Mumbai: Shares of asset management companies and brokers surged in a relief rally on Thursday, after Sebi’s overhaul of the mutual fund fee structure and cap on broking fee was less severe than what was proposed.
Among mutual funds, HDFC Asset Management Company surged 7.2%, Canara Robeco AMC gained 6.6%, Nippon Life India Asset Management gained 2.7%.
The capital market regulator cut the total expense ratio – the fee that AMCs charge unitholders – which will now be called base expense ratio (BER), across asset slabs by 10 basis points against the proposed 15 basis points. It also removed the additional TER of 5 basis points that funds are permitted to be charged to schemes with exit loads.
“Sebi’s final rules on the total expense ratio (TER) for mutual funds are more balanced than the initial proposals,” said Kotak Institutional Equities in a client note. “The removal of the 5-bps exit load allowance was widely expected and should largely be passed on.”
Agencies
overhaul less severe than proposed Most AMC stocks had fallen after proposals were rolled out l Removal of additional 5 bps charge may impact profitability
Most AMC stocks had fallen between 4% and 15% from October 28 – when Sebi had first introduced the proposals – till December 17.
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“Although the consultation paper had outlined the major changes to the Total Expense Ratio (TER), there was some uncertainty on what the actual changes would be,” said Chirag Mehta, CIO, Quantum Mutual Fund. “Since this is resolved, a relief rally has played out in the AMC stocks.”
Nomura said the removal of additional 5 basis point charge could squeeze the industry’s profitability, but AMCs will likely pass on some of these costs to distributors which could limit the impact of their financials. The brokerage is positive on Nippon and HDFC AMC after the tighter rules. “There will be a small marginal impact on profitability of AMCs, which they will largely pass on to distributors,” says Amit Khurana, head of Institutional Equities, Dolat Capital.
Among wealth managers (which are distributors), Prudent Corporate Advisory jumped 3.2% and Anand Rathi Wealth gained 0.1%.
Brokerages
Motilal Oswal Financial Services rose 3.7%, Anand Rathi Share and Stock Brokers advanced 1.7% and IIFL Capital Services gained 0.4% on Thursday after Sebi reduced the cap on brokerage fee that mutual funds can pay broking firms for executing share transactions to 6 basis points from 8.59. For derivatives transactions, the brokerage cap has been reduced to 2 basis points from 3.89 earlier. The regulator had proposed to cut broking fees on cash trades to 2 basis points and for derivatives trades to one basis point.
Brokerage shares had fallen as much as 24% since October 28 following the proposals.
“The fall in broking stocks had factored in the brokerage limits proposed in the consultation paper and corrected accordingly,” said Sameer Sawant, research analyst, Sharekhan.
“The finalised norms are not as stringent as anticipated which led these stocks higher after subdued performance.” Sawant said broadly, the impact on revenues of brokerages was expected to be around 15% which is now likely to be 10% or below. 360 One Wealth advanced and Nuvama Wealth, which are wealth managers and institutional brokers, gained 1.2% and 1.9% each.
Kotak said diversified wealth managers such as 360 One and Nuvama will gain from milder brokerage cuts and their lower reliance on MF distribution income.
“If the earlier pricing was implemented the revenues for broking firms could be cut as much as 60%,” said Ankit Mandholia, head of Equity and Derivatives, Motilal Oswal Financial Services.
“The impact on revenues with the revised norms is likely to be modest.” Mandholia said despite the rally, these stocks remain below the levels they were at prior to the corrections due to the consultation paper which indicates that there is room for further upside.
