JPMorgan downgrades HDFC AMC to 'neutral', sees slower growth ahead

The global brokerage firm has kept its target price unchanged at Rs 5,000, saying the stock is already fairly valued at its current levels.

According to JPMorgan, India’s nominal GDP growth of around 10-11 per cent and a near-term pause in households’ shift towards equities are factors behind the revised outlook.

The stock is currently trading at 37 times and 33 times its estimated earnings for FY26 and FY27, respectively -- levels the firm believes are already pricing in a lot of the future potential.

Even though equity inflows into mutual funds have been steady over the last few years due to favourable economic conditions and low inflation, they have started slowing down in recent months.

In fact, May saw equity inflows of just Rs 19,000 crore -- the lowest in the past 12 months -- due to profit booking and rising investor caution.

On the positive side, SIP (Systematic Investment Plan) flows remain strong, with May’s inflows at Rs 26,700 crore.

The number of active SIP accounts has now grown to 85.6 million. JPMorgan sees this as a sign of long-term investor confidence and believes this stability justifies higher valuations.

Despite the downgrade, JPMorgan still expects HDFC AMC to grow its assets under management (AUM) at a healthy rate of 16 per cent annually over the next three years.

The firm also believes that the merger of HDFC with HDFC Bank will help the AMC improve its distribution channels, which could lead to better-than-expected growth.

If this happens, it could even pose an upside risk to their current forecast.

JPMorgan expects the company's EBIT to average around 37 basis points of AUM over the next three years, thanks to better cost control.

Currently, about 64 per cent of HDFC AMC’s AUM is in equity -- its highest-yielding asset class -- boosted by strong performance in its key funds.