Categories Earnings Calls

HDFC Asset Management Company Ltd (HDFCAMC) Q2 FY23 Earnings Concall Transcript

HDFC Asset Management Company Ltd (NSE:HDFCAMC) Q2 FY23 Earnings Concall dated Oct. 19, 2022

Corporate Participants:

Simal KanugaChief Investor Relations Officer

Navneet MunotManaging Director & Chief Executive Officer

Naozad SirwallaChief Financial Officer

Analysts:

Kunal ThanviBanyan Tree Advisors — Analyst

Prayesh JainMotilal Oswal Financial Services Ltd — Analyst

Amaya GawandeMetaverse — Analyst

SaurabhJPMorgan Chase & Co. — Analyst

Mohit SuranaCLSA — Analyst

Ronak ChhedaAwriga Capital Advisors LLP — Analyst

Dipanjan GhoshCitigroup Inc. — Analyst

Devesh AgarwalIIFL Securities — Analyst

Lalit DeoEquirus Securities — Analyst

Alok KumarUTI AMC — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q2 FY ’23 Earnings Conference Call of HDFC Asset Management Company Limited. From the management team, we have Mr. Navneet Munot, Managing Director; Mr. Naozad Sirwalla, Chief Financial Officer; and Mr. Simal Kanuga, Chief Investor Relations Officer. 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. [Operator Instructions] Please note that this conference is being recorded.

I now hand this call over to Mr. Simal Kanuga, who will give us a brief following which, we will proceed with the Q&A session. Thank you and over to you, sir.

Simal KanugaChief Investor Relations Officer

Thanks, Steven. Good evening, everyone. The results along with business update presentation is available on our website and also on the website of the exchanges. As usual, we will begin with a quick overview of what has happened in the industry during the quarter. So, industry closed the quarter with an AUM of INR38.4 trillion and equity AUM of INR19.3 trillion. Quarterly equity net flows for industry continued to remain strong at INR504 billion. Of course that was lower as compared to INR783 billion for the quarter ended June ’22 and INR685 billion for September 2021. We would like to definitely qualify that equity flow number includes index funds and currently index funds include both equity and debt index funds. However, we can get some perspective from AUM of debt index funds. The AUM of debt index funds stood at INR575 billion for quarter ended September ’22 increasing from INR417 billion at the end of last quarter that’s the June quarter, a net addition of INR158 billion to the AUM.

As this is fixed income, large part of this growth is through inflows. If we net this number off from inflows, quarterly inflows into equity and equity oriented funds including equity index funds, but excluding AUM growth in debt index funds, was INR346 billion for quarter ended September ’22. The comparable number for quarter ended June ’22 was INR642 billion. Of this number of net flows excluding debt index funds, which is INR346 billion, NFOs contributed to the tune of INR104 billion. On the debt mutual fund front, we continued to see outflows. Industry lost INR293 billion in the current quarter as against INR1,178 billion in the previous quarter. We should add debt index funds and debt ETF numbers here. So for the current quarter, debt funds including debt index funds and debt ETFs outflow numbers was approximately INR60 billion. Liquid funds witnessed net inflows of INR191 billion and others as a category; which is ETF, arbitrage, fund of fund investing, overseas; saw inflows of INR71 billion.

Individual investor folios now stand at INR137.3 million and individuals as a category are contributing to the largest part of the AUM and now account for 57%. In terms of AUM, B-30 contributed 17%. But if you look at equity AUM, the number is 27%. SIP flows for the month of September remained robust at INR129.76 billion. We’ll now move to us. We closed the quarter with an AUM of INR4,222 billion. Our market share in quarterly average AUM on overall basis and excluding ETF was 11% and 12.3%, respectively, more or less similar to what we saw at the end of June 2022. In terms of actively managed equity oriented AUM, our market share stood at 11.5%, same as that of quarter ended June 2022 and this is despite NFOs during the quarter. We did not have any NFO in this category. Of the industry net sales that came in during the quarter, nearly INR104 billion was contributed by NFOs.

We propose to launch a thematic fund, business cycle fund, sometime in November. Our quarterly average market share in debt and liquid category was more or less constant at 13.7% and 13.2%, respectively. Our systematic transaction book saw healthy growth. We processed 3.91 million transactions totaling to INR14.3 billion in month of September 2022, up from 3.73 million transactions totaling up to INR12.8 billion in month of June 2022. We continue to enjoy a favorable asset mix as compared to that of the industry and also favorable ratio in terms of AUM from individual to non-individual investors. Before we move to financials, a quick update on new launches during the quarter. As we have stated in our previous calls, we are in process of expanding our product range on the passive side. During the September quarter, we launched six ETFs including a silver ETF. Even in the current month, we actually closed two more smart beta ETFs.

