Ladies and gentlemen, good day, and welcome to the Nippon Life India Asset Management Limited Q2 FY 2024 earnings conference call hosted by ICICI Securities. 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 the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ansuman Deb from ICICI Securities Limited. Thank you, and over to you, sir.
Good evening, ladies and gentlemen. On behalf of ICICI Securities, it is our privilege to host the Q2 FY 2024 results conference call of Nippon Life India Asset Management. We will have an initial management commentary followed by Q&A. Without further ado, I now hand over the call to Mr. Sundeep Sikka, Executive Director and CEO. Over to you, sir.
Thanks, again. Good evening, and welcome to our Q2 FY 2024 earnings conference call. We have with us our Chief Financial Officer, Prateek Jain; Chief Business Officer, Saugata Chatterjee; Chief Distribution Officer, Arpan Saha; Head of Product and IR, Arun Sundaresan; and Masashi-s an, nominee of Nippon Life, Japan. Our detailed investor presentation and press release have been uploaded on the exchanges as well as on our website. I will break my comments in three parts. First, industry overview; second, our performance; and third, the way forward. Starting off with the markets. Equity markets in Q2 FY 2024 show divergent performance, while the Nifty 50 increased only 2%, Nifty mid-cap and small-cap indices rose by 13% and 16% respectively.
We have healthy repo rate steady at 6.5%, while the 10-year G-Sec yield increased by 10 basis points quarter-on-quarter to 7.22%. Coming to the data on mutual fund industry, the industry grew by 9% quarter-on-quarter in Q2 FY 2024 to INR 47 trillion. This is the highest quarterly growth since Q2 FY 2022. On a year-on-year basis, the quarterly average AUM grew by 20%-20.3%. Now moving to flows. The equity category, excluding index and arbitrage, witnessed a gross inflow of INR 1.55 trillion and a net inflow of INR 492 billion. Both gross and net flows were higher on quarter-on-quarter basis. Strong inflows were witnessed in sectoral, thematic, small-cap, flexi, and mid-cap categories.
Investor interest in investing through systematic investment plans has further increased, with the SIP contribution to this quarter being INR 471 billion, 25% higher than Q2 FY 2023, and 9% higher than Q1 FY 2024. Monthly SIP flows in September 2023 stood at INR 160 billion, which was an all-time high. The SIP flows increased 7% quarter-on-quarter to 71.3 billion. Arbitrage funds also with the strong inflows of INR 297 billion. The fixed income category, that is debt plus liquid, witnessed a net outflow of INR 594 billion after a large inflow we witnessed in Q1 FY 2024. ETF flow was moderated at INR 49 billion.
At the end of the quarter, unique investors in the mutual fund industry increased to INR 40.4 million, while the industry portfolios increased to INR 157.1 million. Increasing financialization, higher awareness, better reach to new age tech platforms and distribution networks should see continued growth for the industry going forward. Now moving to our business performance. We closed the quarter with assets under management of INR 4.35 trillion. This includes mutual funds, managed accounts and offshore funds. Our mutual fund quarterly average AUM grew 12% quarter-on-quarter and 23% year-on-year to reach an INR of 3.51 trillion. I would now like to share a few highlights for the quarter. Starting with the market share.
Our market share increased 18 basis points quarter-on-quarter to 7.46, with the market share increase across all asset categories. During the quarter, we moved up one position to fifth in terms of total equity AUM. Our equity share also continues to grow. It has increased from a low of 6.18%- 6.53%, of which there was a 26 basis point improvement in Q2 FY 2024. It is important to note that this market share improvement has happened even after we stopped lump sum inflows into our small cap fund in July 2023, in the interest, in investors' interest. Apart from equity, we also gained market share in other segments, including 33 basis point quarter-on-quarter improvement in liquid segment and 16 basis point quarter-on-quarter improvement in ETF segment.
We continue with the balanced growth, both in terms of asset class as well as investor categories. On the segmental front, our individual AUM, which consists of retail, HNI AUM, saw a market share improvement for the seventh straight quarter. Individual AUM grew 14% quarter-on-quarter to INR 2,094 billion. Market share increased 29 basis points quarter-on-quarter to 7.45. On B30 AUM, our B30 AUM grew 13.9% quarter-on-quarter to INR 719 billion, which keeps us amongst the fastest growing large AMCs in B30 locations. Our market share improved 25 basis points quarter-on-quarter to 8.58. This segment forms 20% of our AUM versus industry, 18% for the industry.
