NAM-INDIANSEQ2 FY23October 27, 2022

Nippon Life India Asset Management Limited

6,400words
83turns
9analyst exchanges
7executives
Management on call
Jignesh Shial
InCred Equities
Sundeep Sikka
ED & Chief Executive Officer
Prateek Jain
Chief Financial Officer
Saugata Chatterjee
Co-Chief Business Officer
Aashwin Dugal
Co-Chief Business Officer
Arpanarghya Saha
Chief Digital Officer
Hiroshi Fujikake
Chief Planning & Business
Key numbers — 40 extracted
3%
try maintained its growth momentum driven by higher retail awareness. The industry assets rose by 3% in this quarter mainly driven by higher equity and ETF assets. However as we look back, the indus
4x
ly driven by higher equity and ETF assets. However as we look back, the industry assets have seen 4x growth in last 10 years. Yet we believe that the significant growth potential still remains unrea
36 million
lation invests in mutual funds. In the last 24 months alone, the base of unique investors grew to 36 million - an increase of 69%. Monthly SIP flows touched all time high of Rs. 130 billion - an increase of
69%
ds. In the last 24 months alone, the base of unique investors grew to 36 million - an increase of 69%. Monthly SIP flows touched all time high of Rs. 130 billion - an increase of 67%, while SIP folio
Rs. 130 billion
que investors grew to 36 million - an increase of 69%. Monthly SIP flows touched all time high of Rs. 130 billion - an increase of 67%, while SIP folios increased to 58 million - a rise of 75%. The growth in inv
67%
- an increase of 69%. Monthly SIP flows touched all time high of Rs. 130 billion - an increase of 67%, while SIP folios increased to 58 million - a rise of 75%. The growth in investor base and consis
58 million
lows touched all time high of Rs. 130 billion - an increase of 67%, while SIP folios increased to 58 million - a rise of 75%. The growth in investor base and consistently higher SIP flows clearly indicate i
75%
igh of Rs. 130 billion - an increase of 67%, while SIP folios increased to 58 million - a rise of 75%. The growth in investor base and consistently higher SIP flows clearly indicate investors’ prefer
7%
2, our industry ranking moved to fourth position on quarterly average AUM basis. AUM increased by 7% to Rs. 2,851 billion. At Nippon India Mutual Fund, investor’s interest remains our only constant.
Rs. 2,851 billion
industry ranking moved to fourth position on quarterly average AUM basis. AUM increased by 7% to Rs. 2,851 billion. At Nippon India Mutual Fund, investor’s interest remains our only constant. We added 1.6 million
1.6 million
851 billion. At Nippon India Mutual Fund, investor’s interest remains our only constant. We added 1.6 million folios in H1 and Nippon Life India Asset Management Limited October 19, 2022 contin
37%
largest base in the mutual fund industry. Our share of industry’s unique investors was stable at 37% with a base of more than 13 million investors. Systematic flows are a stable and key driver for i
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Guidance — 17 items
Sundeep Sikka
opening
“Formalization of the economy, digitalization, and higher share of mutual funds in housing savings are expected to be the key drivers for the growth of the industry going forward.”
Sundeep Sikka
opening
“Through a combination of responsible investment approaches of screening ESG integration and active ownership, we aim to build a resilient portfolio that will not only provide sustainable returns to our investors but will also provide a positive environment and social impact.”
Prateek Jain
qa
“At that point of time, our propensity to charge will be even higher.”
Prateek Jain
qa
“Also the yields will be higher and, therefore, you will get the double impact.”
Prateek Jain
qa
“I am sure that will be able to offset the realization dip in the equity assets.”
Prateek Jain
qa
“However, I would ask Chatty to talk about how he sees flows going forward.”
Prateek Jain
qa
“All the money, which has gone out, will come back to the fixed income category from the corporate and intuitional investors and, then they will ride on to the fact that when the interest rates goes down, as part of the cycle, higher yields will be made into these products.”
Prateek Jain
qa
“When there are high yields, our propensity to charge will be higher.”
Prateek Jain
qa
“But we do not give any kind of forward guidance on our other income.”
Sundeep Sikka
qa
“At this point of time, it has just started and there will be couple of other products which will be launched across the global.”
Risks & concerns — 15 flagged
However, it ended on a volatile note due to the ongoing geopolitical concerns, global inflationary trends and weaker INR to USD movement.
— Sundeep Sikka
Also in volatile markets, folios with lower ticket size have demonstrated longer vintage and better stickiness.
— Sundeep Sikka
What are the factors that are driving the decline in the debt AUM for the industry and NAM India, and secondly, if you see sequentially, our realization has improved on overall basis and that has resulted in improvement in our core operating profits as well.
— Kunal Thanvi
At NAM India, there has been a marginal decline mainly because our growth, over the last two years, was on the back of fixed income flows and partially from some corporates.
— Aashwin Dugal
As the old asset versus the new assets change happens, then obviously, you will see some decline.
— Prateek Jain
If we see the banking challenge, like one year ago, the share of AUM which was coming through the bank channel was about 10%.
