NAM-INDIANSEQ2 FY24November 2, 2023

Nippon Life India Asset Management Limited

7,349words
89turns
14analyst exchanges
7executives
Management on call
Sundeep Sikka
EXECUTIVE DIRECTOR & CEO, NIPPON LIFE INDIA ASSET MANAGEMENT LIMITED
Prateek Jain
CHIEF FINANCIAL OFFICER, NIPPON LIFE INDIA ASSET MANAGEMENT LIMITED
Saugata Chatterjee
CHIEF BUSINESS OFFICER, NIPPON LIFE INDIA ASSET MANAGEMENT LIMITED
Arpan Saha
CHIEF DIGITAL OFFICER, NIPPON LIFE INDIA ASSET MANAGEMENT LIMITED
Arun Sundaresan
HEAD OF PRODUCT & IR, NIPPON LIFE INDIA ASSET MANAGEMENT LIMITED
Shin Matsui
SAN – NOMINEE OF NIPPON LIFE INSURANCE, JAPAN
Ansuman Deb
ICICI SECURITIES LIMITED
Key numbers — 40 extracted
2%
rkets: Equity markets of Q2 FY24 showed divergent performance while the Nifty 50 increased only 2%, Nifty mid cap and small cap indices rose by 13% and 16% respectively. RBI held the repo rate ste
13%
ent performance while the Nifty 50 increased only 2%, Nifty mid cap and small cap indices rose by 13% and 16% respectively. RBI held the repo rate steady at 6.5% while the 10-year G-Sec yield increas
16%
ormance while the Nifty 50 increased only 2%, Nifty mid cap and small cap indices rose by 13% and 16% respectively. RBI held the repo rate steady at 6.5% while the 10-year G-Sec yield increased by 10
6.5%
mid cap and small cap indices rose by 13% and 16% respectively. RBI held the repo rate steady at 6.5% while the 10-year G-Sec yield increased by 10 basis points quarter-on-quarter with 7.22%. Comin
10 basis point
6% respectively. RBI held the repo rate steady at 6.5% while the 10-year G-Sec yield increased by 10 basis points quarter-on-quarter with 7.22%. Coming to the data on Mutual Fund Industry: The industry grew
7.22%
steady at 6.5% while the 10-year G-Sec yield increased by 10 basis points quarter-on-quarter with 7.22%. Coming to the data on Mutual Fund Industry: The industry grew by 9% quarter-on-quarter in Q2 F
9%
arter-on-quarter with 7.22%. Coming to the data on Mutual Fund Industry: The industry grew by 9% quarter-on-quarter in Q2 FY24 to INR 47 trillion. This is the highest quarterly growth since Q2 F
INR 47
ing to the data on Mutual Fund Industry: The industry grew by 9% quarter-on-quarter in Q2 FY24 to INR 47 trillion. This is the highest quarterly growth since Q2 FY22. On a year-on-year basis, the quarter
20.3%
hest quarterly growth since Q2 FY22. On a year-on-year basis, the quarterly average AUM grew by 20.3%. Moving to Flows: 1) The equity category excluding index and arbitrage witnessed a gr
INR 1.55
Moving to Flows: 1) 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-q
INR 492 billion
y 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
INR 471 billion
systematic investment plans has further increased with the SIP contribution to the quarter being INR 471 billion, 25% higher than Q2 FY23 and 9% higher than Q1 FY24. 3) Monthly SIP flows in September 2023 sto
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Guidance — 16 items
Moving to Flows
opening
“At the end of the quarter, unique investors in the mutual fund industry increased to 40.4 billion, while the industry folios increased to 157.1 million increasing financialization, higher awareness, better reach through new-age tech platforms and distribution networks should see continued growth for the industry going forward.”
Moving on briefly to the ETF Segment
opening
“These investments commenced in the beginning of July 2023, and we are seeing approximately one-fourth of the incremental EPO flows going forward.”
In Conclusion
opening
“We remain excited about the business opportunities going forward.”
Swarnabha Mukherjee
qa
“So, how should we think about the blended yields going forward?”
Sundeep Sikka
qa
“To your other question, the blended yield will come down going forward.”
Sundeep Sikka
qa
“The EPFO money will be coming separately, and you should not mix it up with the overall yield because that may not give you the right picture.”
Abhijeet Sakhare
qa
“Last one, just a question on OpEx, like this quarter, we had the benefit of strong operating leverage despite double digit expense growth, but looking ahead, do you see any possibilities of 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?”
Sundeep Sikka
qa
“We have articulated in past also, we strongly believe both digital and physical will remain our strength going forward.”