We now have couple of strategies live on PMS side and also recently launched our Cat-II AIF fund of funds, which is investing across VC and PE funds. Now we move on to financials. For the first six months of the current financial year, we have reported revenue of INR11,818 million and profit after-tax of INR6,783 million, a revenue de-growth of 3% but an operating revenue rising by 2%. Total profit de-grew by 2% while the operating profit from core asset management business was flat. It will also be pertinent to mention that the employee benefit expense includes non-cash charge. The number for the current financial year is INR212 million and the corresponding number for last year was INR343 million. In terms of quarterly numbers, revenue from operations was flat while profit after-tax has seen an increase of 6% on Y-o-Y basis. Our operating profit margin as basis point of AUM stood at 36 basis points for half year ended September 2022 with operating revenue margin at 50 basis points.

So, thank you very much and we’ll be happy to open up for questions now. As Steven suggested, both Navneet and Naozad are very much in the same room.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Kunal Thanvi from Banyan Tree Advisors. Please go ahead.

Kunal ThanviBanyan Tree Advisors — Analyst

Hi. Thanks for the opportunity. So, I had two questions. One was on our revenue yield. If we see, sequentially there has been some improvement from say 50 bps to 51 bps in this quarter. Wanted to understand the key reason behind it. Is it expansion of TER in debt or equity or is it simply because of the better equity mix that we have seen in this quarter? That is one. Second is on overall debt side of the business. If we see for the industry and for us, we do see lot of outflows. Great if you can share your thoughts on what are the factors that are being driven on this kind of outflow for the industry and for us? And thirdly, if I can squeeze last one is on the SIP market share gain. Like we’ve seen two — like in last two quarters after bottoming out in 4Q FY ’22, we have seen some improvement in our SIP flow share. If you can put some comments on what are the reasons behind it? What is that different we are doing in terms of distribution? We understand that performance has improved in last one-and-a-half, two years. Apart from performance, are there any other levers that we are working to improve the SIP and overall equity market share? Thanks.

Navneet MunotManaging Director & Chief Executive Officer

Hi Kunal. On the margins, I think you rightly mentioned it’s due to the better asset class mix. So, equity proportion of the overall AUM has gone up and that has resulted in the margin improvement. Your second question was on the overall outflows in the debt market. I think if you have a rising interest rate environment, that’s when you get outflows from the debt fund. Historically, we have seen that in past as well. But if you ask me going forward, I see a great opportunity emerging out of this. Once rates start stabilizing, we have stated in past this could be start of acceptance of debt funds by retail investors. I think if you look at the industry progress over the last couple of years, there has been tremendous focus on — I’m talking about the retail investors or the individual investors, there has been focus on the equity funds, equity ownership among retail investors has gone up.

Not so much on the fixed income side. But I think with yields where they are currently, over a period of time I think there is tremendous potential for us to reach out to large number of individual investors for our debt products. I think also Simal mentioned in his opening remarks, it’s important to see the number of the debt outflows in conjunction with flows into the debt ETFs and the debt index fund. So if you add these two numbers, the net outflow number would come to approximately INR60 billion or so. So there have been outflows, but there are inflows into the debt ETFs and debt index. There are outflows from the open-ended debt funds, but there are inflows into the debt index and debt ETFs. Your third question was on the systematic transactions. As you know, I mean systematic transactions at our end includes SIP as well as STP. I mean we used to be a pioneer in that space.

Over the last several years, HDFC as an AMC has been investing very heavily in promoting the concept of SIP. Last couple of years of course we lost some bit of market share for variety of reasons that we would have discussed over the last several quarters, but we have stepped up our efforts couple of quarters back. I think it’s a mix of variety of things including better engagement with our distributors, our partners, it’s our enhanced marketing and communication efforts, it’s system and digital platform, I think our transition from client services to client delight which I have been talking about for last several quarters, and of course the improved performance which is getting recognized by investors and our partners. I think a combination of all of these things. But as a house again as I mentioned, we used to be a pioneer. We lost market share. But across all channels I think at our end there is tremendous focus on getting our market share back on the systematic transactions front.

Kunal ThanviBanyan Tree Advisors — Analyst

Sure. Thank you so much and Happy Diwali to the entire team. All the best.

