Is Nippon Life India the best performing AMC stock in India?

If you believe in mutual funds that can create wealth in the long run, you have two options. Choose from hundreds of mutual funds or buy shares of an Indian listed asset management company (AMC).

Although mutual funds and direct stock investing offer different financial goals and risk tolerances, the fates of AMC stock investors and mutual fund investors are closely intertwined.

Among the 44 asset management companies (AMCs) in India, the top 10 manage nearly 80% of the total assets under management. Currently, only four of these AMCs – HDFC AMC, Nippon Life India AMC, Aditya Birla Sun Life AMC and UTI AMC – are publicly listed.

Among the four companies, Nippon Life India AMC has delivered superior returns compared to its competitors. Last year, the company recorded a return of 123.24% compared to HDFC AMC’s return of 115%. So does it make sense to jump into this multi-bagger run?

Nippon Life India AMC – Continued growth in the mutual fund industry

In FY23, the total assets of the mutual fund segment grew by 5% to ₹39.4 lakh crores (₹40.5 lakh crores in QAAUM terms). In March 2023, monthly SIP flows totaled Rs 14,300 crore, the highest ever.

In March 2023, total SIP folios grew by 21% year-on-year, while total SIP AUM grew by 19% to ₹6.8 lakh crores. In FY23, the number of active Demat accounts in India grew by 27% to reach $11.4 billion. The industrial MF portfolio increased from $13 million to $14.6 billion in March 2022.

Despite low market returns, the expansion of the asset management industry has been driven by increased financialization, increased awareness, and improved access to mutual funds.

Over the past decade, people have increasingly chosen financial assets over physical assets to achieve their long-term savings goals. After two years of COVID-19, the share of mutual funds in family financial savings returned to over 6% in 2021-2022.

Nippon Life India AMC Company Overview

Nippon Life India Asset Management (NAM India) is one of India’s leading asset management institutions with a track record of over 27 years and total AUM of ₹3.77 lakh crores as of December 2023.

The company has the highest investor base of 22.5 million and added 1.2 million folios in Q3 2024. It also has 15.5 million unique investors and a market share of 36.9%.

Its subsidiary is Nippon Life India Asset Management (Singapore) Pte. Ltd., Nippon Life India Asset Management (Mauritius) Ltd. and Nippon Life India AIF Management Limited.

The company is sponsored by Nippon Life Insurance Company, one of Japan’s leading private life insurance companies with assets of over $722 billion as of March 31, 2023.

Business divisions of Nippon Life India AMC

The company participates in management.

(i) Mutual funds, including exchange traded funds (ETFs)

(ii) Managed Accounts, including Portfolio Management Services (PMS);

(iii) Alternative investment funds and pension funds

mutual fund

Nippon India Mutual Fund (NIMF) offers a variety of products including equity, debt, liquidity and ETFs to meet the diverse needs of investors. The company began its mutual fund activities in 1995 as an asset manager for Reliance Mutual Fund.

We continually strive to introduce innovative products and customer service initiatives to increase value for our investors. As of March 31, 2023, the company’s QAAUM was ₹2,93,159 Crores.

The company boasts the largest investor base in the industry at $1.96 billion. As of March 31, 2023, NIMF manages 98 schemes (18 in the capital sector and 41 in the passive sector).

AIF

Its subsidiary Nippon Life India AIF Management Limited (NIAIF) is one of the most prominent investment managers in the Indian alternative investment industry. In FY23, the company’s commitments exceeded ₹5,000 crores and the year ended with ₹5,600 crores.

NIAIF has launched 19 AIF programs divided into Category II and III. NIAIF offers a variety of strategies, including listed equity, high-yield real estate debt, credit, and technology/VC FoF.

PMS

The company provides portfolio management services to high net worth individual and institutional clients. It is one of the few AMCs in India that has previously won and handled multiple prestigious government contracts.

Currently, investors can choose from four equity strategies, and all PMS investment strategies outperform their benchmarks and peer groups over time. As of March 31, 2023, the total AUM of the company’s managed accounts business was approximately ₹61,600 crore.

Finance of Nippon Life India AMC

In fiscal 2023, NAM India saw a decline in revenue of ₹1,512 crore, down 1.4% compared to ₹1,533 crore in fiscal 2022. Analyzed over a four-year period from FY2020 to FY2023, the company recorded its revenue at a compound annual growth rate (CAGR) of 8.25%.

At the same time, net profit declined slightly, down 3% from ₹744 crore in FY2022 to ₹723 crore in FY2023. Cumulative net profit recorded a CAGR of 20.33% over the four years from fiscal year 2020 to fiscal year 2023.

In FY23, NAM India maintained favorable financial metrics with Return on Equity (ROE) of 15.43% and Return on Invested Capital (ROCE) of 18.03%.

Nippon Life India AMC’s future plans

focus on retail

As a non-bank funded AMC, NAM’s priority has always been to expand the retail market as expanding its ticket volume base is difficult. This approach has proven successful as NAM’s unique investor base has registered a compound annual growth rate (CAGR) of 26% between FY19 and FY23, outperforming the industry average of 18% and HDFC AMC’s 5.6%.

The retail-focused strategy has also resulted in additions to the portfolio. NAM’s expansion has outpaced its sector and contemporaries. Folio for NAM recorded a CAGR of 21% during FY19-23, compared to 15% for the industry and 5.8% for HDFC AMC.

Since we do not have bank support, the goal was to delve deeper geographically. As a result, the company has expanded in the B-30, resulting in a higher B-30 stake (percentage of active equity) than some of its peers. In terms of B-30 market share, NAM is also showing continued growth. From March 22 to December 23, market share increased from 17% to 20%.

Leadership position in passive categories

The company holds the largest market share in the ETF segment with assets of ₹70,024 Crores. With 25 ETF systems and 13 index funds, we offer the widest range of passive products in the industry.

Nippon India Mutual Fund (NIMF) has successfully launched a number of new funds in this category, demonstrating its strong commitment to the ‘investor first’ principle. NIMF holds 61% of the industry folio market share with 102 lakh folios and added around 17 lakh folios in FY23 compared to 62 lakh folios in FY22.

NIMF’s ETF scheme accounts for approximately 70% of total exchange volume. HNIs have continued to participate in passive products, demonstrating increased adoption by the evolved investor class.

conclusion

As Nippon Life India Asset Management Limited (NAM India) continues to strengthen its presence in the Indian asset management landscape, investors face an important decision. NAM India has demonstrated resilience and innovation through its focus on retail expansion and leadership in passive investments.

When considering the future of this dynamic company, investors should evaluate its strategic initiatives against market dynamics. What do you foresee as the future direction of NAM India?

Written by Narin Surya

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