Company Overview

Nippon Life India Asset Management Limited (NSE:NAM-INDIA) is the asset manager of Nippon India Mutual Fund (NIMF). The name of its Company was changed from 'Reliance Nippon Life Asset Management Limited' to ‘Nippon Life India Asset Management Limited’ and a fresh certificate of incorporation was issued by the Registrar of Companies, Mumbai on January 13, 2020. Nippon Life Insurance Company is the promoter of NAM India and currently holds 74.95​% of its total issued and paid-up equity share capital. Equity Shares of NAM India are listed on BSE Limited and National Stock Exchange of India Limited​.​​​​​​1

Nippon Life Insurance Company (“NLI”) is a Japan’s leading private life insurer and offers a wide range of financial products, including individual and group life and annuity policies through various distribution channels, mainly using face-to-face sales channels for its traditional insurance products. It primarily operates in Japan, North America, Europe, Oceania and Asia. NLI conducts asset management operations in Asia, through its subsidiary Nissay Asset Management Corporation (“Nissay”), which manages assets globally. ​

Nippon Life India Asset Management Limited is one of India’s largest asset management companies with a total AUM of Rs 2.55 lakh cr. as of March 31, 2020.

The Company engages in managing mutual funds including exchange traded funds (ETFs); managed accounts, including portfolio management services, alternative investment funds and pension funds; and offshore funds and advisory mandates.

Indian mutual fund industry

Over the last decade, the Indian MF Industry has grown at a steady pace from Rs 7.5 lakh crore to Rs 27.0 lakh crore, an approximately 4 times increase in a span of 10 years. Further, during the year Industry saw a healthy growth of 9% in total folios largely due to increasing awareness and higher retail participation.2

The industry witnessed 10.4% growth from Rs 24.5 lakh crore for the quarter ended March 31, 2019, to touch Rs 27.0 lakh crore for the quarter ended March 31, 2020, adding AUM of over Rs 2.5 lakh crore during this financial year. Equities and debt assets accounted for most of these inflows during the year, reflecting the increasing risk appetite and confidence of the retail investors despite high volatility. Out of the over Rs 2.5 lakh crore growth witnessed in mutual funds in FY 2019-20, 47% or Rs 1.19 lakh crore was contributed by the debt assets, while equities contributed 38% of the growth i.e. Rs 97,282 crore. The year was also significant for the ETF segment, which grew by Rs 61,732 crore to Rs 1,80,540 crore.

Increasing Participation from Individual Investors

This year has seen continued growth in participation, especially from retail investors in equity funds. The MF industry added 73 lakh folios during FY 2019-20. The rise in folios was driven by higher folios in equity funds, taking the total number of folios to 8.97 crore. Equity folios grew by a healthy 11% from 7.03 crore in March 2019 to 7.79 crore in March 2020.

Asset Mix

Equity AUM as a proportion of Total AUM has gone up from 31% in FY 2015-16 to 42% in FY 2019-20 which can be attributed to increasing awareness, financialization of savings, rise in SIP etc. The share of debt-oriented schemes is down from 44% in FY 2015-16 to 32% in FY 2019-20 which can be attributed to rising in yield curve, credit events.

Equity: Equity Funds invest a major chunk of corpus in equity securities with the main objective of providing capital appreciation over the medium to long-term investment horizon. They are high-risk funds and the returns are linked to the performance of capital markets. There are different types of equity funds i.e. diversified funds, sector-specific funds and index-based funds. In addition to equity funds, the company also have Balanced / Hybrid Funds which invest both in equity and debt instruments and strive to provide growth as well as regular income.

Equity AUM contributes 42% to total Industry assets and grew by 9%.

Debt: Debt Fund/Fixed Income Funds invest predominantly in rated debt or fixed income securities i.e. corporate bonds, debentures, government securities, commercial papers and other money market instruments.

Debt AUM contributes 32% to total Industry assets and grew by 16%

Liquid: Liquid Funds / Money Market Funds invest in highly liquid money market instruments and provide easy liquidity. Liquid funds are short duration funds and typically used by corporate houses, institutional investors and business houses for deploying surplus liquidity for a shorter period.

Liquid AUM contributes 19% to total Industry assets and declined by 4%.

ETF: Exchange Traded Funds (ETFs) track an index, a commodity or a basket of assets as closely as possible, but trade like shares on the stock exchanges. They are backed by physical holdings of the commodity, and invest in stocks of companies, precious metals etc

ETF AUM contributes 7% to total Industry assets and grew by 52%.

