Operator 2: Ladies and gentlemen, good day and welcome to the Q2 FY27 earnings conference call of HDFC Asset Management Company Limited. From the management team, we have with us Mr. Navneet Munot, Mr. Naozad Sirwalla, and Mr. Simal Kanuga. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Simal Kanuga. Thank you, and over to you, Simal.
Simal Kanuga (HDFC Asset Management Company Limited: Thanks. Good evening, everyone, and thank you for joining us. Let me begin with a quick overview of the industry. The quarter began positively with Nifty 50 gaining about 2% in July, followed by a modest decline in August and a sharper 6% correction in September. Overall markets ended the quarter down around 5%. Equity-oriented funds attracted net inflows of INR 1,161 billion during the quarter. September marked the 67th consecutive month of positive equity flows, a remarkable streak dating back to March of 2021. SIPs continued their steady growth, with monthly contributions reaching a new high of INR 325 billion in September, compared with INR 294 billion a year ago and INR 318 billion in June of 2026. During this quarter, contributing SIP accounts crossed 100 million mark and over the last decade, monthly SIP contributions have multiplied almost ten times.
Simal Kanuga (HDFC Asset Management Company Limited: On fixed income, debt mutual funds recorded net outflows of INR 607 billion, while liquid funds saw net inflows of INR 457 billion. ETFs attracted INR 367 billion. Arbitrage funds garnered inflows of INR 63 billion during the quarter. Turning to our performance. Our quarterly average AUM stood at INR 9.69 trillion, up 10% year-on-year and 4% sequentially. Equity-oriented assets stood at INR 6.51 trillion, representing 67.1% of our AUM, compared with 57.5% for the industry. Within this, actively managed equity AUM grew by 14% year-on-year to INR 6.08 trillion, with a market share of 12.7%. On fixed income, debt AUM stood at INR 1.62 trillion with a 13% market share, while liquid AUM grew 10% year-on-year to INR 860 billion. Our live individual accounts increased to 32 million from 26 million a year ago. Our unique investor base stood at 17.7 million, representing a penetration of 28%.
Simal Kanuga (HDFC Asset Management Company Limited: In other words, 28 out of every 100 mutual fund investors in India invest with us. Over last one year, we have added 3.2 million unique investors, while the industry has added 6.3 million. Our systematic flows comprising of SIPs and STPs, that is systematic transfer plans, stood at INR 48 billion in September, up 6% year-on-year across 19 million transactions. During the quarter, we also launched two new AIFs, a Category II equity fund focused on private markets. We are anticipating first close in this quarter and also launched a Category III fund investing in listed securities, which achieved first close during the last quarter. We have started managing EPFO fixed income mandate during the quarter that went by. With that, I now move to financials. Revenue from operations for the quarter was INR 11.7 billion, up 14% year-on-year.
Simal Kanuga (HDFC Asset Management Company Limited: Operating profit was INR 9.1 billion, up 16%, with an operating margin of 36 basis points of AUM. Profit before tax stood at INR 9.8 billion, up 12%. Also, please note that the reported PAT is not directly comparable year-on-year, as the September 2025 quarter benefited from INR 468 million reversal of income tax provision, which resulted in additional credit to the tax account and the PAT. So that is where I would put a pause. Thank you very much. We can now open it up for questions. Navneet, Naozad, and I are happy to take them. Thank you.
Operator 2: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. First question is from the line of Devesh Agarwal from IIFL Capital. Please go ahead.
Devesh Agarwal: Good evening, everyone, and thank you for the opportunity. Sir, my first question is on the blended yield. We see a sequential improvement in the yields. Just wanted to understand what are the drivers for this, and also if you can share the asset class yield.
Naozad Sirwalla: So, hi, Devesh. I will share the yields for the quarter. For active equity, our yields were 61 basis points. For overall equity funds, it was 58 basis points. Debt is around 28, 29 basis points. Liquid, 13 basis points.
Devesh Agarwal: What has led to this improvement on a sequential basis? Is it only the asset mix change or something else as well?
Naozad Sirwalla: Well, largely asset mix change. It is not like a material movement. It is slightly upwards from previous quarter.
Devesh Agarwal: Okay. On the alternate business, we see an increase. I understand a large part of that is the debt mandate that we have won. Two things I would want to know, what is the revenues that we are targeting in this and the pipeline on the alternate. By when we can reach INR 100 crore of revenues from the alternate business, and what is the pipeline going forward?