Sundeep Sikka
qa
“The other part is basically what we have seen is smaller the ticket size the 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 our data because today the fact remains it is having 20 million investors and for some of these investors, we have a history of more than 10, 15, 20 years, this is going to be a very important part of our strategy going forward how do we put this data to use.”
Prateek Jain
qa
“Also, with regards to the trajectory going forward, it will be a bit difficult because if we continue to get this kind of significant flows, then obviously the yield compression can be as high as what we have seen in the last quarter, but I am sure this will not remain as high and I could say jokingly that look last one month has been something where market has corrected.”
Risks & concerns — 13 flagged
6) The performance of our large equity schemes remained 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 FY24.
— Moving to Flows
This bodes well for the volatile markets where folios with low ticket size have demonstrated longer vintage and better stickiness.
— Moving to Flows
Briefly, moving onto ESG: 1) As a signatory to UN-PRI, we are integrating ESG spreads into various aspects of planning, operations, fund management, risk, and governance.
— Moving on to a strong Distribution Franchise
2) Our ESG ratings are amongst the best in the financial services industry with NAM India now rated ‘Low Risk’ as per Sustainalytics.
— Moving on to a strong Distribution Franchise
We continue to focus on sustainable profitable growth for our shareholders in the backlog of our distribution network, institutionalized processes, and strong risk management.
— In Conclusion
The overall yield has remained about 41 basis points and on the segmental one as I mentioned to you that because of the size impact and because of the new flow impact on the equity, there has been a decline in sum for the overall equity realization.
— Prateek Jain
Last one, just a question on OpEx, like this quarter, we had the benefit of strong operating leverage despite double digit expense growth, but looking ahead, do you see any possibilities of 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?
— Abhijeet Sakhare
Also, the market has been bit volatile, therefore industry is also not going and pushing that hard, so this is combination of all of these things.
— Prateek Jain
I would say that the competitive pressure which was there once on the yields have reduced and we are seeing higher revenue on the new NFOs, like these are in excess of our current book as well, what we are earning on the new NFOs.
— Prateek Jain
Also, with regards to the trajectory going forward, it will be a bit difficult because if we continue to get this kind of significant flows, then obviously the yield compression can be as high as what we have seen in the last quarter, but I am sure this will not remain as high and I could say jokingly that look last one month has been something where market has corrected.
— Prateek Jain
Once the AUM goes down, we start earning slightly higher, so I would say that looks difficult to predict per se, but if you go, in a longer term as we said that look there would be some 2-3 basis point yield compression which will happen on an average basis on every year basis.
— Prateek Jain
So, broadly, to answer that it is difficult to specify which route you prefer.
— Sundeep Sikka
So, in that slab, so at what slab we are, I mean when we are saying that pressure will remain for 4-5 years, so which slab we are, if you can give, suppose our inflow increased substantially, then decrease in the yield will be much faster?
— Bharat Sheth
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Q&A — 14 exchanges
Q
Sir, 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 slight sequential dilution in this, while at a consolidated level there has been expansion in the yields, so if you could highlight what would be the reason for this and what impacted the mutual fund business because of which there is a slight reduction in this and whether outside the MF business we are seeing higher level business? That would be my first question. Secondly in terms of gross inflow if you could highlight how our market share
Sundeep Sikka
You have three questions. I will 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, EPFO would be investing about Rs. 15,000 crores, per annum per AMC. This is going to be coming into distinct funds, so whatever the fees that we have been charging even before the EPFO mandate that will continue. It is right now coming in Nifty ETF, and we are at this point of time charging ~4 basis points. To your other question, the blended yield will come down going forw
Q
Just wanted to get a sense on 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?
Prateek Jain
So, as mentioned, there has not been a significant movement on the yield side of it. The overall yield has remained about 41 basis points and on the segmental one as I mentioned to you that because of the size impact and because of the new flow impact on the equity, there has been a decline in sum for the overall equity realization. This is because this is governed more by the SEBI formula because if you see Quarter 2 itself our annualized net sales is 3X of what we did in FY23. So, we are getting a very disproportionately high share of net sales and the overall AUM has also grown about 17.5%.
Q
Sir, I just have one question on the distribution side, so like as you mentioned that we are seeing like about 7% 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 flows and which are the segments where we want to see more pickup in this distribution channel?
Sundeep Sikka
Broadly, it is across the board we are seeing the increase in market share, but from our point of view, as always, we have articulated our strength lies in retail and it also makes economic sense because retail flows are stickier. 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 stickier, but broadly our market share increase across all these segments have been equal. And sir, just two data keeping questions, so like you mentioned that this quarter we have a net addition of 70 basis points on the equity,
Q
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 last few months or quarters seeing extraordinary activity in the small and mid-cap fund categories as such?
