specifically in the non-HDFC Bank channel has sort of reached a stage which you know largely seems reasonable and appropriate? Or you think there is still quite a lot of potential for us to improve? And as far as HDFC Bank goes, if you could give some granular details in terms of how the interests are aligning.
You mentioned you gave some comments earlier on, but when do we really start, you know, see that. When do we start to see that reflected in numbers?
So first of all, aspirations are always, doing more than what we have done, doing better than what we have been doing. And I think the brand we represent, the distribution network, given our top-of-the-line, digital infrastructure, given our, given the efforts we are making on the marketing side, product content, every single thing, we continue to aspire for higher market share. And on both sides, I think, getting greater share of, lump sum flows as well as, bigger focus has also been on, growing our systematic transaction volume. I'm sure you would have noticed that in September 2023, our inflows from systematic transactions, which include both SIP as well as, systematic transfer plans, that has reached, INR 22.4 billion, which is up from INR 14.3 billion in September 2022.
It's a substantial increase. With everything that we are doing, we continue to aspire for higher market share than where we are.
Got it. And just a follow-up, on the SIP, you know, investor behavior, sort of an open-ended question, but behaviorally, are you seeing, you know, people who've come in in the last two, three years, sort of, behaving differently in terms of remaining invested for longer, or wanting to still, you know, cash out and book gains, given how the markets have been behaving? Any comments there would be helpful.
So, I can't comment for people who have come in last one year, how will they behave? But I think the trend is very encouraging. Over the last couple of years, the way, the concept of SIP, the way it has become a household name and, the level of interest among, you know, investors from all strata of society is very, very encouraging. And across all channels, we are seeing, everyone focusing on building their systematic transaction book. And, I think I mentioned earlier that we have always been highly focused on that segment of the market. We have always promoted the concept of, you know, the power of compounding, long-term investment, disciplined investing, and, that has kept us in good stead.
As an industry also, we continue to make efforts that people look at, you know, equity investing from a very long-term perspective and don't get swayed by volatility, but take advantage of it by remaining disciplined, and SIP is a great tool for that. So of course, I mean, in last one or two years, the newer investors who have joined, I think time will tell. But we remain confident that with all the efforts industry is making in terms of investor education and what individual fund houses are doing, the behavior will continue to improve.
Got it. Thanks a lot, and all the best.
Thank you.
Thank you. Next question is from the line of Dipanjan Ghosh from Citi. Please go ahead.
Hi, good evening. A few questions from my side. First, you alluded to the fact that, you know, because of higher AUM growth, some of your schemes have changed slabs for the past few months or quarters. I just wanted to get some sense when you mentioned this number of 67.5 basis points of net yields on your equity fund. Will the exit run rate also be similar? I mean, I mean, I would assume that this is the average for the quarter or should we see some more impact over the next few months? Second one,
Sorry, could you repeat that? I didn't get you.
So, yeah. So, you know, you mentioned that your net yield from the equity funds is around 67.5 basis points. Now, I would assume that this is average for the quarter, but because over the last three months, which is July, August, September, most of your equity schemes have changed slab. So has the entire impact of changing slab reduction in gross TER captured in this net realization number? Or, the exit run rate, let's say, in September or October, will be somewhat different from 67.5? Assuming mix has not changed.
So Dipanjan, if the AUM remains constant where it is, right, for the next 90 days, it would be 67, assuming there are no inflows, no outflows.
Got it. Second question on the distribution part. You know, on the equity mix, we have seen increase in national distributors and decrease in MFDs considerably over the last 12 months. I would assume that the flow movement would be even higher, or higher skewed, more skewed towards NDs. Just wanted to get some... In this context, on your equity-oriented market share gains, you know, if I split it between retail and HNI based on AMFI classification, it seems a lot of it is driven by HNI segment. Can you just triangulate this distribution mix change and your equity market share gains and what is really happening out there?
Not much on that front. I think few basis point here and there. There could also be a possibility, I'm just guessing, that some of the national distributors who also do aggregation by, you know, kind of a JV or an acquisition of some of the MFDs, and if that AUM shifts from an MFD and get classified as an ND, that could be one reason. But otherwise, not much of change in the overall trend. I think almost all the channels continue to grow their book. Your other question was on?
Yeah, yeah. So this was the part. I mean, so broadly, earlier you are saying that, you know, it is more of a movement of agents towards more of a sub-broker firm.