Geographic Mix

Historically, AUM has been concentrated in the Top 30 (T-30) cities due to presence of Institutional Investors and they have higher concentration of assets in non-equity schemes. The T-30 cities hold the majority of MF assets with a share of 84%, whereas beyond the Top-30 or B-30 cities held 16% of assets as of March 2020. AUM from B-30 has higher composition of equity assets compared to T-30 cities. Further, B-30 cities gaining significance in the industry AUM mix as the SEBI provides impetus to MF penetration beyond the top 30 cities by allowing additional TER.

Investor wise break-up of AUM Industry’s investors base can be broadly categorized as Retail, High Net worth Individual (HNI) and Institutional investors. Over last 3 years Retail, HNI & Institutional AUM has grown at a CAGR of 7%, 20% and 6% respectively, and contribution of HNI investors to Industry AUM has increased from 25% in March 2017 to 33% in March 2020.

The HNI investor MAAUM increased from Rs 7.1 lakh crore in March 2019 to Rs 8.2 lakh crore in March 2020, registering a growth of 33%, whereas institutional investors MAAUM increased by 7% from Rs 11.0 lakh crore in March 2019 to Rs 11.8 lakh crore in March 2020. Retail investors MAAUM decreased from Rs 6.4 lakh crore to Rs 4.7 lakh crore, on account of unprecedented market volatility in the equity markets in March 2020. Majority of the retail investors assets are invested in equities.

SIP Inflow continues to grow

Systematic Investment Plan or SIP, as it is commonly known, is an investment plan offered by mutual funds where one could invest a fixed amount in a scheme periodically at fixed interval like, once in a month.

Despite high volatility in the last six months, Systematic Investment Plans (SIP) inflows continue to grow especially among retail investors indicating their evolving behaviour and long-term investment horizon. According to AMFI, the total inflows through SIPs in FY 2019-20 increased by 8% to Rs 1.0 lakh crore. The total number of SIP accounts stood at 3.12 crore as on March 31, 2020, with an addition of 50 lakh accounts during the year. In addition to a gradual increase in participation from the retail segment, the rising prominence of SIPs also lends stability to industry inflows.

Outlook

Over the last few years, there has been a gradual increase in the share of net financial savings in the overall household savings in India. Also, share of mutual fund assets in gross financial household assets in India is also on the rise. However, India’s mutual fund penetration (AUM to GDP), at 12.5%, is still much lower than the world average of 55%. It is also lower than many developed economies such as the United States (103%), France (75%), Canada (68%) and UK (59%), and emerging economies such as Brazil (65%) and South Africa (42%). India’s equity mutual fund AUM to GDP ratio is at 4%, vis-à-vis 63% in US, 46% in Canada, 35% in UK, and 33% in Japan. Going forward, favourable demographic dividend, formalisation of the economy, growing financial inclusion, greater disposable income and investable surplus, increasing financial savings, higher investor awareness, investor friendly regulations, introduction of transparent and investor-friendly products, ease of investing, digitalisation, and perception of mutual funds as long-term wealth creators, are expected to be key drivers for the growth of the Mutual Fund industry.

Financial Highlights

Revenue

The Company’s consolidated total revenue stood at Rs 1,203 crore compared to Rs 1,479 crore in the previous year. Other income stood at a loss of Rs (10) crore as against Rs 171 crore in the previous year.

Expenditure

Total consolidated total expenditure for the year decreased by 33% to Rs 633 crore, as against Rs 950 crore in the previous year. Fee and Commission expenses for the year were Rs 70 crore against Rs 258 crore in the previous year - a decrease of 73%. Employee benefit expenses for the year were Rs 302 crore against Rs 293 crore in the previous year - an increase of 3%.

Depreciation for the year was Rs 33 crore as against Rs 10 crore in the previous year. Other expenses for the year were Rs 222 crore as against Rs 388 crore in the previous year - a decrease of 43%.

Profit

The Profit for the year stood at Rs 415 crore as against Rs 486 crore in the previous year - a decrease of 15%. Total Comprehensive Income for the year stood at Rs 413 crore as against Rs 485 crore in the previous year - a decrease of 15%.

Recent developments

Nippon Life Insurance Company (“NLI”) acquired additional equity shares of the Company and increased its shareholding to 75% of Company’s issued & paid up equity share capital and thus became its holding Company. As a result of this, the company became the largest foreign owned Asset Management Company in India.3

References

  1. ^ https://www.nipponindiamf.com/about-us/company-profile/nippon-life-india-asset-management-limited
  2. ^ https://www.bseindia.com/bseplus/AnnualReport/540767/5407670320.pdf
  3. ^ https://www.bseindia.com/xml-data/corpfiling/AttachLive/ad94397d-4f30-4fc0-b524-6e503f464a69.pdf
Tags: NAM-INDIA
Created by Asif Farooqui on 2020/09/14 13:23
     
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