Navneet MunotManaging Director & Chief Executive Officer

Happy Diwali. Thank you so much.

Operator

Thank you. The next question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead.

Prayesh JainMotilal Oswal Financial Services Ltd — Analyst

Yeah, hi. Good evening, everyone. Just a few questions from my side. Firstly, just extending the point on the yield front. While definitely the mix that would have played out, is there any trends that we’ve seen early on the debt yields moving higher with regards to charges or possibility of charging a better TER? That is point number-one. Secondly, our opex to AUM ratio is possibly higher than what we’ve seen in the past of around 13 plus bps. What is the outlook going ahead with regards to this number? I understand you’ll have guided in that range only, but it’s still just beyond that range. Do you think that we can see a better number out there? Thirdly, on the — what’s the strategy on the alternate assets? Have we — like in last few quarters you have mentioned that you have formalized a strategy and you expect scale-up in this space. So, what is the kind of traction we have seen and what are the plans going ahead? My last question will be on the tax rate, which is slightly higher at 26% plus. Any thoughts around this? Those would be my four questions. Thanks.

Navneet MunotManaging Director & Chief Executive Officer

Thanks. I mean the first on the yield on the debt side, I think it’s been pretty stable. There’s hardly any change on that front. Second on the overall expenses as percentage of AUMs, yeah, it’s been like that 13 basis points, 14 basis points. Maybe over a period of time as AUM increases, there would be scope for improvement there. But otherwise as we have been guiding that there are few items like technology, on people, on business promotion as the travel is back, as business promotion is back; some bit of expenditure has gone up and we are investing in future. We are very optimistic about the industry in general and for us to gain share over a period of time so we would be very keen to invest at this point in time.

On the alternative side. I think as Simal mentioned earlier, we have already launched — there are multiple things that we are doing on that front. You will see enhanced level of activity in alternate space over the next several quarters. We have it on our radar and look forward to building a state-of-the-art alternate business that I’ve been mentioning over the last several quarters. We launched our Category-II AIF fund of fund this quarter and going forward we will further expand our portfolio on that side. Just I mean related to that, PMS business and we are fairly clear in our mind on how we want to build that business and in line with this, we launched India Ascent strategy in addition to the AllCap strategy that we launched last quarter. So on the non-mutual fund business side, I think both PMS and alternatives we have ambitious plan over the next several years.

Naozad SirwallaChief Financial Officer

Yeah. On the tax front, frankly it’s about 26%. So, there is nothing materially different there. A bit of [Indecipherable] in our provisioning, but it’s in line with the 25% range which is presently.

Prayesh JainMotilal Oswal Financial Services Ltd — Analyst

Thanks. And just Navneet, could you just give some thoughts on how do you see the yield? In the previous quarter when the yields moved up fortunately after a long time, you mentioned that it was kind of not something which is structurally changed in the yield structure. But we’ve again seen an increase in this quarter. We are happy to see that number. But how do you see this going ahead?

Navneet MunotManaging Director & Chief Executive Officer

So that’s — I mean that’s a result of the asset mix changing as we’ve mentioned earlier. On the fixed income side, it’s been pretty stable. On the liquid side of our business, it has been pretty stable. On the equity side — I think we have discussed this earlier and maybe I’m just repeating what we would have said earlier that one, I mean the increase in AUM as per the formula of the sliding scale of TER. This gets adjusted over a period of time as we moderate commissions for new flows to an extent and in this quarter — over the last couple of months, couple of our scheme AUM would have surpassed the INR5,000 crore multiple and that would have had impact of couple of basis points.

As we have been guiding continuously, our book margins are at a substantial premium to the floor margin and the new business is happening at lower margins. Of course we are seeing some green shoots in terms of how NFOs have been priced compared to where it was say in first half of the last financial year. Statistically the pace of dilution of yields may slow down going forward as the gross flows as a percentage of AUM may be lower as compared to the last year. Otherwise as we have always maintained, the loss in yields should get compensated by favorable asset mix, which we have seen in this quarter. And furthermore, I mean the growth in our business over longer term should more than make up for fall in yields.

Prayesh JainMotilal Oswal Financial Services Ltd — Analyst

Thank you so much. And wish everyone a Happy Diwali. Thank you.

Navneet MunotManaging Director & Chief Executive Officer

Happy Diwali. Thank you.

Operator

Thank you. The next question is from the line of Amaya Gawande [Phonetic] from Metaverse. Please go ahead.