Navneet Munot: Devesh, we don't give guidance like this, when will we reach a certain amount. All I can say is that beyond mutual funds, now the alternative platform is working as a full stack. This quarter, we launched two new funds on alternative side. First is the HDFC AMC Select Opportunity Fund. This is a Category II fund investing in late-stage venture and early-stage growth companies. We have been in the process of raising money, have seen a very good encouraging reception from some of the global institution as well as domestic institution investors, family offices, and HNIs. Second is the HDFC AMC Emerging Opportunities Fund. This is our first Category III fund, and it has also seen a strong traction and fundraising continues. On the PMS side, you rightly said that a large part of the AUM is on account of the EPFO mandate, which has gone live.
Navneet Munot: Together with the EPFO mandate, it shows the depth of our fixed income capability. Idea is like building a one-stop platform where an investor can stay with HDFC AMC for every need across mutual funds, PMS, AIF, et cetera. On the margins question, AIF is a margin-accretive business, so fees here sit above what we are known as mutual fund equity book in the range of 80 to 90 basis points, depending on the product. Discretionary PMS earns broadly what our equity mutual fund business does. Non-discretionary PMS is a strategic play. Government mandates like EPFO, they are highly contested, and the pricing reflects that. We run them for the institutional credibility and capability they build. But those mandates open doors well beyond these mandates. These are highly prestigious, but on all the other part of alternative and PMS, they would be margin accretive.
Devesh Agarwal: Right, sir. Sir, one last question. If you see your SIP share, it has always been higher than your equity AUM share. Now, do you think this would continue like this or there is a risk to the share number, market share number or the flow itself, given that some of the newer entities are now completing 1 year and 3 year of operations, and they would have this now track record of 1 year and 3 year, and that the flow can shift to some of the newer entities?
Navneet Munot: Devesh, we have been one of the earliest players to talk about the merits of investing through SIP mode. Much before the whole SIP momentum gathered pace, we have been highly focused on building the SIP book. At every point in time, we have seen this highly competitive industry from number of players' perspective. At various points in time, various funds would have done well. But at the same time, I think thanks to the long-term track record of products, the product range, the pedigree, the partnerships that we have built with all the channel partners and the focus that we have on SIP share has been growing, and we remain confident. I think this is one of the biggest area of focus for us, and remain very confident on our SIP book.
Devesh Agarwal: Sure, sir. Thank you, and all the very best.
Operator 2: Thank you. Next question is from the line of Mehak Arora from Goldman Sachs. Please go ahead.
Mehak Arora: Hello? Hello?
Operator 2: Go ahead, Mehak Arora.
Mehak Arora: Yeah. Just one question. If you could tell the share of non-mutual fund revenue in the overall revenue mix, please. Thank you.
Naozad Sirwalla: It is quite a small number, actually. It is not really material.
Mehak Arora: Got it. Thank you.
Navneet Munot: As of now.
Operator 2: Thank you. Next question is from line of Raunak Chheda from Orega Capital. Please go ahead.
Raunak Chheda: Yeah. Hi, team. Just one question. This is not apples to apples, but if you were to look at your SIP number or the systematic numbers, and you were to compare with the industry number, in the last 3 quarters, we have seen some dip. Can you just directionally comment, are we losing some share on the systematic flows, especially on SIP or this is just the STP existence?
Navneet Munot: I must clarify this. What we have reported, Raunak, is systematic transactions.
Raunak Chheda: Yes.
Navneet Munot: Combined SIP and STP. The industry number you are comparing it with is SIP only. The 2 are not like for like. The softness we have noticed has come from STP and systematic transfer are mostly set up by wealth managers who actively manage when money moves into equity. They put money in a liquid fund or a money market fund and gradually transfer that to equity and particularly when markets get choppy, which happened in last couple of months, some of them pause these transfers and that is a tactical call taken by these investors. If you strip out STP and look at SIP alone, our market share has actually gone up. I repeat, if you strip out STP and look at only the SIPs, our market share has actually gone up. If you look at number of transactions, that will tell you the same story.
Navneet Munot: Our systematic transactions rose from about 17 million in June to nearly 19 million in September. If we step back for a moment, monthly systematic transaction book has grown nearly five times in about five years to around INR 48 billion and industry in the same period would have grown 3x.
Raunak Chheda: Right. No, sir. Thank you for this. We have been long behind your team to just kind of split this number so we could analyze this number better. That is just a request. Hello?
Navneet Munot: Sure. Yeah. We will get back. We have noted it. Yeah, we have noted it. Thank you.
Raunak Chheda: Perfect. Thank you so much. Best of luck.
Operator 2: Thank you. Participants, you may press star and 1 to ask a question. Next question is from line of Shreyas Pimple from Nomura. Please go ahead.
