Summary of this article
HDFC AMC Share Price: Shares of asset management companies traded under pressure on October 29 after Sebi proposed major changes to regulations governing the fees levied by mutual fund houses.
HDFC AMC share price fell nearly 7 per cent to an intraday low of Rs 5288 apiece on the NSE. Shares of asset management companies also witnessed declines in early trade after the Securities Exchange Board of India (Sebi) proposed changes to mutual fund regulations. Other stocks which declined significantly in early trade included Aditya Birla Sun Life AMC which slipped over 5 per cent to an intraday low of Rs 767.2 apiece on the NSE and Motilal Oswal Financial Services Ltd which slipped over 6 per cent to an intraday low of Rs 5288 apiece.
Why Are AMC Stocks Declining
Asset management company (AMC) stocks declined in early hours of October 29 after the the Sebi proposed changes such as a reduction in the total expense ratio (TER) and new, lower caps on brokerage fees charged to mutual funds. While Sebi’s proposed changes are expected to aid mutual fund investors by lowering the overall costs of investment, news related to the changes sparked a selloff. The proposed changes led to a rise in investor concerns regarding the impact of the proposed changes on the revenue earned by AMCs.
Some of the major changes proposed by Sebi which impacted investor concerns include the introduction of a cap or limit on the amount of brokerage fees which AMCs can charge for trade in cash and derivatives. The proposed change is expected to affect AMC revenues especially for major players which have huge amounts of Assets Under Management (AuM).
Presently AMCs can charge brokerage up to 0.12 per cent or 12 bps of the total traded value in the cash market and 0.05 per cent in the derivatives market. The market regulator has sought to bring down the charges to 0.5 per cent or 5 bps for cash market transactions and 0.1 per cent or 1 bps for derivative transactions.
The market regulator also proposed removing additional charges such as an additional 5 basis points (bps) expense charge which AMCs were allowed to charge on assets under management (AUM). Other major changes include the adjustment of the Total Expense Ratio (TER). The regulator has proposed that securities transaction tax (STT), goods and services tax (GST), commodity transaction tax (CTT), and stamp duty will not be included in the Total Expense Ratio. Notably, the TER is a fee charged to mutual fund investors by asset management companies.
The proposed measures are expected to increase transparency and reduce costs for investors but are likely to squeeze the profit margins of fund houses.
Nifty Capital Market Index Slips
The Nifty Capital market index also witnessed a significant decline on October 29. The Nifty Capital Market index slumped over 3 per cent to trade at an intraday low level of 4500.9. The decline came as stocks of AMCs traded lower. Notably seven of the 15 constituents of the index are asset management companies.
At the time of writing, AMC stocks extended declines, shares of Motilal Oswal Financial Services Ltd traded lower by 7.67 per cent at Rs 1,007.6 apiece on the NSE. Nippon Life India Asset Management Ltd shares traded at Rs 859.65 apiece on the NSE, down by 5.02 per cent and shares of HDFC AMC traded at Rs 5,390 apiece down by 4.54 per cent.
Shares of Kfin Technologies and Computer Age Management Systems also came under pressure as they offer registrar services to major mutual fund houses in India, any potential decline in the operations of mutual fund businesses is also likely to negatively impact registrar’s business.