Saugata Chatterjee
So, the good part is in our case, we have more or less equal distribution amongst the 5 market caps, large cap, multi cap, mid cap, small cap, and the flexi category. So, we have a quite equal spread because what we have seen is our fund performance in the last 1-2 years has been across the market caps and hence the de-risking of our business is quite visible from the SIP flows which are coming into our fund. And just again from the perspective of flows, the observation is that our representation or market share in some of the larger categories such as large cap, balance advantage, we are a li
Q
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 has been a reduction in the employee count and is it correct that the outsourcing of the process that you are talking about has led to the reduction in employee count, just a clarification on that?
Prateek Jain
No, there has not been a significant reduction. If you see from the peak, we were about 1200 odd people, it was in 2018-19, we are now about 985, 15-20 people here and there. So, that is from last year to now, so we have not had any significant increase or decrease in our total employees. When it comes to outsourcing, any kind of non-core work instead of hiring people if we can put it out and give it to an outsourced agency to carry out that is how we have been working on. It is not related to the significant reduction in that cost. From our perspective, there has not been any conscious effort
Q
Sir, just to reiterate, I was just seeing your presentation and now you are present in 265 locations versus 275 last year in Q2 and 270, so this is also a result of digitalization or is something else?
Sundeep Sikka
There is no change in strategy. We have articulated in past also, we strongly believe both digital and physical will remain our strength going forward. We do not want to have a strategy of only digital. We believe physical is going to support our digital business. So, you will continue seeing our size of branches plus minus and it could be whatever reason clubbing of branches, there could also be going to a bigger, having multiple branches in one city and clubbing them together, so there could be different reasons for that, but broadly the strategy remains as in the physical part remains a ver
Q
I just had one more like a macro kind of a question, there had been a change in the tax norms for these insurance companies and thereby the non-PAR which is a savings product can be now being executed to what mutual fund or typical FDs would be, are you seeing flows shifting, broad level, do you see that kind of flows which will be shifting or the investor minds are shifting or getting more linear towards mutual funds with long-term mutual fund investments and all, just as your thoughts if you have any? That is the only thing I wanted to know?
Prateek Jain
So, Jignesh, see if you go by the initial assessment this has come in, I think industry has not witnessed too much money coming into the debt segment while ultra short term and liquid has seen some money coming in, but on the longer tuner, the money has not come in, so here they are understanding and grabbling is because here the tax break has been taken away. On the other side, if you would have seen that there is a good amount of money which has gone into the senior citizen saving scheme, so obviously as Sundeep mentioned that this is also to be seen in a longer- term context rather than jus
Q
A couple of questions, firstly, on the outlook on yields, can you give some outlook on yields, so how could the yields have moved from here in the second half or specifically, you have a steady kind of a market scenario? Secondly, on the NFO yields - how has been the market behavior and what is your product line up for the second half?
Sundeep Sikka
If I understood Prayesh your question because your voice was not very clear outlook on yield and the other one is our own pipeline for NFO? Yes. I would say that the competitive pressure which was there once on the yields have reduced and we are seeing higher revenue on the new NFOs, like these are in excess of our current book as well, what we are earning on the new NFOs. Also, with regards to the trajectory going forward, it will be a bit difficult because if we continue to get this kind of significant flows, then obviously the yield compression can be as high as what we have seen in the las
Q
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 5 schemes of large, mid, small, multi cap, flexi cap is one? And second, given it is a 38% quarter-on-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 cap, etc., and also if you can help us understand the SIP STP split here, sir?
Sundeep Sikka
So, while we cannot give data on individual funds, these top 5 funds are getting 80% of the sale. 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 at the investor, whether it is a fund level, it is a devious business model where we do not want any city, any distributor, any particular fund to get disproportionate shares. So, broadly we can say, as I mentioned top 5 funds get 80% of assets. And Gaurav, small cap stopped in July, but despite that this quarter overall systematic flows have been strong, which we have n
Q
On industry linked question, the last few quarters have seen the larger bank led you are the only one who has been doing exceptionally well in terms of performance and with the merger of one of your peers with parent bank, which was not the case historically, how do you see the competitive intensity moving on?
Sundeep Sikka
So, broadly the way we see it, we have never been sponsored by a bank and we have always believed it is all about execution. It is a reality we are not sponsored by other banks, but that is also a positive for us. We have an open architecture with all the banks in the country. So, all the banks sell us, we have a very granular IFA network. The Indian Mutual Fund is very highly underpenetrated while we have about now roughly about 50 players, there could be scope for another 50 or 100 and ultimately, it is not about whether you have sponsored or you are part of the bank, because there have also
Q
Sir, in earlier question, when replying on the declining yield, so you said that is it fair understanding that increase in AUM because of new net inflow as well as increase due to the market related activity also?