Performance of our large equity schemes remains strong, and this, along with our distribution network, digital capability, and strong risk management, helped us deliver a double-digit market share in net sales in equity plus hybrid segment in Q2 FY2024. We added 1.2 million investor portfolios in the quarter and continue to have the largest base in the mutual fund industry, with 14.6 million unique investors. We are humbled to have one out of three mutual fund investors in India. During the quarter, we also completed the NFO of Nippon India Innovation Fund. At the end of the quarter, the AUM in this fund stood at INR 9.6 billion. I would now also like to touch upon the important aspects of our systematic book. The systematic flows are a stable and key driver for industry's long-term equity flows.
I'm happy to share that there has been a continued uptick in our systematic flows over the last nine quarters, which has led to increased our market share. Our monthly systematic book grows by 42% to INR 17.3 billion for September 2023 over June 2023. This resulted in an annual systematic book of INR 208 billion. Unique number of systematic transactions for the quarter increased by 20% quarter-on-quarter to more than 12.8 million. 64% of our SIP AUM has continued for over five years versus 36% for the industry. This bodes well for the volatile markets, where portfolios with lower ticket size have demonstrated longer vintage and better stickiness.
60% of our SIP portfolios have continued for more than five years and against an industry average of 12%. Moving on briefly to the ETF segment. At Nippon India Mutual Fund, we offer an industry suite of passive funds with an ETF ecosystem which is already in place and far ahead of the peers in terms of investor base and mind share. We continue to be one of the largest ETF players with an AUM of INR 808 billion and a market share of 14%. The Gold ETF fund is the largest in the category, having assets of INR 38 billion. Our share in industry ETF portfolios is 61%. We have 67% volume of, 67% share of ETF volumes on NSE and BSE.
Our ETF average daily volume across key funds remains far higher than the rest of the industry. Last quarter, NAM India was appointed as one of the four AMCs for managing EPFO corpus for ETF investments. These investments commenced in the beginning of July 2023, and we are seeing approx, and we are seeing approximately one fourth of the implemented, incremental ETF flows going forward. Moving on to our strong distribution franchise. Our digital strategy remains focused towards enabling better reach and leveraging technology advancements to provide frictionless experience. As digital and technological landscape is continuously evolving, the perpetual beta thought process has led to continue, constantly strengthening our digital ecosystem and enabled simple and easy investment experience across the ecosystem for our investors and partners.
Digital purchase transactions rose to 2.55 million in H1 FY 2024, up 64% year-on-year. We have witnessed close to 50% jump in Q2 FY 2024 compared to Q1 FY 2024. The digital channel contributed 56% of the total new purchase transactions for H1 FY 2024. Our physical distribution base is well diversified and with a wide presence in excess of 265 locations across the country. We have over 95,600 distributors in total and added roughly 2,600 new distributors during this quarter. Now, I would like to briefly update you on our subsidiaries, namely AIF and Singapore subsidiary. Starting with our AUM, Nippon India AIF, as mentioned in past, AIF continues to be an important focus area for NAM India.
Last quarter, we appointed new head of AIF business, Mr. Ashish Chugani. This quarter, further to strengthen AIF business, we have internally moved a senior resource, Mr. Ashwin Bijral, as a deputy head of business. Under Nippon India AIF, we offer Category II and Category III alternative investment funds and have a commitment of INR 57.8 billion across schemes. We had launched our Tech Fund of Fund in 2020, which was anchored by large Japanese institutional and corporate investors. The fund is in an advanced stage of deployment. Company has started getting into multiple business lines. Towards this end, we have recently launched our credit AIF and a long-only equity AIF, for which the fundraising is in progress.
On the offshore front, we continue to, we will continue to focus on fundraising from international markets, looking at business opportunities with subsidiaries, associates, and large network of Nippon Life Japan. Nippon Life Japan remains committed in supporting NAM India's offshore business. We continue to see interest for India, not only from the conventional market, but are also getting initial positive, inflows and interest from MENA markets. In terms of regulatory environment, not much has changed since the prior quarter. So we had come up with a consultation paper in May 2023 regarding the re-review of the TER charged by the AMC. We continue to await details regarding the revised paper post incorporating industry feedback. Now, on our financial performance. For Q2 FY 2024, revenue stood at INR 3.97 billion, up 20% year-on-year.
Other income stood at INR 0.78 billion, down 5% year-on-year. Operating profits stood at INR 2.33 billion, up 25% year-on-year and 20% quarter-on-quarter. Profit after tax stood at INR 2.44 billion, an increase of 19% year-on-year and 4% quarter-on-quarter. As a part of our capital allocation strategy, we would like to reiterate that we have, we have a stated dividend policy to distribute 60%-90% of our profits to our shareholders. In FY 2023, we distributed 100% of our profits. Further, the board of directors have declared an interim dividend of INR 5.5 rupees per share, along with the Q2 FY 2024 results today. In addition, we also remain open to evaluate investments in strategic opportunities that can add profitability or complement our existing businesses. Briefly, moving on to ESG.
