Kotak Bullish On SBI AMC And HDFC AMC; Downgrades ABSL AMC On Valuation Concerns: Check Target Price

Kotak Securities has turned more constructive on India's asset management sector, initiating coverage on SBI Funds Management with a Buy rating and upgrading HDFC Asset Management Company to Buy from Add. At the same time, the brokerage downgraded Aditya Birla Sun Life AMC to Reduce from Add, citing valuation concerns.

Kotak Securities has assigned a fair value of Rs 600 per share to SBI Funds Management, while its fair value for HDFC AMC stands at Rs 2,800, revised from Rs 3,000 earlier. For ABSL AMC, the brokerage cut its fair value to Rs 1,010 from Rs 1,100.

SBI AMC

Kotak Securities initiated coverage on SBI Funds Management with a Buy rating, citing its strong franchise, SBI brand and deeply integrated distribution network. The brokerage said SBI AMC has built a difficult-to-replicate business through its integration with SBI's branch and digital ecosystem. This provides access to a large and relatively underpenetrated customer base and positions the AMC to benefit from India's structural mutual fund penetration story.

Kotak expects SBI AMC to deliver an earnings CAGR of around 15% over FY2027-29E, supported by steady mutual fund AUM growth, stable margins, disciplined cost management and an improving product mix.

The brokerage expects revenues and mutual fund AUM to grow at a similar pace over the period.

At around 30 times one-year forward price-to-earnings, Kotak believes SBI AMC's valuation is reasonable, although the stock already factors in an earnings recovery supported by market performance and stable-to-improving fund performance.

HDFC AMC

Kotak upgraded HDFC AMC to Buy from Add, while lowering its fair value to Rs 2,800 from Rs 3,000. The brokerage said valuations have become more comfortable, making the stock more attractive following its recent underperformance.

Kotak expects HDFC AMC to deliver around 15% core earnings CAGR over FY2027-28E, driven by an estimated 18% AUM CAGR. The AMC is expected to continue benefiting from healthy long-term fund performance, which should support stable inflows.

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However, Kotak highlighted the need for HDFC AMC to establish credible growth drivers in alternative investments to offset fee and cost pressures.

ABSL AMC

Kotak downgraded ABSL AMC to Reduce from Add and lowered its fair value to Rs 1,010 from Rs 1,100. ABSL AMC has been among the better-performing AMC stocks over the past year, supported by improving fund performance trends.

Kotak said its estimates already incorporate a more optimistic view of ABSL AMC's absolute net flows over the next two to three years. However, the brokerage believes much of the anticipated improvement in operating metrics is already reflected in the valuation. ABSL AMC's equity AUM accounts for around 45% of its mutual fund AUM and approximately 35% of total AUM. This partly dilutes the impact of Kotak's positive view on the equity segment.

At around 25 times FY2028E earnings, the brokerage believes the stock's valuation adequately captures the expected improvement in operating performance.

Key Risks For AMC Sector

Kotak said India's asset management companies remain largely exposed to two key structural drivers — retail investor participation and the equity asset class. Weak trailing equity returns could affect retail investor sentiment, although investor behaviour has remained relatively resilient, supported by systematic investment plan (SIP) flows. The brokerage also highlighted the risk of flow moderation at select AMCs as fund performance changes and competition intensifies from smaller players in categories attracting strong retail flows.

Another concern is distributor economics. Large distributors have been seeking higher commission cuts from larger AMCs, potentially encouraging them to direct incremental flows towards better-performing smaller AMCs.

While Kotak expects a benign regulatory environment and sticky SIP flows to support the sector over the medium term, AMCs will need to invest in alternatives, offshore offerings and distribution while managing rising talent costs.

Kotak noted that AMC valuations have corrected but remain elevated compared with broader markets. It expects a recovery in broader market indices to remain important for further upside in the sector.

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