Shreyas Pimple: Yeah. Thank you so much for the opportunity. My first question was on OPEX. This quarter we have seen quarter-on-quarter decline both in staff cost and non-staff cost. What has been the reason for that, if you can explain please?
Simal Kanuga (HDFC Asset Management Company Limited: Shreyas, maybe what we can do if you want is give an overall perspective on how we are looking at cost. Do you want to do that or you want like a specific cost number?
Shreyas Pimple: Sure.
Navneet Munot: Maybe we can just let Navneet run you through because I think this is one question that comes to us very often on this whole cost thing, saying that are our costs higher or lower, whatever. I think he will just try and. Navneet, if you can just address that one. In fact, in this quarter I thought I will be complimented for a very tight control on cost. But the question of cost I think we address almost every quarter. Again, let me take a step back and explain how I think about cost and investment in our business. Firstly, let me reiterate something that you have heard from us many times before. We watch every rupee we spend, we watch it very closely. Naozad is often quick to push back even on expenses that I would like to incur.
Navneet Munot: That should give you a sense of the culture we have built around cost discipline. I think when you look at our overall cost base relative to the size, scale, complexity of our organization, that discipline is quite evident. There is another point I have made consistently. While we are extremely disciplined on cost, we will never shy away from investing in the future of our business. People are very important and so is keep investing in the future. Let me explain how we distinguish between the two. The regular growth in operating expenses, if you look at some of this is like inflation linked. Some of it is driven by the growth of business in terms of size and broadly speaking, these are like routine costs that we continuously monitor and manage.
Navneet Munot: The second is the expenditures which I believe that is far more important to understand which are within the nature of investments we make today to build the capabilities and the capacity that we will need tomorrow. For example, somebody asked about what we are doing on the alternative side. So between alternative and PMS, when I say alternative, both private equity and private credit, we have got more than 20 investment professionals now and significantly expanding our capacity on investor servicing, on operations, on the whole sales and then the distribution side so on and so forth. Same thing is on the international side where the AUM is not very large but we are investing upfront because we see a lot of potential in that business. Same thing goes for all our investments on digital technology and then those capabilities. All of those I take as investment.
Navneet Munot: I told you about the number of people that we have built on the alternative side but even on the mutual fund side our team till a couple of years back was like 30 professionals, now number is closer to 40 and this will continue to grow and we keep thinking that business today is let us say 9, 10 lakh crores, it will go to 20 lakh crores then it will go to 40 lakh crores and we have to constantly invest in people, in technology and in distribution so on and so forth. Of course, the technology where a team of engineers working on AI-like capabilities across major business functions. This is like upfront investment, but in terms of the potential cost saving or the potential higher revenues will occur over a period of time.
Navneet Munot: I think when you look at our quarterly cost numbers, would encourage you to look at them through this broader lens. But I have always said this, we are not compromising on cost discipline. You have seen in this quarter, and have always seen this, seen us maintaining a very tight leash on cost. But at the same time, in a calibrated manner, we continue to invest in future because we do not want to compromise on investing for growth. Does that answer your question?
Shreyas Pimple: Yeah. It is very clear. Just wanted to understand how do we think about cost and OpEx growth in that sense. Year on year, of course, we have always maintained operating PBT yields in the range that we always see. But how do we think about growth in the cost? That is what I wanted to understand.
Navneet Munot: I mentioned, I think it is split into two. One is the regular operating expenses that should be inflation-linked as the business grows, and in line with the growth in the business in terms of size and broadly speaking. These are like routine costs that we continuously monitor and manage. I mean,
Shreyas Pimple: That would be, sir, 60% to 70% of the total cost?
Navneet Munot: We don't split like this is for future and this is for current business. But think about it, the scale of operation that we have managing 16 lakh crores of AUM, nine lakh crores on the mutual fund side, another six and a half lakh crores on the PMS side, the capability we are building on alternatives, on the international. I mean, look at our website, look at the quality of app that we have got. The entire footprint that we have got, both physical and the digital, and the capabilities that we have put in place. And relating to that, the overall cost is like really, I think people should be appreciating the way we run our business.
Shreyas Pimple: Yeah. I was very surprised positively this quarter.
Navneet Munot: How should we look at it? One way to look at it is, I mean, go back and see our history over the last five years, 10 years, how the costs have increased and how conscious we have been of both ensuring that we run a very tight ship, but at the same time, keep investing as markets give us the opportunity to do that.
Shreyas Pimple: Point taken, sir. Thank you for that answer. Second, just a bookkeeping question. What was the ESOP or non-cash expense for this quarter?