As a signatory to UNPRI, we are integrating ESG aspects into various aspects of planning, operations, fund management, risk, and governance. Our ESG ratings are among the best in the financial services industry, with NAM India now rated low risk as per Sustainalytics. As a responsible investment manager, we are building a resilient portfolio that will provide sustainable returns to our investors and have a positive environmental and social impact. In conclusion, we remain excited about the business opportunities going forward. This includes both domestic markets, where mutual funds have become a preferred investment group, as well as global markets, where we will be aided by the network of Nippon Life Japan. We continue to focus on sustainable, profitable growth for our shareholders in the backdrop of our distribution network, institutionalized processes, and strong risk management. With these comments, we are happy to take your questions. Thank you.
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 touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. First question is from the line of Swarnabha Mukherjee from B&K Securities. Please go ahead.
Hi, sir. Good afternoon, and thank you for the opportunity, and congratulations on your set of numbers. So my first question is related to the yields. I just wanted to understand that, sir, when I look at the standalone business, I see that there has been a slight decrease in valuation in yields, while at a consolidated level, there has been a expansion in the yield. So if you could highlight possibly the reasons and is there, you know, like impact on the business, because of which there is a slight reduction in yield? And, whether outside the MF business, we are seeing higher realization. That would be my first question. Secondly, in terms of gross inflows, could you just highlight how our market share is shaping up?
Because the switch numbers, switch numbers when compared to the industry flows, I think we have seen a very strong expansion in that number. The market share is coming close to 10%. How are we in terms of gross flows, given that we have stopped lump sum investments in the small cap funds? How is that shaping up overall? That is the second question. Thirdly, in terms of the equity inflows, if you could highlight what is the quantum of inflows we are receiving every month or every quarter? What is the economic surplus in terms of how are the realizations and how much of that is flowing into the bottom line?
How should we think about the yield change from this perspective, given that this is significantly lower margin product, compared to our other products? How should we think about the blended yields going forward?
... I think just three questions. I think I'll request Prateek to take the question on the yields, and then Saugata Chatterjee on the gross flows. But I would like to just touch on the last part on what you talked about the EPFO. Broadly, the way you should see, EPFO will be, I think, I think, will be investing roughly about INR 15,000 crore, approximately per annum, per annum, per AMC. This is going to be coming into existing funds, so there is not going to be at whatever is the fees that we've been charging before the ETF, EPF mandate, that will continue. It is right now coming in the Nifty, you know, and I think we are at this point of time charging four basis points. Yeah.
The way to see your question, the blended yield will come down going forward. I would request you not to see as a blended yield, because this you will see separately. The ETF, EPF money, that will be coming separately, and you should not mix it up with the overall yield of AUM, because that may not give you the right picture. So broadly, from our perspective, if you do the rough calculation, EPFO mandate will give us a top line of about INR 15,000 crore per annum, and a bottom line of net about INR 5 crore-INR 6 crore per annum. I think Prateek should take the question of yields.
Yeah. So whatever, in terms of the mutual fund, you know, broadly, it has remained the same as we mentioned in the last quarter.
and also that the reason that despite you know the mix has slightly improved that overall our size of the equity AM has grown. And what we have seen is you know our growth in the quarter-on-quarter basis is almost 17% and half-yearly basis 25%. This is both because of the higher inflows which I'll ask Satya to share with you both in SIP as well as on the lump sum basis. But also you know in terms of the total new increase of the assets what you see you know this year itself what we have seen is you know our run rate next year for this quarter was almost 3x of what we have done in the entire last financial year.
Therefore, you know, our assets have been growing much faster, and because of the SEBI formula, you know, there has been some compression out there. And therefore, if you see, the yields have not moved up. But the thing is that, you know, on an average basis, we are at the same realization what it was the last quarter. In terms of our other lines of businesses, you know, as we mentioned, that those businesses we operate more from a profitability perspective, and, you know, those rates are more in line, you know, in line or better than the competition. There are various asset classes where we are present, and, you know, the, yields are very, very different. But more importantly, there, the net yields are in the range of 66-100 basis points.
Yeah, very helpful.
Sir, just one follow-up on this. If you could call out the category level yields, which you share every time, and also for equity, stock versus flow.
Yeah. So we don't give the, you know, the yields on the net new flows, but on the segment-wide yield in terms of our book, you know, we are almost about 70 basis points on the equity. Debt would be in the range of 25-30 basis points, liquid in the range of 20-15 basis points, and ETF in the range of 15-20 basis points. This includes gold, so yeah. Yeah. So just to continue on the question on flows. For this quarter, what we find is our gross flows is in the range of 7.5%.