Amaya GawandeMetaverse — Analyst

Yes, sir. Good evening, everyone. So, I just have a couple of questions from my side. First is from five years’ perspective as industry is growing and evolving at a fast pace and has a lot of space, what will be your strategy in this competitive environment for growth in the market share and achieving the operating leverage?

Navneet MunotManaging Director & Chief Executive Officer

So, five-year strategy. I mean over the last five years we have seen the pace at which the SIP book has grown, we have seen the way the overall equity AUM has grown. I think the our financialization of savings was a trend which has just picked up, but we have a long way to go. Whether you look at our AUM as percentage of GDP, whether you look at our AUM as percentage of market cap, whether you look at percentage of money that we get as proportion of the overall household savings; I think we have a long way to go. But mutual funds are clearly becoming one of the preferred vehicle for investing for large number of investors. I think the number of unique accounts have grown very substantially in last 15, 18 months from little over like 2.5 crores to almost 3.5 crores and to us, this is just beginning. And as we have mentioned I think in some of the earlier calls that we have set a very ambitious mission for ourselves, which is to be the wealth creator for every Indian. And as I said that as of now, there are just like little over 3.5 crore unique investors.

But if you look at the number of people who have PAN, people I mean who have passports, or people — I think I mean of course the bank account numbers are much, much higher. But over a period of time we believe that the total addressable market for the industry is very large. Within that, the strategy for us I think we have the best-in class product range. We have one of the best I would say long-term performance track record of several of the funds within that. We have continuously been expanding our product bouquet to ensure that we remain a one-stop solution for investors. Whether it’s on our distribution side, we have outstanding franchise I mean across the country with 228 branches and a number of distributors that we serve across all channels. We remain highly focused to have the best possible market share across all channels. I think that investing heavily on the digital side and technology and marketing and in all of this just to ensure that we make the most of the opportunity that industry presents.

Amaya GawandeMetaverse — Analyst

Thank you, sir. And also I would like to have your thoughts on risk due to global economic environment like whether it maybe inflation, interest rate hikes, or geopolitical tensions. How it might hamper the business and the mitigation part?

Navneet MunotManaging Director & Chief Executive Officer

So, you’re talking about the fixed income part of our business because the yields are going up and globally liquidity is tightening.

Amaya GawandeMetaverse — Analyst

Yes, sir.

Navneet MunotManaging Director & Chief Executive Officer

So of course I think we have seen outflows from the fixed income funds, but the interesting part as we mentioned earlier is that we are clearly seeing interest of retail investors in debt index fund and debt ETFs. And going forward of course given the higher commodity prices or the higher inflation, the accelerated tightening by the major global central banks, they are putting upward pressure on yields. And then going forward, maybe higher supply of state development loans, which has been muted till now is likely to pick up in coming quarters. So, this can put further upward pressure on yields given the high SLR holdings of banks and robust credit demand. On the other side, we are seeing financial conditions tightening globally with US yields rising particularly post the Jackson Hole Symposium. But I mean as I mentioned that on the fixed income side over the last five years or so if you see the fixed income AUM as percentage of bank deposits, I think that percentage hasn’t really gone up. We have seen significant growth in the industry on the equity side, but not so much on the fixed income side. Maybe elevated yields will give us an opportunity to present that asset class also to a much larger set of investors than what we have currently.

Amaya GawandeMetaverse — Analyst

Yeah. Thank you so much, sir, and all the best for the future endeavors. And I wish everyone Happy Diwali.

Operator

Thank you. The next question is from the line of Saurabh from JPMorgan. Please go ahead.

SaurabhJPMorgan Chase & Co. — Analyst

Hi sir. Just two questions. One is the scheme performance has improved so have you seen any market share improvement on a flow basis happening towards HDFCAMC? And the second question is on the margins, you did mention that the flow margins are lower than the back book. But I was wondering that I mean you’ve kind of reverted to your 35 basis points long cycle level so how would you think about the degradation in margins going ahead? Thank you.

Navneet MunotManaging Director & Chief Executive Officer

So margin 1, 2 basis here and there. As we have been saying, I think it all depends on asset class mix, it depends on flows into certain funds, I mean NFOs, some of the older funds, so on and so forth. On the scheme performance, of course I think the improvement in our scheme performance across the board, we are seeing uptick in our market share inflows. I think both in the SIP as well as in the lump-sum flows across all channels so whether it’s the MFTs, whether there is a large national distributor, bank, fintechs. I think across all channels at the margin, we are seeing improved market share.