Naozad Sirwalla: For this quarter, it is already disclosed. It is about INR 186 million for the quarter. So INR 18.6 crores.
Shreyas Pimple: Okay.
Naozad Sirwalla: Yeah, it's already as a footnote on page 27.
Shreyas Pimple: Sure. My second question was on SIF. Where are we in the process of expanding into SIF? When can we expect new products in that category? Many of the competitors have already been in this space, and they say that it is very lucrative opportunity as such. Where are we in the process there?
Navneet Munot: It's a category definitely gaining prominence, and some of the funds that have got launched have done well through the period, though it is too short to talk of performance. We have taken our time to set up systems, processes, putting the right people in place. This is a new category. Some of them are complex strategies. We have also hired two senior investment professionals. We have got Ihab Dalwai and Paul Parampreet. We are now well set, and you will see a couple of product launches in this space over the next couple of quarters. All the ingredients are in place. Have been working a lot in terms of continuous training of our people on the sales and distribution side. Similarly for our distribution side, and should be able to get our share over the next few quarters.
Shreyas Pimple: Got it, sir. As such, the question was on specifically small and Mid Cap space. What we have seen in last 5, 6 months is that most of the flows has been anchored towards this space. While we do have a huge and large Mid Cap Fund, the small-cap fund is comparatively smaller. The flows in those funds have been decent, however, not to the industry-leading mark. The point was first, in terms of HDFC AMC, the flows that come into these schemes, how do you see that as an industry? Do you think that these flows will continue to be like that? And how these flows will turn around? What is your outlook on small and Mid Cap flows?
Navneet Munot: First, I think we must give credit to investors for showing a lot of resilience and discipline in the way people are investing. We have seen 2 years of muted returns, but still people, not only continuing their SIPs but even topping up or taking advantage of fall in markets. That is positive. On the other side, we see some bit of momentum chasing. Earlier, I mentioned about how money came into silver funds when prices were high, or in some other sector and thematic funds when those themes had done well. At our end, all our fund managers, our large investment specialist team, and everybody on the ground in sales and distribution, they constantly guide our distribution partners as well as investors on focusing on the long term, focusing on asset allocation, focusing on the discipline, and not falling prey to the recency bias.
Navneet Munot: Particularly on the small and mid, because you made a comment about that midcap is very large. Fund size has grown due to long-term performance. In fact, it is our 20th year of the Mid Cap Fund. It is more than INR 1 lakh crore, and I think we take deep pride in what we have delivered over the last 2 decades. But fund size appears in every fact sheet, and you see it. The market cap of the underlying universe does not, and that is where the misconception starts. What matters is size relative to the opportunity. If you look at, for example, the small cap fund and some of the people I have heard saying that now it is INR 40,000 crores.
Navneet Munot: But it was half a percent of the small cap universe market cap in June 2019, if I remember correctly, and it is still half a percent of the market cap universe today. Also, the other thing that we constantly look at both for our Mid Cap Fund and small cap fund is the weighted average market cap of that fund vis-à-vis the benchmark and vis-à-vis the category average. Then our weighted average market cap in that sits below the category average. So which tells you that size has not pushed us up the curve or narrowed what we can own. Our fund managers feel very comfortable. Investor behavior is something where one is the institutional response, the view that we communicate, and second is what investors and distributors prefer.
Navneet Munot: In fact, off late, I have heard some of my fund managers speaking that the large cap valuations have been below long-term average and that is something investors should not ignore.
Simal Kanuga (HDFC Asset Management Company Limited: Also, I think Noni, he touched upon the size. Our small cap fund is like— okay, so one small cap fund is materially larger, but at the second position, third position, it is us and one of the other AMCs, both of us are at 40. So we are not small even in the small cap category.
Navneet Munot: I thought Nikki mentioned that your mid and small cap funds are pretty large.
Simal Kanuga (HDFC Asset Management Company Limited: No, he is also saying that midcap we are large, but small cap, we are small.
Navneet Munot: That is an opportunity for us to grow.
Simal Kanuga (HDFC Asset Management Company Limited: Does that answer your question?
Shreyas Pimple: Yeah. Thank you so much, sir. Those were my questions, yeah.
Simal Kanuga (HDFC Asset Management Company Limited: Perfect. Thank you.
Operator 2: Thank you. Next question is from the line of Jaspreet Singh, Individual Investor. Please go ahead.
Jaspreet Singh: Am I audible?
Simal Kanuga (HDFC Asset Management Company Limited: Yes, sir.
Operator 2: Yes, go ahead.