From a net perspective, we are roughly around 11%. You know, if you take the quarterly last quarter flows, it keeps varying every month, but we are in the double-digit net sales every month. So what happens is, if our net sales is better than the market share, we tend to grow our market share, and that's why the trend has been is being seen for the last now three quarters. Even on the SIP side, our market share definitely is higher when it comes to the number of SIPs and the contribution in the net incremental SIP book, which is happening in the industry. So both of them, both these components add up to the overall net sales growth in equity.
But I said, this close, that you said, this is for the equity category, right?
Yes, overall equity category.
Yes. Very helpful. Thank you so much for sir.
Okay, thank you.
Thank you. Next question is from the line of Madhukar Ladha from Nuvama Wealth Management. Please go ahead.
Hi, sir. Congratulations on a good set of numbers. Just wanted to get a sense on, you know, on a quarter-on-quarter basis, has there been any significant movement in the yields across categories? So that is one thing, I just want to get a sense on that. Yeah.
No. So, as mentioned, you know that there has not been a significant movement on the yield side of it. The overall yield have remained, you know, about 41 basis points. And on the segmental one, as I mentioned to you, sir, because of the size impact and because of the new flow impact on the equity, there has been, you know, some kind of a decline in terms of the overall equity realization. This is because this is governed more by the SEBI formula, because if you see. The quarter two itself, our annualized net sales is 3x of what we did in FY 2023. So we are getting a very disproportionate high share of net sales, and also the overall AUM has also grown about 17.5%.
So both of these has accounted, you know, to the higher AUM and getting into the newer slab. And hence, because of the new slab rates, you know, the our yields are lower. However, from our perspective, you know, we have not made any changes to our distribution commission or, you know, in terms of payout, et cetera.
Got it. Got it. This is very helpful.
Yeah.
Just wanted to also understand, what driven other income this quarter?
Oh, okay. So see, this is purely mark-to-market of, you know, our total invested surplus. As you are aware that, you know, the company has a total net capital of about INR 3,500 crore, which has been deployed in our own mutual fund schemes. Broadly, almost about 85% of that has been invested in our own mutual fund scheme. There are another into FDs and tax saving bonds. And this is entirely, this is the mark-to-market impact on, you know, these investments. 92% of our this net worth is invested into financials or other financial investments, which is these invest, you know, our own schemes as well as FDs and bonds.
There's no unusual anomalies in it, right? No one-off?
No, no, no one-off. No one-off.
Okay. Perfect. Thank you. That, that answers my question. Thanks. Thanks a lot. All the best.
Thank you.
Thank you.
Next question is from the line of Lalit Deo from Equirus Securities. Please go ahead.
Yeah. Good evening, sir. Congratulations on So I would say... So I just had one question on the distribution side. So like we mentioned, that we are seeing, like, about 7.5% market share on the gross flows. So but across channels, could you give us more color, like where we are seeing the highest pickup in this flow? And which are the segments where we want to see more pickup in which distribution channel?
Well, broadly, I think it's across the board that I think we are seeing the increase in market share. But I think where we like to see, I think from our point of view, always, articulated our strength lies in retail. And it also makes economic sense because retail flows are more sticky. So we continue focusing on segments which can give us sticky assets. And typically what we have seen, smaller ticket size and SIPs, have been more sticky. But, broadly, I think our market share increase has been across all these segments. It's been equal.
Sure, sure. And just two data pieces. So, like, as you mentioned, that this quarter we have a net realization of 70 basis points on the equity. So, like, what was it during the last quarter, could you quantify it?
Yeah. So it was, you know, in the range of about 74-75 basis points. So, you know, because as I said, because of the size issue, you know, we have... and because of the inflows issues, you know, we have seen some contraction in terms of the yield.
Sure, sir. And so, like, what would be the new SIP registrations during the quarter, sir?
For us, roughly, we are doing, on average, 3.5 lakh SIPs every month.
Roughly about 1,000,000, 1,000,000 net SIPs we are getting every month.
Every, every quarter.
Every quarter, sir. 10 quarter.
Yeah.
Ten lakh is the quarterly, net, net SIPs.
Sure, sir.
Thank you. Thank you for the answer, sir.
Thank you. Next question is from the line of Abhijeet Sakhare. Please proceed.
Yeah. Hi, good evening. The first question is, is it possible to give some color on the mix of the SIP book in terms of, how spread out it is, compared to your overall portfolio mix? Just asking this in the context of, you know, last few months or quarters, seeing extraordinary activity on the small and mid-cap fund categories as such.