— Lalit Deo
Clearly whenever the markets are volatile, it is HNI investors and the bulk money, which moves out fast and, comes in when their movement is faster.
— Aashwin Dugal
So again there, I see a very marginal decline and that is because, from the industry perspective also, the bank share has come down.
— Prateek Jain
But it is do with our subsidiary, so certain PLI expenses which booked into the first quarter and, therefore, there is a marginal decline in staff cost.
— Prateek Jain
So is there a change in the mix towards the credit risk or those sorts?
— Sahej Mittal
Our sharing remains pretty much the same as what we were paying earlier and, obviously as I mentioned, the more new money replaces the old assets, then obviously we will see some decline.
— Prateek Jain
So over a period of time, we may see two to three basis points of decline, if this money gets replaced by the new assets.
— Prateek Jain
On the existing, it may not, but if the new AUM comes and the old asset keeps going down, then obviously, you will see some decline in the equity yields.
— Prateek Jain
I think it will be very difficult to give these kind of details.
— Sundeep Sikka
Which distributors, which channel we will promote more and, again from a geography point of view, it will be very difficult to pinpoint how a particular pocket, whether geographically or channel wise, works.
— Sundeep Sikka
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Q&A — 9 exchanges
Q
Hi thanks for the opportunity. So I had two questions. First was on the debt side of the business. So, if you look at the entire industry and even for NAM India, that has been degrowth for the last two quarters. I wanted to understand what is happening there. Is it due to performance or is it because of shift from active debt to passive debt. What are the factors that are driving the decline in the debt AUM for the industry and NAM India, and secondly, if you see sequentially, our realization has improved on overall basis and that has resulted in improvement in our core operating profits as we
Aashwin Dugal
Thanks for your question. Regarding the debt flows that have reduced. First, at the industry level and that is quite evident because of the overall deteriorating macros, whereas the central bank action worldwide and also being followed by the central bank in India, which is to increase interest rates. The yields across the curve, both in short term and long term, have gone up quite substantially, especially at the shorter end and, hence, we have seen outflows from the debt funds into overnight and liquid schemes. If you see the trend, you would see in the last six months, our debt funds have l
Q
Good evening Sir. Thank you for the opportunity. Sir my question on the distribution side. If we see the banking challenge, like one year ago, the share of AUM which was coming through the bank channel was about 10%. However it has declined like 8.5-8.7% in this quarter. Now with majority of our schemes now performing in quarter 1 and quarter 2, so what is the outlook over there and how is the response we are getting from the banking channel.
Prateek Jain
Banks, for us was about 9% in overall scheme of things and, if I take the direct out, it was about 18 to 20%. So, even if that declines, it does not really mean much for us. However, I would ask Chatty to talk about how he sees flows going forward. In case of the banking channel, what was our handicap earlier were the approvals. Since the equity performance has come back, good part is that in most of the channels and the banks, we have the approvals in place. The approvals are now getting converted into business volumes for us on the equity side. We have a bit of catch up on the debt side in s
Prayesh Jain
Q
Hi this is Prayesh Jain. Just three questions. Firstly if you look at how the redemption have shaped up on the equity side for the industry. Those have been kind of increasing in the last couple of months, any early trends to catch there. There is some profit taking or some issues out there where there are increased redemptions? Secondly, on the fee and commission expenses, we have seen an increase. What is that pertaining to and, thirdly, from other income perspective, do you think that the current run rate what you have achieved in this quarter, given if the yields remains where they are and
Prateek Jain
As I mentioned in the call that the fee and commission expenses are pertaining to our AIF and PMS business. So, in AIF, we pay up front commission. If you get larger amount of assets in the quarter, you will see marginal increase in terms of fee, but obviously, the corresponding revenue will come with a lag effect. So that is the expenses, fee and commission side of it. In terms of realization, as I mentioned, these are more sustainable at this point of time. If we see the interest rate peaking up from here, then a lot of money will come into the fixed income category. All the money, which has
Q
Thank you for taking my question. I wanted to understand as the competitive intensity in the industry goes up, different players have to pay more commissions to the distribution partners, as we have seen in some NFOs. How easy is it to close at these commission levels? Once the higher levels are given, it stays that way permanently?
Sundeep Sikka
Manjeet, we have always been very clear that long term business model cannot be made by paying higher brokerages. So we have been pretty conscious on it. We would not like to do something which is not sustainable from a long-term point of view. We have never gone overboard, wherein we will have to undo things later. Okay thank you.
Q
Thank you. My question is NAM has collaborated with DWS group to provide portfolio management and advisory services in European market for Indian government bond. So as far as the current situation is concerned, the recession part, what would be the upcoming plan from Nippon and is Indian businesses showing stable growth as compared to the European market, that is my question?
Sundeep Sikka
The launch of product with DWS is in line with our strategy to grow our non-mutual fund business and offshore business. As we have mentioned in the past, we closely work with the Nippon Life team globally to look at opportunities, where we can collaborate with the various group companies of Nippon Life. There are many more such initiatives where work is in progress. This fund was launched just about a month back. At this point of time, it has just started and there will be couple of other products which will be launched across the global. But the focus will remain to get more money into India.