Jaspreet Singh: My question is, our passive product portfolio appears to have a relatively lower market share compared to other peers. When I also look at our products, we do not have so many products in passive to provide to an investor. How do you look at that? Because if you believe in active to passive shift in the long term, how are you positioning yourself regarding that? How are you looking to expand your product offerings and all? That is my first question.
Navneet Munot: We have almost, if I remember correctly, almost 50 products on the passive side across market cap-based indices and smart beta, across plain vanilla indexes versus sector thematic and across index fund and ETFs and, of course, some of the fund of funds which feed into these ETFs. We have a fairly wide bouquet of products. Of course, we keep looking at the product basket and take a view from our investment team. On the other side, we always assess whether a set of distributors or investors have a certain need for a product, and accordingly, we launch a product. I think we have one of the best in class. Also I must mention, we have been one of the oldest player in the passive category. Our first index fund was launched in 2003 when hardly people were talking about passive funds.
Navneet Munot: It has been now 23 years of building this category, and yeah, so we have the full product bouquet.
Simal Kanuga (HDFC Asset Management Company Limited: Actually, just to add, index funds, our market share is very high. I think the only place where you kind of talked about market share, large government of India mandate, which we are not part of, but otherwise our market share is there. Yeah.
Jaspreet Singh: Even, sir, retail, like some of the peers have more market share than us.
Simal Kanuga (HDFC Asset Management Company Limited: Sir, actually, in index funds where large retail participation is there, we are the second highest in the industry.
Jaspreet Singh: My second question is, how are you looking to make HDFC as a one-stop solution and one-stop platform over time, in the long term?
Navneet Munot: We are a one-stop solution house. I mentioned about the wide bouquet of products we have got on the passive side. Similarly, on the active fund, you would be aware of the SEBI classification and across almost all categories which are permitted to be launched by an asset manager. We have those categories. There could be few funds here and there in the sector and thematic category that we will be launching over a period of time, but otherwise, yeah. There are fewer new categories that have opened up with the recent changes in SEBI classification norms. For example, a contra fund or life cycle fund, and over a period of time we would be launching that. On the other side, non-mutual funds, we have got a fairly wide bouquet of products on PMS, both discretionary and non-discretionary. On the alternative side, we've got a fund of fund.
Navneet Munot: We have got now a new private equity venture fund and a private credit fund. Then, of course, on the international side, we have just concluded the NFO of two outbound funds, and we have got a couple of inbound funds. So I think it's one of the best-in-class platform where every investor should be able to meet most of their investment needs through one single platform.
Jaspreet Singh: My last question is, what are the areas where we are investing for future?
Navneet Munot: I think I mentioned earlier, so would not repeat all of that, but across newer categories of products and also as the market opens up, SEBI has been, over the last several years, continuously coming up with newer categories of products or the opportunities. We launched a REITs passive product, that is a new category that is building up. I talked about the opportunity on the non-mutual fund side. To be very honest, I see tremendous growth opportunity in our core plain vanilla equity products where we have been a leader and have got a track record over 30 years.
Jaspreet Singh: Does new players present a threat to us?
Navneet Munot: No, I think that-
Jaspreet Singh: I said-
Navneet Munot: The entry of newer players only validates our thesis that industry has a huge growth potential. I mean, for us, it is not appropriate to comment on any particular name of firm, but we have a comprehensive platform across active, passive, alternatives. We are continuously expanding deep relationship, and extremely well-developed distribution network for HDFC. So we have our strength and we continue to build on that.
Operator 2: Thank you. Jaspreet Singh, I will request you to come back for a follow-up. A request to all the participants, kindly limit yourself to two questions per participant and rejoin for a follow-up question. Next question is from line of Aadit Vaish, Individual Investor. Please go ahead.
Aadit Vaish: Good evening. Thank you for taking my question. So on flows with the mid and small-cap categories outperforming this year, could you give some color on how gross sales and redemptions are trending in your large cap and hybrid schemes compared with the rest of your equity book?
Navneet Munot: We do not specify flow data category-wise for HDFC AMC's.
Aadit Vaish: All right. Thank you.
Navneet Munot: Thank you.
Operator 2: Thank you. A reminder to all the participants, you may press star and one to ask the question. Next question is from line of Saurabh, Individual Investor. Please go ahead.
[Individual Investor]: Hello, sir. Am I audible?
Operator 2: Yes, go ahead.
[Individual Investor]: My question is on, last year, you have launched three new schemes, new funds in the GIFT City. Any plan to launch any further funds over this?
Navneet Munot: Yeah, we continuously been expanding the product bouquet. We have got six funds for inbound investment. That is investment by global investors in India. Recently we have launched two products for outbound, where it is an opportunity for Indian investors to invest globally. One product is a developed market feeder, another is an emerging market feeder. As the market evolves and we see the demand from the investors, we will continue to keep evaluating our product bouquet and come with the right solutions.