SaurabhJPMorgan Chase & Co. — Analyst

And be reflected in your overall equity market share maybe with a quarter lag hopefully next quarter?

Navneet MunotManaging Director & Chief Executive Officer

Yes, yes. So this quarter also the market share is flat over the last two quarters, more or less flat. But you have to keep in mind there was large amount that was gathered through the NFOs and in the last quarter we did not have an NFO in active equity. We will have a business cycle fund in this quarter, but last quarter couple of other NFOs that collected over INR10,000 crores, INR100 billion and we did not participate. Even adjusted for that if you see our market share, it’s pretty visible that we are improving across the board.

SaurabhJPMorgan Chase & Co. — Analyst

Okay. Got it. Thank you.

Operator

Thank you. The next question is from the line of Mohit Surana from CLSA. Please go ahead.

Mohit SuranaCLSA — Analyst

Hi sir. I just have one question. In terms of your employee opex ex of ESOP cost, it’s — for the past two quarters it’s up 21% so if I compare 2Q of this year versus 4Q of last year. So, just wanted to know where are we investing more in terms of our manpower cost or I’m reading it wrongly that the 4Q base was very low to start with. Just wanted some thoughts over there.

Navneet MunotManaging Director & Chief Executive Officer

So first of all, you will appreciate this is a people business. I mean that’s I would say a key focus for me to ensure that we retain our people, we are able to attract the best possible talent in our company. I think if you look at overall numbers, I think first six months ended September ’19 that is pre-COVID, our employee cost was INR1,145 million. As against that, the employee cost for six months ending September ’22 is INR1,618 million. So for the first six months of the current year if we take out cost of ESOP, then the number is INR1,406 million which is an increase of 23% absolute or 7% on a CAGR basis. And as I said that we have to invest in our people. I mean the growth in financial services sector has led to healthy demand especially for high quality talent and it would not be prudent to let good talent go away. So, we will try our best to balance between the two.

Mohit SuranaCLSA — Analyst

Sure sir. Appreciate your answer.

Navneet MunotManaging Director & Chief Executive Officer

See, if you look at the overall sector, this is not exceptional and we have to ensure — I mean even at the cost of repeating, I think we have to ensure that we retain our quality talent.

Mohit SuranaCLSA — Analyst

Got it, sir. Thanks a lot for your response.

Operator

Thank you. The next question is from the line of Ronak Chheda from Awriga Capital. Please go ahead.

Ronak ChhedaAwriga Capital Advisors LLP — Analyst

Hi sir. Thanks for the opportunity. I just had one question. You have mentioned about debt ETF partly taking share from debt on industry level. As I understand for HDFC, that might not be the case and hence we must have lost a higher share than the investments. What are your thoughts and how do we address this issue going forward?

Navneet MunotManaging Director & Chief Executive Officer

Sorry, I didn’t get you. You are saying I mean debt ETF is taking away — is it like because we are not doing debt ETF, is it taking the share away. So, I’ll just tell you what we are doing is we have got approvals to launch various debt index funds so we’ll be doing it. So, actually these debt index funds or debt ETFs are more of target maturity plans. So, it will be equivalent to what in the erstwhile era we used to call it as an FMP. So this is obviously open-ended index funds, but all of them have kind of pre-defined majority and because of the pre-defined maturity, lot of investors are not worried. When they are looking at holding till maturity, they are pretty much okay that they would more or less make up equal to the YTM or the entry levels. So, we will have a number of debt index funds coming out of our stable over the next quarter or two.

Ronak ChhedaAwriga Capital Advisors LLP — Analyst

Okay. And till that period, we would be losing a higher share on debt side than the industry. That understanding is a bit correct, right?

Navneet MunotManaging Director & Chief Executive Officer

No. In fact if you remove the debt index, in rest of the categories our market share is pretty decent. I think it’s been — we’ve been holding on to our market share. That’s a category where we have not been present, but we’ll be launching several products in next few months.

Simal KanugaChief Investor Relations Officer

Actually even if you look at our presentation that is there, right, and even if you look at our debt slide, that includes the debt index funds also. So despite that, our market share — despite increase in debt index funds, our market share on overall basis has been fairly stable. We have not lost market share because of that.

Ronak ChhedaAwriga Capital Advisors LLP — Analyst

On a Y-o-Y basis we must have done, but not on this, right? Sequentially we might not have done. On a Y-o-Y basis, we might have lost share.

