Shares of ICICI Prudential Asset Management Co. surged on Thursday after brokerage CLSA initiated an 'outperform' rating for India's booming mutual fund industry over strong growth outlook.
ICICI Prudential shares advanced as much as 3.72% to Rs 3,239 apiece on the NSE after the opening bell. The scrip was trading at 1.65% up at 10:38 am, while the benchmark Nifty 50 was down 0.61%.
The brokerage, in its recent note, has set a target price of Rs 3,500 for ICICI Prudential AMC.
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The growth in the Indian mutual funds sector has been led by a combination of strong equity market returns and steady growth in retail inflows, which highlights higher equity participation and the gradual financialisation of household savings. The growth opportunity remains significant as MF penetration stands at only 20% of GDP, well below 50-100% levels seen in developed markets.
This expansion of the mutual fund industry is significant for ICICI Prudential AMC has largest actively managed mutual fund AUM, according to CLSA. The company's active equity-heavy AUM mix boosts operating profit yield, similar to HDFC Asset Management Company and ahead of other peers.
ICICI Prudential AMC also records higher revenue yields even with similar pure equity AUM as the two top AMCs. Additionally, low reinvestment needs help with dividend payout of over 70%.
CLSA noted that strong and consistent performance, brand strength, wide distribution, scale benefits and high customer retention have enabled ICICI Prudential AMC to sustain market share and profitability despite intense competition. However, key risks include adverse regulatory changes, sustained scheme underperformance or equity market weakness, and rising competition.
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