So the good part is, in our case, you know, we have more or less equal distribution amongst the five market caps: large cap, multi cap, mid cap, small cap, and the flexi, you know, category. So we have quite a, you know, equal spread, because what we have seen is our fund performance in the last one-two years has been across market caps. And hence, the de-risking of our business is quite visible from the SIPS flows which are coming into our fund.
Got it. And,
Any particular fund or category, after it, I think it's spread out.
Yeah. Got it. Got it. And, just again, from the perspective of flows, I think, the observation is that, our representation, or market share in some of the larger categories, such as, you know, large cap, balanced advantage, we are sort of a little bit underrepresented. So just any thoughts on, you know, improving the share of those schemes, across different, you know, distribution counters as well?
I think it's as a money manager, I think our thought process to continue delivering best quality, producing best quality returns and let the investors decide. I think from our perspective, I think large cap, multi-cap, small cap, growth, I think all are doing very well. Balanced hybrids, I think is a growing category, and every asset management company has found a different niche where they want to grow. But to your question, I think we like to be represented equally. I think wherever we feel our market share is a little lower compared to competitor is lower, I think we will continue building upon that.
Got it. Last one, just a question on OpEx. Like this quarter, we had the benefit of, you know, strong operating leverage, despite, you know, double-digit expense growth. But looking ahead, do you see any possibilities of, you know, cutting back on expense line if the AUM growth turns out to be a little more volatile for the next 12 months? And subsequently, any guidance or indication on projected cost growth as well?
Abhijit, if you look at it, you know, from a quarter-on-quarter perspective, it is quite flat. If you look at our employee expenses for the last five years, you know, it has been pretty flattish. It's just that, you know, I mentioned that last quarter, you know, we have upped our investments, you know, for the fut- as I mentioned last time around, that, you know, to future-proof ourselves, you know, we have upped our investment into three or four areas, you know, specifically, you know, marketing spend. You would have seen, you know, we are more visible in terms of our marketing. We have increased our spend in terms of IT. We mentioned that, you know, we are working on developing a data lake, you know, around which, you know, entire artificial intelligence will work on.
The third part is that, look, we have been, you know, to further improvise, you know, we have been, outsourcing some of our processes, and, you know, some of our other additional. Because as you said, that, look, we have been keeping, you know, close tab on our employee cost. Therefore, there is some spillover of that is onto our, other outsourcing or, you know, other consultant cost. So these are the three areas, you know, which has contributed largely this increase, which are predominantly, I would say, that, you know, that can be switched off on a tap. You know, if things are not moving right, if the market corrects sharply, then these are the ones which are more discretionary and which can be switched off on tap. And then there have been a few one-off expenses.
You know, last quarter, we had some few one-off, and this also we have some run-off cases, which also are very discretionary. You know, those costs, you know, can be again, you know, we would, as and when we do want-- don't want to spend them, we can cut it off. So I would say that, largely the increase, what you're saying, is on the discretionary spend. We are very conscious of increasing any kind of fixed expenses, including our employee cost, you know, that as we have mentioned in the past.
Got it, sir. Thanks a lot.
Thank you.
Thank you. Next question is from the line of Shreya Shivani from CLSA. Please go ahead.
Thank you for the opportunity. Sir, I had a question on following up with the last question on the employee expense and the employee count. So probably if you can help us understand, there's been a reduction in the employee count, and... Is it correct that the outsourcing of the process that you're talking about has led to the reduction in employee count? Just a clarification on that.
So no, so it has not, you know, there has not been a significant reduction. If you see from the peak, we were almost about 1,200 odd people. It was in 2018, 2019. We are now about 985. You know, 15, 20 people here and there. So that is, you know, in the last year, from last year to now. But, so we have not have any significant increase or decrease in our total employees.
When it comes to the outsourcing, I am saying that, look, more or less, what we are saying is that any kind of non-core work, you know, instead of hiring people, if we can, you know, put it out and give it to an outsource agency to carry out, that is how we have been, you know, working on. So, it is not related to, you know, it is not related to any significant reduction in that cost. I think from our perspective, I think there's not been any conscious effort to reduce head count. Rather, we continue investing in our people, with a lot of digitalization that has taken place, across and leveraging technology. Definitely the back end, there have been certain processes which have become more efficient with the more high use of technology.
Definitely the reduction in numbers is more, which is one of the reasons which is also helping us to increase our operating leverage.
Okay, but,
Sorry to interrupt, Ms. Shreya, your voice is breaking.
Can you hear me better now? Hello.
Yeah, it is better. Please go ahead.
I'm just clarifying that the reduction in employee count is also the outsourcing of the processes and also the digitalization, which reduces the need for people, right? Need for manpower.
That's right. You got it right.