Simal KanugaChief Investor Relations Officer

So I’ll tell you on a Y-o-Y basis also if you look at debt AUM, our share was 14.6% on quarterly average. We are — as of now this quarter, we were on 13.7%. So, it’s basically just about 1%. And see, there are — like as you know, right, on the debt side, there are large corporate, large treasuries, large institutional investors. So, they might kind of take some money out at varied points in time plus of course we have seen some bit of interest rate not exactly conducive to the debt funds as a whole, right? So, these are the couple of reasons. The margin loss in market share on a Y-o-Y basis. On a Q-o-Q it’s been flat despite the growth that we spoke of on the index side.

Ronak ChhedaAwriga Capital Advisors LLP — Analyst

Got it. Thank you so much.

Operator

Thank you. The next question is from the line of Dipanjan Ghosh from Citi. Please go ahead.

Dipanjan GhoshCitigroup Inc. — Analyst

Hi, good evening. Just one question from my side. Your SIP market share has obviously increased over the last two or three quarters. Just wanted to get some color on the channel of origination, how much is led by MLPs or [Indecipherable] channels and how do you see the customer stickiness across these channels? Any qualitative color will be useful.

Navneet MunotManaging Director & Chief Executive Officer

We are improving across all channels and our focus is like ensuring that we get our fair share across all channels, which includes as I said, MFDs which account for — if we look at like the first half of this year; MFDs would account for around 15% of the new SIPs, national distributors would account for around 20% odd, direct would be like 10%, fintechs actually account for almost one-third of the new SIPs that get created, and then you have some of the banks which have closed on credit architecture and then the other banks. And we watch our market share across all of these segments and our endeavor is to ensure that we are getting our fair share across all of these channels and we are making incremental improvement across all of these channels. The number that Simal mentioned is the systematic transactions, which include both SIP as well as STP.

Dipanjan GhoshCitigroup Inc. — Analyst

Just one small follow-up. I mean [Technical Issues]

Operator

Mr. Ghosh, sorry to interrupt. If you can hold the device a little further from your mouth, sir, because your audio is sounding bit muffled.

Dipanjan GhoshCitigroup Inc. — Analyst

Is this better?

Navneet MunotManaging Director & Chief Executive Officer

Yeah.

Dipanjan GhoshCitigroup Inc. — Analyst

Sir, just one small follow-up. I mean you obviously mentioned the mix across some of the channels for the first half of the current fiscal. If you can give some color on a Y-o-Y basis how does mix product change or maybe mix on the counter share or which channels are the places where you’re actually gaining market share? I mean if you can give some color on that. That will be all from my side.

Navneet MunotManaging Director & Chief Executive Officer

I think that across all channels so which includes MFDs, national distributors, I mean other banks which — I mean other than those banks which have a closed or a highly guided architecture, direct a small amount that comes from what we call RIA, registered investment advisors, and fintech. So in all of these channels, we have improvement year-on year from the base. I mean the other way to look at it, the Top 10 entities account for around 60% of the industry total and I’m talking about the new SIP count and not the amount — on the count and in all 10 of them, we have improved our market share.

Dipanjan GhoshCitigroup Inc. — Analyst

Got it. Thanks and all the best.

Navneet MunotManaging Director & Chief Executive Officer

This is one of — as I mentioned in response to an earlier question, this is one of the big focus area at our end.

Operator

Thank you. The next question is from the line of Devesh Agarwal from IIFL Securities. Please go ahead.

Devesh AgarwalIIFL Securities — Analyst

Good evening, sir. Sir, my first question is I wanted to understand how big is this ETF — debt ETF market and what potential are you seeing in this.

Navneet MunotManaging Director & Chief Executive Officer

I think it’s almost now touching…

Simal KanugaChief Investor Relations Officer

I think your liquid and debt ETF adds up to INR68,000 crore. Of this INR68,000 crores, one asset management company which runs the Bharat Bond ETF, they are themselves INR50,000 crores just above. So like on the debt ETF side, that is the story so it’s basically dominated — that is basically one asset manager. On the debt index funds side, the AUM stands at around INR57,500 crores.

Devesh AgarwalIIFL Securities — Analyst

Okay. And coming to the alternate, again this time we have lost the AUM out there. So one, what exactly — which fund have we lost which led to a sharp decline in our PMS AUM and what was the financial impact of that?