[Individual Investor]: Big numbers, will you be able to?
Navneet Munot: Like how many products we will launch?
[Individual Investor]: How many schemes or funds?
Navneet Munot: No, we do not think like that. I mentioned earlier that it is a combination of many things, what our investment team believes in. We look at the need of a particular product or a solution from a set of investors or distribution partners and our capability. Accordingly, we do that. These are early days from our GIFT City subsidiary potential. We have launched couple of inbound funds, and have just launched two outbound funds, and we would like to keep growing these strategies.
[Individual Investor]: Okay, sir. Thank you. My second question was on any improvements on capital efficiency because being the third largest AMC, the return on capital ratios are lesser than the peers. Can you throw some light over this?
Navneet Munot: That is a function of how much cash we have on our balance sheet. Last three years, the board has distributed all the cash distributable profits that we have generated in the business.
Naozad Sirwalla: Rest of the balance sheet that we actually have has been built over the years from internal accruals after paying dividends for each of the years we are in existence. That is the function of cash on the balance sheet, which we are using for various investments, including in our AIF platform.
[Individual Investor]: Okay, sir. Thank you. That was all on my side.
Navneet Munot: Thank you.
Operator 2: Thank you. Next question is from Nilof Mayank from Emkay Global. Please go ahead.
Nilof Mayank: Yeah. Thank you for taking my question. If we look at the distribution mix particularly in the equity area, the contribution of direct as a channel has been increasing. Largely given the market volatilities, do you see any concern on the stickiness of the direct area? Because generally we have seen that because of handholding, a regular area has largely higher stickiness. That was my first question. Secondly, I just wanted to confirm whether the ESOP cost for the whole year stands at around INR 79 to INR 80 crore or is there any change there? Yeah.
Navneet Munot: Well, on the investor behavior, I think people keep asking me are these flows sustainable? I think many of us in the industry and I very much include myself and my colleagues in this who have a long experience, have consistently underestimated the maturity and resilience of the Indian retail investors. For years we have built our assumptions and forecast around a belief that retail investors would slow down or withdraw from equity investing when markets turn challenging. But the Indian investor over the last several years have repeatedly challenged that thesis and I think it is time we acknowledge that the investors have evolved much faster than many of us anticipated. You can clearly see in the SIP flows over the last several years. 10 years back, the monthly flow used to be INR 30 billion and now we are talking about INR 325 billion.
Navneet Munot: There has been a consistent increase during this period. We have seen a lot of up and down, I mean the volatility in the market at various points in time. I think if that was your question whether these investors would continue, I think there is a lot of resilience there. The good part of this is structural. Another interesting aspect to look at is if you look at the net flows into equity and hybrid funds and compare that with the SIP flows, a large part of the flows are now coming in the form of SIPs. That gives it more predictability and makes it less volatile. I won't say that industry is completely immune to market cycle. Of course, if there's an extended or a sustained bear market for long, we will see in the investor behavior or the resilience will get tested.
Navneet Munot: But the experience of last few years has taught us that we should be careful not to underestimate the Indian investor.
Nilof Mayank: Got it, sir. Secondly on that ESOP expenditure, can you just confirm whether the number is closer to INR 79 to INR 80 crores for the full year?
Naozad Sirwalla: Yeah. The non-cash expense for ESOP cost for the full year FY27 would be around INR 79, INR 80 crores.
Nilof Mayank: Got it. Thank you so much.
Operator 2: Thank you. Next question is from Ranjit Agarwal, from Nilgiri Advisors. Please go ahead.
Ranjit Agarwal: Good evening, sir. My question is related to the overall market share. I believe there was some discussion at the start of the call when I joined a few minutes late. Is that correct?
Navneet Munot: Yeah. Please ask.
Ranjit Agarwal: No. Okay. For the last many quarters now, I think our share has kind of not grown. The best I think was 11.5% and in this current quarter it is 11.1%. In the near future as well, there are a lot of other fund houses which are coming up which are going to launch their scheme and some of them have really caught the fancy of investors through their own PMSs or AIFs. Do you foresee a scenario where our market share could jump by let us say 20, 30 basis points?