Yeah. Okay. Okay. Thank you. Thank you.
Thank you. Next question is from the line of Mohit from BOB Capital. Please go ahead.
Yeah, yeah, thanks for the opportunity, and congratulations on a good set of numbers. So just to reiterate, I mean, I was just seeing your presentation, and now you're presenting 265 locations versus 275 last year in Q2 and 270. So this is also a result of digitization or it's something else?
... I think it continuously from time to time, it keeps changing. You know, there could be this sort of process of anywhere moving to a bigger location, where, you know, something, those things keep happening. So I think there's no change in strategy. I think as we have articulated in past also, we strongly believe both digital and physical will remain our strength, going forward. We do not want to believe-- We do not want to have a strategy of only digital. We believe physical is going to support our digital business. So I think you've continuously seen us, so I think, five, five branches plus minus, and, it could be whatever reason, you know, clubbing of branches. There could also be going to reverse, having multiple branches in one city and clubbing them together.
There could be different reasons for that, but broadly the strategy remains. I think we, digital-- physical part remains a very important of our long-term strategy.
Perfect. My next question is towards the unique investors. I think, you know, we have about 36% market share over there. So in your experience, just wanted to understand how, you know, how the behavior of these customers, are they very sticky? And, I mean, what age group they are. I mean, if you could just throw some light on that, that would be very helpful.
I think as Prateek mentioned, we are investing a lot on data lakes. I've been trying to understand the behavior of the investor. I think one, one of the earlier question, which was there, the expense going up is exactly we are investing a lot on data science, understanding the behavior of people. Won't be able to attest to much because every industry is unique, you know, but I think broadly, I think what we have seen is, the young investors who are coming in, I think they are seeing basically the starting point for them is systematic investment plan. The other part is basically what we are seeing is, smaller the ticket size, more sticky it is.
But at this point of time, we will not be able to share with you a lot of analytics that we are working on a data, because today the fact remains it's having 20 million investors that are with us. For some of these investors, we have a history of more than 10, 15, 20 years. So I think we are trying to see, and this is going to be a very important part of our strategy going forward, how do we put this data to use?
All right. Thanks, and wish you all the best.
Thank you. Next question is from the line of Jignesh Shial from InCred Capital. Please go ahead.
Yeah, hi, and congratulations on very good set of numbers. I just kind of one more like a macro kind of a question. There have been, you know, a change in tax norms for this insurance companies, and thereby, you know, the non-par, which is a savings product, have been now been tax included to the, what, which is kind of typical FDs would be. Are you seeing a flows shifting? You know, broad level, do you see that kind of flows which will be shifting or investor minds are shifting or getting more linear towards mutual funds, long-term mutual fund investments and all? Just as your thoughts, if you have any. That's, that's, that's the only thing I wanted to know.
Well, so Jignesh, see, if you go by the initial assessment, you know, since this has come in, I think, industry has not witnessed too much money coming into the debt segment. You know, while ultra short-term and liquid has seen some money coming in, but on the longer tenure, the money has not come in. So yes, they are understanding and grappling it because, you know, the tax break has been taken away. On the other side, if you would have seen that there is a good amount of money, you know, which has gone into the, you know, Senior Citizen Savings Scheme. So obviously, you know, I think as Sandeep mentioned, that, you know, this is also to be seen in a longer-term context rather than just, you know, in a short view.
But, what we understand is that in the last six months, also you what you'll see that money getting into the hybrid funds category. You know, from a industry perspective, it would be, you know, both from a realization, from a, you know, investors long-term benefit perspective, you know, it is much better that, you know, he comes into hybrid category and takes the advantage of indexation as well. Therefore, you will see some diversification happening. However, HNI, as well as the, what you'll see, the, senior citizens beyond the, you know, their investment into FDs, you know, they will keep coming in, into the longer tenure. Also, market has been bit volatile. Therefore, industry is also not going and pushing that hard.
Mm-hmm.
This is combination of all of these things.
Understood. Understood. Quite, quite helpful and, and, all the best for, for future, sir. Thank you.
Thanks, Jignesh.
Thank you. Next question is from the line of Prayesh Jain from Motilal Oswal. Please, please go ahead.
Hello, can you hear me?
Yeah, Praesh.
Yeah, [audio distortion] . Firstly, [audio distortion] can you give some outlook on yields as to how the equity yields will move from here in the second half, especially if you have a, you know, a steady kind of a market scenario? Secondly, on the NFOs and MFO yield commission, [audio distortion] , and what is your product lineup for the second half?
I think if I understood, Prateek, your question, because your voice was not very clear.
Outlook on yields.
Outlook on yields, and the other one is our own pipeline for NFO.
Yeah, for NFO, typically what are the yields?
