Jefferies Flag Earnings Risk For HDFC, Nippon AMC After SEBI Consultation Paper

Jefferies has flagged the SEBI’s recent consultation paper on mutual funds as a substantial risk to the earnings of Asset Management Companies or AMCs. The core concern is the proposed rationalisation of fees, which could slash the Profit Before Tax for major listed players by as much as one-third in the coming years.

The brokerage’s stance is based on key proposals within the paper that directly affect how AMCs and institutional brokers generate revenue. The most impactful change highlighted is the suggested cut of 5 basis points in equity exit loads.

If this reduction is implemented, Jefferies estimates that the financial year 2027 profit before tax for prominent industry players like HDFC AMC and Nippon Asset Management Company could see a sharp decrease ranging from 30% to 33%.

Beyond the exit load, the report points to a substantial revision in transaction costs. SEBI’s paper proposes lowering the cap on cash market brokerage fees from the current 12 basis points to just 2 basis points.

The objective of this move is to align the fee structure of equity schemes with that currently applied to arbitrage funds, aiming for greater investor transparency and value.

This specific change, if enacted, is expected to have a negative implication not only for the AMCs but also for the institutional brokers that handle these transactions, with 360 ONE and Nuvama cited as potentially being affected.

The consultation paper also addresses the Total Expense Ratio, which is the total annual cost of operating a mutual fund, expressed as a percentage of the fund’s assets.

SEBI plans for the TER to be lowered by requiring statutory charges like taxes to be levied separately and directly to the investor.

However, Jefferies views this specific adjustment as likely to be neutral to earnings for the AMCs, as it primarily involves a change in disclosure and accounting rather than a fundamental reduction in the permissible overall revenue base.