Navneet MunotManaging Director & Chief Executive Officer

No. One large institutional investor has taken money off the table. We had one large client relationship, a large global institution. We have closed the mandate. Of course relationship with the institution in question is strong and we’ll continue to engage with them. On the other side, we definitely are working through various modes to build on our international business. I mentioned earlier about our setup in GIFT [Phonetic]. That would be a big step in that direction and you will hear more from us on this front over the next few quarters.

Devesh AgarwalIIFL Securities — Analyst

Right, sir. But any financial number that you can give around with this mandate that we lost? What would be the impact on the revenues?

Navneet MunotManaging Director & Chief Executive Officer

I mean if we look at our overall revenues, it’s not material.

Devesh AgarwalIIFL Securities — Analyst

Okay. And you did mention that you will see a lot of traction on the alternate products especially with the launch of AIF 2 funds and some of the PMS funds. Any number that you are targeting to increase your AUMs in this non-mutual fund business over the next two, three years?

Navneet MunotManaging Director & Chief Executive Officer

Really premature to I mean give out those numbers. All I would say is that yeah, that’s one business where we have been investing. We have ambitious plan. We launched this Category-II fund of fund. We will be looking at other products there as well. On the PMS side, as I mentioned, we have launched the second product. So on the mutual fund side, both PMS and AIF are going to be the areas where we are going to focus.

Devesh AgarwalIIFL Securities — Analyst

Right. And lastly sir, what would be the quantum for the ESOP expense for the full year this year and by how much should we expect a decline in the next year?

Naozad SirwallaChief Financial Officer

So, this year’s total cost would be about INR40 crores for the year for FY ’23.

Devesh AgarwalIIFL Securities — Analyst

Right. And next year the likely decline?

Naozad SirwallaChief Financial Officer

That’s a function of decline or if the NRC decides to allot more options, that’s a different discussion that we can’t comment on it at this stage.

Devesh AgarwalIIFL Securities — Analyst

But on the current issued ESOPs?

Naozad SirwallaChief Financial Officer

Yeah. I mean we don’t give future numbers, it’s mathematics. We can take it offline. But it’s — clearly it’s a reducing balance as you know, that’s how the Ind AS accounting works.

Devesh AgarwalIIFL Securities — Analyst

Sure. Okay. Thanks. Thank you. That will be all.

Operator

Thank you. The next question is from the line of Lalit Deo from Equirus Securities. Please go ahead.

Lalit DeoEquirus Securities — Analyst

Yeah. Good evening, sir. Thank you for the opportunity. Just wanted to understand on the HNI segment which forms — it’s a visual part of our individual AUM. So given the volatile markets, how are the inflows shaping up over there and like what is the outlook? What would be outlook over there?

Simal KanugaChief Investor Relations Officer

Yeah. Lalit, I think — just give us one second. I think you were not very clear, but I have been able to get you. So, just give us one minute.

Navneet MunotManaging Director & Chief Executive Officer

In fact if I remember correctly, it’s 75% of flows in last two months are purely from SIP, which means that lump sum flows have come down. So maybe some of the investors who were putting the lump sum flows are not putting now. Markets are a bit volatile, but I think we have to give it to the individual investors, retail investors in India who have shown tremendous resilience against the backdrop of this heightened volatility that we have seen over the last seven, eight months. But yeah, I mean the lump sum flows have clearly slowed down. Earlier we gave you the number of quarter-on-quarter as well as year-on-year. So, flows have slowed down a bit because of the volatility.

Lalit DeoEquirus Securities — Analyst

Sure, sir. As well on the SIP side…

Operator

Sir, actually your voice is sounding bit muffled. Are you on speaker phone right now?

Lalit DeoEquirus Securities — Analyst

Yeah. Hello? Is this audible?

Navneet MunotManaging Director & Chief Executive Officer

Yeah, this is better.

Lalit DeoEquirus Securities — Analyst

Sure, sir. So like as you mentioned that on the SIP front, the new registrations like — about like one-third is coming through the fintech channel. So, could you talk about the persistency level and like how much of it is being retained or retention ratio of those numbers from the fintech channel especially?

Navneet MunotManaging Director & Chief Executive Officer

No. My assumption is that maybe persistency is lower on that channel relative to most of the other channel. We don’t give that granular detail. At our end, as I mentioned earlier and I reiterate, that our share has been going up across all channels.

Lalit DeoEquirus Securities — Analyst

Sure, sir. Thank you.

Operator

Thank you. [Operator Instructions] The next question is a follow-up from the line of Kunal Thanvi from Banyan Tree Advisors, Please go ahead.

