HDFC AMC debuted on 10th August 2018. The price that it closed was ₹ 1748. Current CMP (December 2019) is ₹ 3220 (BSE Price).
A growth of more than 100%. That too from a large cap, zero debt company.
Yes, 100% growth within 1 year of IPO, large cap zero debt company.
A very rare occurrence in stock market, with regards to growth in stock market.
Let’s read into the reasons that led to this awesome growth and if more growth is left in HDFC AMC share prices?
Reasons for more than 100% growth of HDFC AMC
Overall HDFC Asset Management Co. ticks all the right boxes when it comes to investment analysis of any company.
The company showed consistent growth and above average operating margins.
Let’s look into these reasons in depth to validate the reasons of current growth:
Even before the IPO last year, HDFC AMC showed consistent growth in its mutual fund business.
As per this news report published last year, the growth rate was consistently near 20% Y-o-Y.
Above average Operating Margins:
Not only does HDFC AMC managed to gather most market share and have a healthy debt:equity ratio of 50-50, it also knows how to extract maximum profit.
Operating Margin stands nearly 74% – one of the highest in industry.
Popular choice among retail market – Brand Value:
This is one of the most important reasons of growth in market share. HDFC Mutual Funds are one of top choices for retails investors.
Fund Management team has managed to prove their mettle by showing regularly showing better results than market.
Overall growth in Mutual Fund industry
Though above mentioned factors are strongly in favour of HDFC AMC as long term investment, this current price rise is also mainly due to increase in cash inflow into mutual fund industry.
Right now and also since last couple of years, mutual fund industry is high growth industry.
With rise in market, more and more people have started their investments in mutual funds. And those already invested have increased their monthly SIP commitments.
Thus, this leads to the question – Will this growth sustain?
Will this growth sustain?
In near future, there is no planned change in the management structure or business model of HDFC AMC.
This internally there is no factor which is going to effect the operating margin or cash flow of the company.
Which means, the factors which can effect the growth is mainly going to be external. In this case, it is the growth of mutual fund industry on whole.
Now, as far as mutual fund industry is concerned, it is still a high growth industry. Apart from few hiccups here and there, market conditions are positive.
More and more people are willing to invest in good mutual funds to get the benefit of growing Indian stock market.
A very detailed news article was recently published by Economic Times with regards to Growth in Mutual Fund Industry in India in next decade.
HDFC AMC’s fund are currently not holding the top ranks in the list of best mutuals funds, but they are not far from the top also.
What can not be denied is their strong research and investing approach.
Indian market is going through a phase of adjusting to new challenges in overall economy.
Index is making new high, whereas several companies are still lagging behind.
Such phases always leads to new companies and sectors creating new highs in their own bull runs.
Which means Indian market has yet to cover a lot of growth. Any fund which is investing in such market with diligent approach is going to have amazing results.
Thus, it makes a HDFC AMC a good candidate for investing for long term.