I think few basis points.
Okay.
Here and there, there could be.
Also, I think some large transactions can play, right?
Yeah.
One large private bank, which like, say, somebody like a Julius Baer goes into national distributor, and they get in some large money from one family. Those things can kind of skew things here and there.
Sure.
But not, I think there, there's no distinct trend as such, yeah.
Got it. Got it. Lastly, one data keeping question. See, when I look at your employee base movement during the quarter, obviously it has increased quite a bit. I just wanted to get some sense of whether the entire fixed cost of that has been captured in this quarter's base or some of it might, you know, get captured in 3 Q or 4 Q?
I mean, so yeah, you are right. I mean, we were around INR 1,250 odd in March 2021, and now we are at INR 1,439. So if you look at the overall growth of our business, that's not much. We continue to believe that business has a lot of runway for growth, and the headcount increase is on account of, you know, we are also developing new businesses. But large number of people would be in sales and distribution. Yeah, I think a lot of heavy lifting has already been done. This would have got captured. But of course, I think if somebody joined yesterday, their salary bill will be there for the rest of the year. But I don't think it's really going to substantially move the needle.
Got it. Thank you, and all the best.
Thank you.
Thank you. Next question is from the line of Saurabh from JP Morgan. Please go ahead.
Sir, just three questions. One is on page 17. You know, so HDFC, you know, you guys have-
Saurabh, sorry to interrupt you, but we are losing your audio in between. Can you please speak through the handset?
Yeah.
Right now? Sorry.
Uh.
Yeah, yeah.
Yeah. So, so basically just on page 17 of the presentation. So you guys seem to have added almost 40% of the incremental, you know, unique investors in the industry. So can you talk about, like, what's driving that? Is it just performance or is there something else? Second is, just on this HDFC Bank point, how much is bank... I mean, how much are you as a percentage of banks' distributions of mutual funds? And the third is, any thoughts on the revised consultation paper at SEBI? Thank you.
So on the unique customers, I think, yeah, you noticed it rightly that I think we've been able to capture a very high market share among the new—I mean, the unique investors that have got added to the industry. And the reason are, I think, a mix of several things. Of course, our performance in most categories is top-notch. That's clearly helping us with all the other efforts that we are making, whether on better engagement with distribution, with top-of-line digital infrastructure, with all the marketing efforts, so on and so forth. And it's across channels. So it's whether it's mutual distributors, banks, MFDs, as well as fintechs, who have also been growing quite fast in terms of number of new investors that are coming to the industry.
We are present across all channels and remain highly focused on that.
The second question always was HDFC Bank book market share and flow market share.
So I mentioned earlier that flow market share is higher than the book market share.
So of their book, sort of, book market share would be in the 25%-30% range. On flows, we are definitely getting more than that.
Okay.
And lastly, was the new TER regulation.
So, there, honestly, I've nothing new to say on that. The status quo is where we are. We have discussed this before, so I won't repeat much on that. But one thing I would like to add, that the idea of regulator was to pass the benefit of economies of scale to the investor. And in that regard, we as Association of Mutual Funds in India, as well as individual AMCs, have presented the data to regulator. And in fact, it'll be interesting to cite data for one of our funds for reference, that what has been presented to the regulator by the industry. So let me give you one example that, our largest equity-oriented fund is HDFC Balanced Advantage Fund.
The current AUM of that is around INR 64,000-65,000 crore, and the regular plan TER as per formula comes to 1.45%. Regulations were modified in April 2009, and at that point in time, this fund had an AUM of INR 40,000 crore, and the TER then, that point in time, was 1.78. So over the last, say, three four odd years, TER has gone down by 33 basis points, or for that matter, by around 19%-20%. So economies of scale has actually been passed out to the investor. And I will take this opportunity to sincerely compliment SEBI. They dived into data and heard us out. And you all have heard what chairperson had to say in the following press conference. But, yeah, we have nothing more to say on that.
Thank you, sir. This is very useful. Thank you.
Thank you. Next question is from line of Tejas from PEFD. Please go ahead.
Yes. Am I audible?
Yes.
Yes, Tejas. Yeah.
First of all, congratulations on hitting INR 5 trillion mark. My first question is: What will be your guidance for the upcoming financial year?
Tejas, we don't make any guesses. You appreciate, right? Our business does kind of depend a lot on how the equity markets move, so we don't want to even hazard a guess there.