Kunal ThanviBanyan Tree Advisors — Analyst

Thanks for the opportunity again. So, I had just follow-up on debt passive or the index fund that we were talking in response to the earlier participant. Wanted to understand what kind of yields are there in the debt ETFs and debt sales like is it closer to the equity passive or is it closer to the active debt funds? Like what’s the sense there? Like if there is a structural movement from say some part of the active debt to passive, what is that we are looking at in terms of the yield compression on the debt side?

Navneet MunotManaging Director & Chief Executive Officer

As of — I mean we are yet to launch products. But when we are looking at the industry, I think they are somewhere between 10 to 20. Over a period of time, they would — with product innovation on that side. But you are right. I mean that would be lower than what the current blended yield on the overall open-ended debt schemes.

Kunal ThanviBanyan Tree Advisors — Analyst

Sure. Got it. Thank you, Navneet. Thanks.

Operator

Thank you. The next question is from the line of Alok Kumar [Phonetic] from UTI AMC. Please go ahead.

Alok KumarUTI AMC — Analyst

Hi, sir. I just wanted to understand that what has been the impact of the rising yields on our debt portfolio and how do we look about the future of the yield markets and our debt AUM?

Navneet MunotManaging Director & Chief Executive Officer

As I mentioned earlier that there have been outflows from funds over the last several months as yields have been inching up. This is in line with the trend in past as well. Over a period of time once yields stabilize and given the elevated yields, we are hopeful that this would attract lot of individual investors to the debt funds. I mentioned earlier that while we have seen significant increase in individual participation in equities, particularly in the SIP side, but in industry we hardly talk about SIP in debt funds. I mean all of us have grown in our childhood thinking about recurring deposits in banks. Something similar I think our industry needs to do as well promoting SIP and the fixed income funds for investors who are hard core debt or hard core fixed income investors. I think yields at these levels with product innovation and some of the other efforts by the industry both on the investor education as well as marketing can lead to a lot more penetration of debt funds among the individual investors. There is lot of opportunity.

I’m just repeating. I think I mentioned earlier and in case I didn’t that if you look at the overall debt AUM in India in last five years, the industry has grown so much and the overall growth in the industry has been significant. But on the debt side as a percentage of bank deposits or if you put any other metrics, I think we haven’t really grown much on that side as industry and I think there is lot of opportunity. A large part of the savings remain in fixed income instruments in India apart from of course real estate and gold where the significant proportion of household savings are. I think yields at elevated levels, some of the product innovation which is happening in the industry, and maybe some bit of other efforts from the industry can lead to lot more penetration on the debt side. So, I remain quite optimistic. But when yields go up, when people see MTM losses or the MTM or maybe the overall lower returns on their debt funds, we have seen historically some bit of outflows from the existing funds, but as they stabilize — as yields stabilize at higher levels, that starts attracting money.

Alok KumarUTI AMC — Analyst

And any plans or any product where we can lock the investors’ fund at a higher yield given that the returns on the SB deposits are also not — have not yet increased as much as the lending rates have increased. So any method, any way we are looking at launching some product wherein we can lock-in the funds at a higher interest rate for our investors?

Navneet MunotManaging Director & Chief Executive Officer

Absolutely, that’s what we talked about earlier. So those are like targets maturity funds, I think those funds where underlying investments would be in defect or SBL or highly rated corporate bonds with specific majority and they are similar to fixed maturity plan earlier. But fixed maturity plans used to be close-ended, these are kind of open-ended index funds.

Alok KumarUTI AMC — Analyst

Sure, sir. Thank you so much and a very Happy Diwali to you all.

Navneet MunotManaging Director & Chief Executive Officer

Happy Diwali.

Operator

Thank you. Ladies and gentlemen, as there are no further questions, I would now like to turn the conference over to Mr. Navneet Munot for closing comments. Over to you, sir.

Navneet MunotManaging Director & Chief Executive Officer

Thank you so much and wish you all a very happy safe Diwali and a prosperous and blissful New Year ahead. Last two years I think the Diwali time wasn’t as I would say jubilant given the overall pandemic situation. Now that thanks to the vaccination and thanks to everything coming back to normalcy, I think there is a lot more joyful Diwali that everybody and every family is looking forward to. Thanks again.

Operator

Thank you, sir. Ladies and gentlemen, on behalf of HDFC Asset Management Company Limited, that concludes this conference. We thank you all for joining us and you may now disconnect your lines.

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