Yeah. So, see, as regards to the, you know, I would say that the competitive pressure, which was there once, you know, on the yields, have largely reduced. And, you know, we are seeing higher revenue, you know, on the new NFOs, you know, like, these are in excess of our current book as well, you know, what we are earning on the new NFOs. As we are, you know, also, with regards to the, to the trajectory going forward, you know, it will be a bit difficult, because if we continue to get this kind of significant flows, then obviously, you know, the yield compression can be as high as what we have seen in the last quarter.
But I'm sure, you know, this will not remain as high and, you know, I could say jokingly that, look, last one month has been something where, you know, market has corrected. Once the AM goes down, you know, we start earning slightly higher, you know. So I would say that, look, very difficult to predict per se, but if you go, you know, in a longer term, as we said that, look, there would be some 2-3 basis point in compression, you know, which will happen on an average basis, on an every year basis. This will continue for the next three-four years before the years get stabilized.
In terms of product lineup, you know, we have, you know, we have been consciously not been coming out with large new NFOs, as Sundeep in his conversation has mentioned last time also, that, you know, we will only bring in NFO when we believe that it is a very good, opportunity for an investor, and also it is something which is unique. Hence, per se, we do not have too many product lineup, but, would request Satya if you want to add something.
No, that's it.
Yeah.
Thank you. Can I just slip in one more? So yeah, just on the international flow into India, between Nippon Life support to the AMC, what kind of route would be preferred? Whether a mixed route will be preferred or direct investment will be preferred, or what is the outlook there? You know, when can we expect our audience coming there?
So I think broadly, to answer that, very difficult to specify which route will be preferred. Just to clarify, we are not talking about Nippon Life investing in India. What we are highlighting is Nippon Life helping us to get flows from other investors across the globe, and also Nippon Life, other companies, associates, example, like, I think we have launched, with the company in Europe, we have launched India Bond Fund. We have a couple of funds in Japan. So some are advisory, some are coming to... All funds are, institutions are different, and then they are taking a different route to come to India. Again, I'd like to clarify so that it's not misunderstood. Nowhere in the discussion we mentioned Nippon Life will be investing.
It is Nippon Life helping NAM India to get a global, distribution strategy to get flows from different, companies where they have invested or where they have a risk of relationship.
Great. Thank you. All the best.
Thank you.
Thank you. Next question is from the line of Gaurav Jain from ICICI Prudential Mutual Fund. Please go ahead.
Hi, sir. Thank you for giving me this opportunity. Just a follow-up on the previous question around systematic flows. When we say it is equally spread, do we mean it is equally spread across the five schemes of, large, mid, small, multi-cap, flexi-cap, is one? And second, given it is a 38%, quarter-over-quarter growth on systematic flows, is there an element of, small cap lump sum having moved and, this number expected to see a dip, eventually if people decide to stop small, et cetera? And also, if you can help us understand the SIP STP split here as well. Thank you.
So I think while we cannot give individual this say, the top five funds are getting 80% of the sales. I think we will not try to get into the individual category, which is coming or not. And as you have seen our business model, whether it is as an investor, whether it is a fund level, it is a previous business model where we do not want any city, any distributor, any particular fund, to get disproportionate shares. So I think broadly we can say, as I mentioned, top five funds get 80% of our sales. And, Gaurav, so, small cap is topped, you know, in July, but despite that, this quarter, more of systematic flows are being strong. This we have noted. That's number one.
Second, apart from small cap, the other strategies like mid cap, large cap, multi-cap, some of the hybrids are also getting flows. Yes, historically, small cap has been the larger contributor, but you know, over a period, it's spreading across other funds as well.
Okay.
Gaurav, are you there?
Yeah. Thank you.
Thank you.
Thank you. Next question is from the line of Saurabh Patwa from Quest Investment Advisors Private Limited. Please go ahead.
[audio distortion] .
Line is unmuted. Please go ahead.
Hello?
Yes, Saurabh, please go ahead.
Yeah.
On an industry-linked question. Within the last few quarters, I've seen the larger bank-led and bank is the only one who has been doing exceptionally well in terms of performance, and with the merger of one of your peers with a parent bank, which was not the case historically, how do you see the competitive intensity moving on?
... So, Saurabh, I think, broadly, the way we see, I think we've never been sponsored by a bank, and, I think we have always believed ultimately it's all about execution. It's a reality we are not sponsored by other bank, but that's also a positive for us. We have an open architecture with all the banks in the country. So all the banks sell us. I think this is very granular, I say, network. So I think I'll, the competitive environment ultimately, first, I think I would like to say, even right now, Indian mutual fund industry is very highly under-penetrated. While we have about now roughly about 50 players, I think we have to just go for another 50 or 100.
