Nuvama downgrades CAMS; NAM India and HDFC AMC affirmed as top picks

Domestic financial services firm Nuvama Institutional Equities has revised its ratings for key asset management companies amid challenging market conditions. It has downgraded Computer Age Management Services Ltd (CAMS) 'hold' with a target price of Rs 3,970. In contrast, HDFC Asset Management Company Ltd (HDFC AMC) and Nippon Life India Asset Management Ltd (NAM India) are affirmed as top 'buy' recommendations, with target prices at Rs 4,610 and Rs 680, respectively. These adjustments reflect a strategic response to recent market dynamics.

Equity markets in India have experienced considerable declines, prompting these ratings adjustments. The Nifty 50 index has dropped 11.7 per cent since its peak in September 2024, while the Nifty midcap 150 and small cap 250 indices have fallen 15.8 per cent and 20.2 per cent, respectively. HDFC AMC and NAM's significant exposure to small and mid-cap stocks, accounting for 33.3 per cent and 47.7 per cent of their equity AUM, has been critical in these evaluations.

In addition to market conditions, a stress test by the SEBI has highlighted liquidity concerns for these firms. The stress test found that HDFC AMC faces the highest number of days necessary to liquidate 25 per cent of its small and mid-cap portfolio, at 30 and 24 days, respectively. NAM followed with a requirement of 17 and 5 days. Such liquidity risks are likely to influence investor sentiment and strategic planning within these asset management companies, noted Nuvama.

Despite these challenges, NAM has taken steps to diversify its inflows, reducing its reliance on its small-cap scheme. The company’s strategic diversification is evident in its wide-ranging inflows across different equity schemes. HDFC AMC has also shown strong performance, improving its market position with a share of 12.8 per cent in active equity inflows as of January 2025, further supported by diversified scheme performance, the brokerage noted.

Active equity inflows have continued to be robust, with monthly Systematic Investment Plan (SIP) contributions remaining strong across the board. Nuvama said that the resilience in equity inflows underscores the adaptive strategies employed by both NAM and HDFC AMC, allowing them to maintain a competitive edge amid market volatility. Their strategic focus on maintaining net inflow market share, even without launching new sectoral schemes during FY25TD, highlights their adaptability.

Asset management companies with a higher concentration of mid and small-cap equities, such as NAM and UTI Asset Management (UTIAM), are projected to face significant quarter-on-quarter declines in equity AUMs. Such declines are expected to impact earnings, given the current market fluctuations.

Nuvama's analysis suggests that firms with a greater share of assets in larger schemes could navigate these turbulent times more effectively. As the market continues to adjust, these strategic shifts emphasise the importance of comprehensive management strategies to maintain a competitive advantage.