Navneet Munot: We look at longer term. I think on a quarter-on-quarter basis or now even month-on-month basis, people track the numbers very closely. The market share number get impacted by two things. One is the mark to market and second is underlying flows. I would not really spend too much time going through all the details. I think we all recognize that in a business like ours, some amount of movement in market share is inevitable and very much part of the journey. For example, in some of the hybrid funds we have seen some bit of correction in our market share but we have taken the right steps. Our Balanced Advantage Fund is very large, it has got a great long-term track record and which is quite enviable but some of the other categories like multi-asset fund or aggressive hybrid fund or equity savings, we have taken some steps.
Navneet Munot: We have acted on it and we have reviewed our approach and in fact we have brought in an expert fund manager on that, Dilip Bai, who has an excellent track record in managing hybrid strategies and he has delivered very strong outcome. From sales and marketing perspective, we are looking at some of those categories and we think there is tremendous potential for us to grow on that. On the competition side, I mentioned earlier that increased competition we perceive positively because it reflects the expanding investor base. It reflects the rising awareness about mutual fund products across the country. The penetration is still very low. Over a period of time, we see tremendous potential for industry to grow. We have got a best-in-class platform from a product perspective, from a distribution network, both physical and digital. Enviable track record.
Navneet Munot: I think six of our strategies go back 30 years plus in terms of performance track record. Another six, seven would be 18, 20 years plus. I think very few fund houses, not only in India but in the world, can boast something like that. Then of course, we have launched many more products over the last couple of years. We remain very confident of our capabilities apart from the strength of the brand and the distribution franchise. Yeah, there is a lot of potential for us to grow. I think these are very early days of financialization of savings in India and we are very well placed to capture the opportunity.
Simal Kanuga (HDFC Asset Management Company Limited: Well done. Thank you. Thank you for your inputs.
Operator 2: Thank you. Next question is from Manav Devesh Punjabi from Buy and Trade Advisors. Please go ahead.
Manav Devesh Punjabi: Yeah. Hi. Thanks. I have two questions. One was, can you speak more about the size of the opportunity that you are seeing on the PE VC side now coming with the launch of the Select fund? That is question one. The other one is, there was a slight increase in equity yield. Just wanted to confirm, is it because of decline in AUM during the quarter?
Navneet Munot: Yeah. Sure, Devesh. First on the size of opportunity on alternative, there are many ways to look at it. One way to look at it is the total size of AUM in alternatives, which is like INR 16 lakh crore across category 1, 2, and 3. For us these are early days. We just made our first foray into Category III fund, the industry side. Category II, we had a fund of fund which saw very encouraging response. Money is almost fully committed to 13 general partners. Then we have made a couple of co-investments alongside them and have created few opportunities and continuum funds.
Navneet Munot: Based on that experience and the network that we have built, and the understanding that we have got of investing in that space, we have launched a new product, Select Opportunities Fund, which again is seeing very good response from the investors and the private credit fund that we are in the process of doing a final close and have made a couple of investments there. We see a lot of opportunity, but we have mentioned earlier that when it comes to the alternatives this is less about the scale but more about creating a great outcome for the investors. Over a period of time, the size of opportunity is very large. We will continue to build our strength. We have the pedigree, we have the network, we have the distribution capability and then we will fully leverage on that to keep building great franchise on that front.
Manav Devesh Punjabi: Sure. Thanks. On the other question regarding the yield.
Navneet Munot: I think it is just a marginal increase. You are just talking of yields for the quarter, right? For equity.
Manav Devesh Punjabi: Yes. I think there was a 1 bp increase on a sequential basis. Was that-
Operator 2: Devesh, your voice is breaking. Can you repeat that once again, please?
Manav Devesh Punjabi: Yeah. So, I think there was a 1 bp increase in equity yields. Was that due to the decline in AUM?
Navneet Munot: No, not due to decline in AUM. I think it is just a marginal increase product.
Simal Kanuga (HDFC Asset Management Company Limited: Yeah, actually, Devesh, that also depends on which products saw what kind of flows and the mark to market changes. So, multitude of those factors have led to a marginal increase.
Manav Devesh Punjabi: Okay, sure. Thank you and all the best.
Navneet Munot: Thank you.
Operator 2: Thank you. Next question is from line of Sarvan De from Rewa Private Wealth Managers. Please go ahead.
Sarvan De: Yes. Hello? Hello? Am I audible?
Operator 2: Go ahead, sir. You are audible.
Sarvan De: Sir, thanks for the opportunity to ask question. My first question would be, your blended equity yield is around 58 bps if I am not wrong. 3 years are something around 67 or something. Is that gap from the product mix, like hybrid versus pure equity or purely on a pricing choice? Do you see that as your Balanced Advantage Fund keeps growing, do you expect the yield to be more closer to peers?