Ultimately, it's not about whether you are sponsored or you're part of the bank, because there have also been some bank-led AMCs which could not scale up. The key lies in the execution, and our focus will continue to be on execution and execution for profitable growth.
Sir, second question, on the passive. I think we've been the leader in that, because due to liquidity, but how are you seeing the other AMCs coming into that? And it's, like, more differentiated for, with a more broader universe. How do you see that panning out, in a-
So, Saurabh, our answer is exactly similar to this also, ultimately the execution. I think as and when regulations allow, I think we will also continue expanding our product suite in ETF. The only difference I'd like to give you is I think just seeing the global trend, unlike active, wherein I think you have always a lot of segmented players. Globally, if you were to see the passive business, typically the top two, three have a very high substantial market share, and then there is a very long tail. So it's... We need to see how it works out, but ultimately, like any business, it goes with the execution, and we will and the key is to keep responding to the needs of the investor.
I think as and when new differentiated products are allowed by the regulator, we will also continuously focusing on it.
Thanks a lot. Thanks a lot. I am all the best.
Thank you.
Thank you. Next question is from the line of Bharat Sheth from Quest Investment Advisors Pvt Ltd. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, in earlier question, when replying to pressure on the net yield, declining yield, so you said that... So is it fair understanding that increase in AUM because of new net inflow as well as increases due to the market-related activity also?
Yeah, yeah, both. You're right. Absolutely.
Okay. So in that slab, so at what slab we are—I mean, when we are saying that it will, pressure will remain for four-five years, so which slab we are? I mean, if you can... If suppose our inflow increase substantially, then the decrease in the yield will be much faster?
No, see, if you look at it, that every INR 1,000 crore of AUM increase, you lose 1 basis point. And till the time your particular scheme reaches INR 1,00,000 crore, you will keep losing it out.
Okay.
Okay? So that is how it works. And now this works both, you know, and first of all, it works on your book, total book. So your book is at X, and then it suddenly becomes X + 1,000, you will lose out on one, and that it will be impacted on the entire, your entire value, entire basket. So that is one. So secondly, you know, if this keeps going up, you know, the reasons for going up could be either your net new sales or due to market appreciation.
Got it.
Both these combinations will lead to higher increase AUM, and because of the increased AUM, you will have lower, you know, chargeable TER, and, you know, because of the lower chargeable TER, you will be, you know, earning less.
Okay. Thank you and all the best, sir.
Thank you.
Thank you. Next question is from th e line of Arushi Shah from Sushil Finance. Please go ahead.
Hello, am I audible?
Yeah.
Yeah. Hi, [audio distortion].
Sorry, Arushi, your voice is very low. Please speak little louder or come close, come closer to the device.
Hello, better now?
Yes, it's better now.
Yeah. Thanks. I'm sorry. So, I just wanted some clarity. When you said that the hybrid funds are now going to gain more traction, so the hybrid fund yields are more like the active fund yields or more on the ETF side, like, you know, and going further, how could the yields for the hybrid funds shape up?
Yeah. So, see, when we say this, so one, I'm saying in the context of Dinesh's question on a macro basis, because the tax break has been taken away on the debt side of it, and therefore, you know, we will see more money coming on the, you know, over the period on the hybrid side. As far as the hybrids are concerned, you know, those we earn on a equity slab. So those are considered anything which is having more than 65% equity are earning on a equity slab basis.
It seems that we have lost the line of the current questioner, so we will move to our last question of the day from the line of Anthony John, an individual investor. Please go ahead.
So I would like to know is, just towards the end of your, when you have said some strategic sale could be there in the offering in the future, could you just explain that?
... So I think I'll just get acquisition. So I think if what I mentioned was that we continue to remain open for strategic opportunities wherever it adds value to our existing businesses and it is lucrative for our, you know, for profitability point of view. So I think it is, again, clarifying nothing to do with sales, it is about acquisition.
So which means you would be looking into acquisition of some AMCs?
I will not like to qualify that. I think I just, we remain open for any acquisition which adds value whether it's for the business, AMC, mutual fund or any other part of the business that the regulation allows which can add, increase the ROE for the business.
Okay. Is there any timeline for it, sir?
No, I think we will not. I think we continuously keep evaluating as a company, the more we keep evaluating various opportunities. I think as and when we have something, I think we'll be coming to you, and informing through the stock exchange.
Thank you, sir.
Thank you very much. Ladies and gentlemen, this was the last question for the day. I would now like to hand the conference over to the management for the closing comments.
Thank you, all for joining this call. We call it an end to this conference. Thank you so much.
Thank you very much. On behalf of ICICI Securities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.
Thank you.