Q
Hi this is Prayesh here again. Just your thoughts on the hybrid segment. The industry has seen a lot of outflows in the past few months and, is there any particular reason for that?
Saugata Chatterjee
Prior to the volatility in the market, there was more flows coming into the large cap, mid cap categories. Like you are rightly saying, in the last six months, we have started seeing more flows in hybrid. As the volatility increases, the trend shifts towards balance fund, hybrid fund, so we are seeing that trend happening today. Even if the volatility continues for the next 6 to 12 months, this category will start growing and that should be a good thing for the industry because these are stable long-term assets, which come into balance funds. My question is we were actually witnessing outflow,
Q
Hi good evening everyone. There is some improvement in the equity yields, right? So, is this something structural? Is the improvement structural in nature, is it sustainable? Second, there was some dip in the staff cost, so any colour on this and, third was on your channel mix. So there is some sharp dip in the share of banks, if you could throw some colour there as well. I am sorry if you have already these questions. I joined the call a bit late.
Prateek Jain
No issues. In terms of yields, the overall yields are marginally up as compared to the previous quarter and, as I explained in the past that this is predominantly because we have improved our realization on the fixed income scheme and, I have given a detailed explanation for that. Also, our asset mix has marginally improved in terms of overall longer term high yielding assets and, these are pretty sustainable and not one off. Also, as Sundeep was mentioning, we will keep working in terms of our product offering, the distribution commission which are sustainable and will not go overboard, in te
Q
Hi good evening. There are three questions from my side. One has been the previous Nippon Life India Asset Management Limited October 19, 2022 discussion. Would you like to quantify the differential between your existing and new business from yield perspective? Second question will be on the SIP business. If you can give some colour on what is the key distribution channel or origination channel for the SIP? Is it more direct or fintech-led or through the distribution and, third question is, from the industry perspective, what we have witnessed, there has been significant amount of flows that i
Prateek Jain
Dipanjan, if can you just repeat your first question? In the previous discussion you mentioned that the new yields continue to be lower than the existing yield. So would you like to kind of quantify, what is the differential outlook? On the old assets, our average distribution commission paid was 50 to 60 basis points. However, now it is more on a TER sharing basis. So, obviously, for different distributors we share different amount of fees and, it ranges between 55 to 70% of our TER. We share distributable TER with our distributors. So that is the difference, because in the past, on the old a
Q
Yes thanks for the opportunity. Sir just wanted a couple of data points. What is your current blended yield on your equity book and what is the yield on the new flows that you are getting.
Prateek Jain
So, we do not give product wise yields and what was your second question? Nippon Life India Asset Management Limited October 19, 2022 Second question was I wanted the yield on the new flows. But if you cannot give specific yields, even if you can give out the differential between your current book and the new, that will also be fine. On the old assets, the average distribution commission paid out will be in the range of 50 to 60 basis points and, on the new money, which we are receiving post the change in the regulation, we share almost 55% to 70%, on an average, of our TERs with various distr
Speaking time
Prateek Jain
18
Moderator
12
Prayesh Jain
9
Sahej Mittal
8
Sundeep Sikka
6
Saugata Chatterjee
6
Dipanjan Ghosh
5
Kunal Thanvi
4
Rahul Picha
4
Aashwin Dugal
3
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Opening remarks
Management
Mr. Sundeep Sikka - ED & Chief Executive Officer Mr. Prateek Jain - Chief Financial Officer Mr. Saugata Chatterjee - Co-Chief Business Officer Mr. Aashwin Dugal - Co-Chief Business Officer Mr. Arpanarghya Saha - Chief Digital Officer Mr. Hiroshi Fujikake - Chief Planning & Business Excellence Officer Nippon Life India Asset Management Limited October 19, 2022
Jignesh Shial
Thank you Tanvi. Good evening everyone. On behalf of InCred Equities, I welcome all to Nippon Life India Asset Management Limited 2Q FY2023 earnings conference call. We have along with us Mr. Sundeep Sikka ED and CEO along with the top management team of Nippon Life India Asset Management. I would like to hand over to Mr. Sikka, for his opening remarks. Over to you Sir!
Sundeep Sikka
Thanks Jignesh. Good evening everyone and welcome to our Q2 FY2023 earnings conference call. We have with us, our Chief Financial Officer Prateek Jain, Chief Business Officers Mr. Saugata Chatterjee and Mr. Aashwin Dugal, Chief Digital Officer Arpanarghya Saha and Fujikake-san, representative from Nippon Life. Our detailed investor presentation and press release have been uploaded on the exchanges as well as on our websites. Before we take your questions, let me share some comments on the recent industry trends and our quarterly performance. In Q2, equity markets rebounded from the lows of June 2022. However, it ended on a volatile note due to the ongoing geopolitical concerns, global inflationary trends and weaker INR to USD movement. Despite the mixed overall outlook, Indian asset management industry maintained its growth momentum driven by higher retail awareness. The industry assets rose by 3% in this quarter mainly driven by higher equity and ETF assets. However as we look back, t
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