Okay. So my second question would be: What would be the important factors that would be the biggest reasons in making you hit the INR 5 trillion mark, as well as gaining such a huge market share?
So I mean, a variety of things. I mean, I've mentioned them maybe in different contexts. I think the brand that we represent, the presence that we have, the partnerships that we have built over the years. I think our product range, the performance track record that we have, one of the longest-running track record of our funds. It's a combination of all of that.
Okay. Sure. 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, and congratulations on a good set of numbers. Just one question. In terms of unique customers, now we have got good 20%. So just wanted to understand their behavior in terms of how sticky they are, and if you could throw some light in terms of, you know, who are these customers in terms of age group, profession, that is, salaried or self-employed, that would be helpful.
We don't have that data readily available, Mohit. Maybe we'll reach out to you and try and share that information. In terms of staying on equity side, if you look at it, the average holding period. Now, there is no real science behind it. One way to do that would be based on existing book that does rest with us, but that would kind of get skewed because of large amount of new additions in the last 12, 24, 36 months. The other way to look at it is look at people who are exiting out of us, but that would kind of ignore people who continue to stay with us. So there is no real science.
Some data that AMFI has published did state that the average holding period is sub three years.
Okay. So, but that sub three years, I think it's for the industry, so that holds true for you as well?
It is slightly better for us.
All right. Got it. Yeah, thanks, and all the best.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, we'll take the last question from the line of Amrish, individual investor. Please go ahead.
Thank you for the opportunity, and congratulations on a fantastic set of results and operation, operational numbers.
Amrish, sorry to interrupt.
There's one member.
Can you please speak a little louder, please?
Yeah. Yes, congratulations. And there's one particular operational number I'd like to get some further input on. So follow up to the individual investor, due to the individual customer question, if you look even at our individual folios, this is now really accelerated in the last few quarters, and of course, this quarter has been fantastic. Our average AUM seems to be more or less holding steady, average AUM portfolio. So we are getting more than just, you know, one customer. We're getting multiple folios from them. And this now number looks as similar to what we were maybe in March 2021.
Is it fair to interpret this that this should therefore then follow on, and we should maybe see even revenue market share go up, AUM market share go up, to similar levels at a later date?
We didn't exactly understand your question. So you are saying, AUM per customer is, is good? That's what you're suggesting?
Yes. The number of folios is increasing very fast.
Right.
Our share of folios today is now at a level which was similar to what it was in March 2021.
Understood.
In March 2021, yeah, and our, and you could say, you know, folio can go up, but the average AUM portfolio can go down, but that's not happening. So our folio also average AUM portfolio is staying more or less constant. So it's not just people being added for the sake of it. So if that's the starting basis, which means it's a strong foundation, as a lead indicator, in March 2021, we were probably 13.5 or 13.6% AUM market share. We are today slightly less. Is this a fair way to interpret that maybe not for forward guidance, but is it a way to interpret that some of the market or the AUM benefits actually come later after the folio has been added?
Yeah, the AUM.
I don't know if you are... because you are looking at the overall AUM, where there could be institutional investors, and there could be, like, flows into the ETFs, et cetera, and then trying to divide that number and arriving at that conclusion?
No, no, individual. Only individual AUM. I'm not looking at institutional.
No, no, but what happens is, see, when you look at the total AUM and divide that by individual folios, right? It might not really give you the right data because there are large institutions who are investors in liquid funds and debt funds. Also, Navneet Munot mentioned about this whole ETF business.
Sorry, individual AUM divided by individual folio. I, I'm not separating the institution.
Right. Right. Because some part of that growth would have also come in from mark-to-market changes in equity, right? So that's the reason you might be kind of getting that data.
Yes, of course. Of course. Of course, of course. But if I look across, you know, last 15, 16 quarters, this number, you know, has not changed a lot, and it's higher than the, than the market average. So it's, our folio, AUM portfolio is higher than what the market has. So if our market share of folios is increasing and our average revenue per individual folio is higher than the market, it should-
No, sir, your inference is right. Your inference is right, saying that this is a positive signal. We agree to that, sir. Absolutely. Let's hope the trend continues.
Okay. Okay, okay. Thank you.
Thank you.
Good afternoon.
Thank you.
Thank you very much. I now hand the conference over to Mr. Navneet Munot for closing comments.
Thank you all for attending the call. Thank you.
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.