Prateek Jain
Yes, both. You are right, absolutely. So, in that slab, so at what slab we are, I mean when we are saying that pressure will remain for 4-5 years, so which slab we are, if you can give, suppose our inflow increased substantially, then decrease in the yield will be much faster? No if you look at it that every Rs. 1,000 crore of AUM increase, you lose 1 basis point and till the time your scheme reaches Rs. 1,00,000 crores, you will keep losing it out. And, it works on your total book. So, your book is at X and then it suddenly becomes X+1000, you will lose out on 1 and that impact will be on the
Q
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 and going further, how could the yield for the hybrid fund shape up?
Prateek Jain
When we say this, so one I am saying in the context of Jignesh’s question on a macro basis because the tax break has been taken away on the debt side of it and therefore, we will see more money coming over the period on the hybrid side. As far as the hybrids are concerned, those we earn on an equity slab, so those are considered anything which is having more than 65% equity or earning on an equity slab basis.
Q
Sir, I would like to know is that towards the end of your statement, you have said some strategic sale could be there in the offing, in the future, could you just explain on that?
Sundeep Sikka
What I mentioned was that we continue to remain open for strategic opportunities, wherever it adds value to our existing businesses and is accretive from profitability point of view. It is again clarified nothing to do with sales, it is about acquisition. So, which means you would be looking into acquisition of some AMCs? I would not like to qualify that, we remain open for any acquisition which adds value, whether it is on the business, AMC, mutual fund, or any other part of the business that the regulation allows, which can increase the ROE for the business. So, is there any timeline for tha
Q
So, thank you all for joining this call. We call it an end to this conference. Thank you so much.
Management
Speaking time
Sundeep Sikka
17
Moderator
16
Prateek Jain
13
Saugata Chatterjee
5
Swarnabha Mukherjee
3
Lalit Deo
3
Abhijeet Sakhare
3
Prayesh Jain
3
Anthony John
3
Madhukar Ladha
2
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Opening remarks
Ansuman Deb
Good evening, ladies, and gentlemen. On behalf of ICICI Securities, it is our privilege to host the Q2 FY24 Results Conference Call of Nippon Life India Asset Management. We will have an initial management commentary followed by a Q&A. Without further ado, I now hand over the call to Mr. Sundeep Sikka - Executive Director and CEO. Over to you, sir.
Sundeep Sikka
Thanks. Good evening and welcome to our Q2 FY24 Earnings Conference Call. We have with us our Chief Financial Officer – Prateek Jain; Chief Business Officer – Saugata Chatterjee; Chief Digital Officer – Arpan Saha; Head of Product and IR, Arun Sundaresan, and Matsui-San – Nominee of Nippon Life Insurance, Japan. Our detailed “Investor Presentation and Press Release” have been uploaded on the exchanges as well as on our website.
Starting off with the markets
Equity markets of Q2 FY24 showed divergent performance while the Nifty 50 increased only 2%, Nifty mid cap and small cap indices rose by 13% and 16% respectively. RBI held the repo rate steady at 6.5% while the 10-year G-Sec yield increased by 10 basis points quarter-on-quarter with 7.22%.
Coming to the data on Mutual Fund Industry
The industry grew by 9% quarter-on-quarter in Q2 FY24 to INR 47 trillion. This is the highest quarterly growth since Q2 FY22. On a year-on-year basis, the quarterly average AUM grew by 20.3%.
Moving to Flows
1) 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 category. 2) Investor interest in investing through systematic investment plans has further increased with the SIP contribution to the quarter being INR 471 billion, 25% higher than Q2 FY23 and 9% higher than Q1 FY24. 3) Monthly SIP flows in September 2023 stood at INR 160 billion, which was an all-time high. The SIP folios increased 7% quarter-on-quarter to 71.3 million. 4) Arbitrage funds also witnessed strong inflows of INR 297 billion. 5) The fixed income category that is debt plus liquid witnessed a net outflow of INR 594 billion after large inflow we witnessed in Q1 FY24. 6) ETF flows were moderate at INR 49 billion. At the end of the quarter, unique investors in the mutual fund industry increased to
Moving on briefly to the ETF Segment
1) At Nippon India Mutual Fund, we offer an industry best 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 78 billion. 2) Our share in the industry’s ETF folios is 61%. We have a 67% share of ETF volumes on NSE and BSE. Our ETF's average daily volumes across key funds remain far higher than the rest of the industry. 3) 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 approximately one-fourth of the incremental EPO flows going forward.
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