Financialization of savings trend to benefit the top 5 AMCs

By Ravi Samalad |  03-12-19 | 
 
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Ravi Samalad is Assistant Manager - Editoral for Morningstar.in.

The migration of household savings from physical to financial assets bodes well for the financial services sector and mutual funds will be the key beneficiaries of this trend.

However, only a few fund houses with better distribution reach and brand recall are expected to benefit from this shift. A Nirmal Bang report notes that the benefits will accrue to the top five players. This is because despite the industry having 44 players, five largest fund houses account for 58.3% of industry assets. HDFC, ICICI Prudential, SBI, Aditya Birla and Reliance collectively account for 58.3% of total market share.

The concentration is attributed to their brand reputation and distribution strength. The report states that bank/financial conglomerate-promoted asset management companies (AMCs) enjoy an inherent distribution and brand reputation advantage and their AUM market share has grown from 26.6% as of Mar 2007 to 38.7% as of March 2019.

Higher growth as compared to global markets 

The Indian asset management industry has grown at a CAGR of 17.4% over the last ten years which is higher than some of the major developed and developing nations, and even higher than global AUM growth of 9.6%.

Next phase of growth

The Indian asset management space is ripe for a rapid growth due to factors like low penetration, increasing financial awareness and the move to financial assets. India has the second highest gross savings rate (30%) after China (46%), yet mutual fund penetration is lower at 11% (world average: 62%).

The next leg of growth for the industry is expected from the smaller cities. AUM to-deposits ratio for B15 cities is 9% compared to 34% for T15 cities. At the total industry level, B30 AUM accounts for 15% of the overall AUM.

SBI MF has the highest market share in B30 cities followed by HDFC MF and ICICI Prudential at 18%, 12.4% and 11% respectively.

Distributors will play a key role for penetration in smaller towns since many first-time investors need handholding and advice.

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