Navneet Munot: Balanced Advantage are its largest. Actually, our Balanced Advantage Fund is the largest in the country. Sorry, the question is exactly, can you
Sarvan De: Okay, I will repeat the question again.
Simal Kanuga (HDFC Asset Management Company Limited: Yes, please.
Sarvan De: Your blended equity yield is around 58 bp, if I am not wrong. While the key peers are about in 67 bp. Is that a gap from the-
Simal Kanuga (HDFC Asset Management Company Limited: I am sorry, are you saying peers or peer? Because there are not peers in 67, 68. Are you referring to a particular peer? I think, yeah, there are differential yields at which-
Sarvan De: Referring to particular peer.
Simal Kanuga (HDFC Asset Management Company Limited: Yeah. Because there are peers also at 30 basis points. I think, yeah, there is whole range then. Because of the size of our various funds. Yes. So certain of our funds are large in size. They have grown very well. So we are the only asset management company which today has three funds well above the INR 1 lakh crore in terms of AUM. As you know, it is a steady formula. As the AUM grows larger,
Sarvan De: Yeah
Simal Kanuga (HDFC Asset Management Company Limited: the TER keep coming down. So the effectiveness because of that is where we are today.
Sarvan De: Okay. Any sort of further guidance towards how you will actually towards kind of a more than 55 bp or something, growing the equity yield much more higher?
Simal Kanuga (HDFC Asset Management Company Limited: Sir, we don't hazard a guess on anything that is in future. I think we have been able to build a strong franchise over time. We will obviously do our best to optimize it to the fullest.
Sarvan De: Okay. My next question would be, almost INR 8,700 crore in treasury investment. Has board decided to reconsider anything to do with it, like buyback or any kind of special dividend? What are you expecting to deploy this treasury investment over this?
Simal Kanuga (HDFC Asset Management Company Limited: I think I was just mentioning on the previous question. For the last years, the board has declared a dividend which effectively where we have distributed the entire post-tax cash profits that we generate.
Sarvan De: Okay
Simal Kanuga (HDFC Asset Management Company Limited: Last year, the balance sheet that we have currently we are using to give investors seed capital for all our alternate platforms.
Sarvan De: Okay.
Simal Kanuga (HDFC Asset Management Company Limited: That is we are currently using the balance sheet to work here.
Sarvan De: Okay. How much it will take to distributing the seed capital and all? Any sort of time horizon would be very appreciated for that.
Simal Kanuga (HDFC Asset Management Company Limited: The investment schedule is already disclosed as part of our investor pack. You will see how much has been deployed across different investments. The balance sheet,
Navneet Munot: There is a continuing process. As we keep seeding new strategies, this will require seed capital.
Sarvan De: Okay. It is a continuing process. Got it, sir. Thanks, sir. I do not have any more question left.
Simal Kanuga (HDFC Asset Management Company Limited: Thank you.
Operator 2: Thank you. Next question is from the line of Kirti Raj, individual investor. Please go ahead.
Kirti Raj: Hello, am I audible?
Operator 2: Yes, go ahead.
Kirti Raj: Yeah. First of all, congratulations for the good set of numbers. Actually, just a follow-up question on the question asked previously. As we could see the net expenses on a quarter-on-quarter basis, it is having a degrowth of approximately 4%. I am excluding the fees and commission part. While on a year-on-year basis, quarterly basis, whatever you are talking about, it is approx 6%. Accordingly also H1, it is approx 16%. Can I get a bit guidance on that, respective to that? Anything clarity for that? Any reason specific or something like that? That is the question.
Simal Kanuga (HDFC Asset Management Company Limited: Actually, we had mentioned this in our last quarterly call. There were some CSR expenses which were taken up in Q1, and because of that, you are seeing the H1 numbers getting kind of bit skewed. Having said that, sir, we would request you to look at our total cost on an annual basis. If you see the trend, I think Navneet earlier touched upon about the long-term trend and how things have been. We would just request you to, because of the very nature of the business and the kind of certain expenses, we would request you to look at the full-year expenses.
Kirti Raj: Okay, done. Thank you so much.
Simal Kanuga (HDFC Asset Management Company Limited: Thank you.
Kirti Raj: That's it from my side.
Simal Kanuga (HDFC Asset Management Company Limited: Thank you very much, sir.
Operator 2: Thank you very much. Ladies and gentlemen, we'll take that as our last question. I'll now hand the conference over to Mr. Navneet Munot for closing comments.
Simal Kanuga (HDFC Asset Management Company Limited: Thank you. Navneet, thank you so much, and wish you all the very best for the next season.
Operator 2: Thank you very much. On behalf of HDFC Asset Management Company Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.
Sarvan De: Okay.
