AMC stocks face selling pressure; Nuvama Wealth tumbles nearly 9 pc intra-day

New Delhi, Oct 29 (PTI) Shares of asset management companies dived on Wednesday after markets regulator Sebi proposed an overhaul of mutual fund rules to curb costs and boost transparency.

Sebi has proposed a comprehensive overhaul of mutual fund regulations, introducing clearer definition of Total Expense Ratio (TER) and revising limits on brokerage charges.

The proposal has raised concerns over revenue and margin compression for market intermediaries like asset management companies, brokerages and distributors, an expert noted.

In intra-day trade, the stock of Nuvama Wealth Management tumbled 8.91 per cent, Nippon Life India Asset Management tanked 6.92 per cent, HDFC Asset Management Company dropped 6.39 per cent, Aditya Birla Sun Life AMC fell by 5.23 per cent, Canara Robeco Asset Management Company declined 5.15 per cent, UTI Asset Management Company dipped 3.19 per cent and Shriram Asset Management Company (1.87 per cent) on the BSE.

At close of trade, Nippon Life tanked 5.34 per cent, Canara Robeco lost 4.66 per cent, HDFC AMC dropped 4.50 per cent, Aditya Birla Sun Life AMC declined 3.29 per cent, UTI AMC fell 1.89 per cent, Nuvama Wealth dipped 0.71 per cent, and Shriram Asset Management Company slipped 0.61 per cent.

"Capital market stocks declined as Sebi's proposed amendments to mutual fund regulations raised concerns over revenue and margin compression for market intermediaries like asset management companies, brokerages and distributors," Siddhartha Khemka -- Head of Research, Wealth Management, Motilal Oswal Financial Services Ltd, said.

The proposals are aimed at bringing regulatory clarity, reducing redundancies, and promoting ease of compliance, the Securities and Exchange Board of India (Sebi) said in its consultation paper.

Under the proposed framework, Sebi plans to eliminate the additional 5 basis points (bps) that asset management companies (AMCs) were previously allowed to charge across mutual fund schemes.

This additional expense, introduced to offset the impact of crediting exit loads back to schemes, was first set at 20 bps in 2012 and later reduced to 5 bps in 2018.

The additional expense of 5 bps that mutual fund schemes were allowed to charge was transitory in nature, Sebi noted.

Accordingly, with the objective of rationalising costs for unitholders, this expense has been proposed to be removed. "However, to mitigate the impact of this change on the operations of AMCs, the first two slabs of the expense ratio for open-ended active schemes have been revised upward by 5 bps," it added.

To protect interest of investors and to ensure that expenses are charged fairly only once to the investors, the brokerage charge has been revised from 12 bps to 2 bps for cash market transactions and 5 bps to 1 bps for derivative transactions to bring clarity and transparency, the regulator proposed.

To facilitate greater clarity and transparency, Sebi has proposed to exclude all statutory levy -- STT (securities transaction tax), GST (goods and services tax), CTT (commodity transaction tax) and stamp duty -- from the expense ratio limits along with the present permissible expenses for brokerage, exchange and regulatory fees.

"...the immediate effect on the industry is a negative impact on the profitability of AMCs due to a direct reduction in the fee income they can charge. This pressure is expected to be felt more significantly by large fund houses than by smaller or new entrants.

"Large AMCs, which manage the majority of the industry's assets and benefit most from economies of scale, will experience a larger absolute revenue hit from the lower TER caps and the removal of the additional 5 bps charge," Shivani Nyati, Head of Wealth at Swastika Investmart, said.

Sebi noted that the mutual fund industry, which began in 1963, now manages over Rs 75.6 lakh crore in assets with 25 crore investor accounts.

"While the move may exert pressure on fund houses -- particularly large AMCs with substantial AUMs -- by compressing profit margins, it encourages greater operational discipline and transparency.

Smaller and newer AMCs may face challenges in sustaining distributor payouts and marketing efforts; however, the overall reform aligns the industry with global best practices, ensuring a more investor-centric and competitive landscape," Puneet Singhania, Director of Master Trust Group, said. PTI SUM TRB