HDFC Asset Management Company Ltd (HDFCAMC) Q4 2022 Earnings Concall Transcript

HDFC Asset Management Company Ltd  (NSE: HDFCAMC) Q4 2022 earnings concall dated Apr. 27, 2022

Corporate Participants:

Simal Kanuga — Chief Investor Relations Officer

Navneet Munot — Managing Director and Chief Executive Officer

Naozad Sirwalla — Chief Financial Officer

Analysts:

Ravi Naredi – Naredi Investments — Analyst

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Kunal Thanvi — Banyan Tree Advisors Pvt. Ltd. — Analyst

Unidentified Participant — — Analyst

Rahul Peter — Multi-Act Equity Consultancy Pvt. Ltd — Analyst

Ajay Ramnathan — Informist Media — Analyst

Dipanjan Ghosh — Kotak Securities — Analyst

Devesh Agarwal — IIFL Capital — Analyst

Aditya Jain — Citigroup — Analyst

Kunal Shah — Carnelian Asset Management LLP — Analyst

Presentation:

Operator

Ladies and gentlemen. Good day and welcome to Q4 FY ’22 and FY ’22 Earnings Conference call of HDFC Asset Management Company Limited. [Operator Instructions]

From the management team and we have with us Mr. Navneet Munot, MD and CEO; Mr. Naozad Sirwalla, Chief Financial Officer; and Mr. Simal Kanuga, Chief Investor Relations Officer.

I now hand the conference over to Mr. simal Kanuga. Thank you, and over to you, sir.

Simal Kanuga — Chief Investor Relations Officer

Thanks. Good evening and thank you so much, everyone, for attending this call. As always we’ll start off with a quick update on what all is happening at this end and take questions from there on. The presentation is available on our website as well as that of the exchanges.

Firstly on the industry, equity net sales number for the financial year is is INR2.6 trillion and is INRINR968 billion for the last quarter. One caveat here. INR2.68 trillion includes INR448 billion index funds and INR968 billion includes INR230 billion of index funds. As yet, AMPHY publishes one single number when it comes to index funds. By one single number, I mean index funds include funds tracking equity indexes, as well as debt indexes. AUM of all debt index fund add up to INR276 billion crores as of 31st, March 2022. The corresponding number as of 31st March, 2021 was INR8.8 billion. on QAAUM basis, industry growth this year has been backed by equity both flows as well as mark to market, ETFs, again both flows as well as mark to market, liquid funds have grown by 10% to 11% while debt has lost INR0.8 trillion, 7% to 8% of the AUM. In anticipation of rates moving higher and some bit of corporate expenditure both capital and otherwise on table, large corporates have taken some money of the debt funds. To get a fair picture of the debt fund flows, we need to also factor in the flows into debt ETF and debt index funds. As mentioned earlier, net flows data for debt index funds is classified into index funds, while debt ETF into ETF. So, let us just look at the AUM for both the set of funds as of 31st March ’21, and 31st March ’22.

It was INR383 billion in March of ’21, which has grown to INR833 billion, an increase of INR451 billion. SIP flow, we would request you to look at numbers for the quarter that is close in Jan-Feb-March. It was INR353 billion as compared to INR328 billion for quarter October to December ’21. When you look at quarterly numbers, it smoothens out the impact of last working day being a holiday, or for that matter a shorter month like February.

I now get on to us. Our total market share in QAAUM is at 11.3% and the same excluding ETF is at 12.5%. Our systematic transaction for the month of March add up to INR12.3 billion, across 3.6 million transactions. Systematic transactions for us includes both SIPs as well as FTP. Systematic flows for us for the quarter, that is Jan-Feb-March was INR35.6 billion. We have set ourselves — for ourselves an audacious vision to be the most respected asset manager in the world, and the mission is to be the wealth creator for every Indian. The tone across the organization is constant. Everybody, and by everybody, I mean every single employee is working with one vision, one mission. You will hear more on this in our annual report.

Systematic flows for us — I mentioned. Sorry. There are multiple factors which would aid in taking a step further towards our audacious vision. Maybe for this time I would like to definitely expand on two or three of them. Firstly, we’ve been asked about our performance or actually lack of performance. We’ve been saying the same thing, that our investment style has worked over long periods of time. And there are periods in between when it does test our patience. Easier said than done, but our investment team stuck to their conviction and we are now seeing rewards of the same. In key categories like flexi cap, large cap, large and mid-cap, focused, balanced advantage, hybrid equity aggressive or hybrid equity conservative et cetera, our funds are in top decile, top quartile in 1 to 5 year period, albeit some funds might not be in a specific, say, a 3 or 4-year period, but I’m sure you get what I’m trying to state here. The numbers are in public domain and you all anyways track it as closely as we do.

Secondly, we have further and has been engagement with our partners. We have expanded our training team and also increased level of centralized communication. We have engaged multiple external to who get altogether different perspective when it comes to partner or for that matter, even client engagement. We have in past, spoken about expanding our product range. In terms of thematics of sectoral funds, we have filed for four products with the regulator. We have filed for an MNC fund, business cycle fund, defense fund and non-cyclical consumption fund. On back of our success on the developed world indexed fund of funds, we have filed for a fund that would track the MSCI Emerging Market Index. These two funds put together should give domestic investors an optimal solution to get global exposure. We will be further expanding our product booking on the passive side. We already have a large number of passive fund and in fact have started publishing a dedicated monthly factsheet on our passive solution. The same is available on our website and would request lot of feedback on the same.

We hope to file a Category II AIF PPM with the regulator during the course of this week. It would be fund of funds investing across the entire spectrum, right from the early feed stage, to late stage. Our team is also working on filing for a Category III AIF. We’ll update you as we progress further on this front. As we mentioned on the last call, we have hired a new resource for managing our PMF. We have already started speaking of the service and hope to see some traction over the next few quarters. We are awaiting regulatory approvals for setting up our wholly-owned subsidiary in GIFT City. We hope to build on our international business, and subsidiary in GIFT City would be a big help.

Lastly, before I move to financials, let me talk about digital trends. Well over 75% of the transactions we have done have been executed digitally. We now have over 1.3 million users on our Investor Portal and have added 350,000 thousand in FY ’22 without dropping engagement levels. Our app is now rated above 4, both on iOS as well as on Android. Our digital nudges have resulted in reduction of redemption to the extent of 2.5% and on the other hand, our analytic based campaign have seen 2.5x more effective conversion rates. Connect, which is a new age digital marketing app for our partners to help leverage the power of digital marketing, has seen a substantial growth of 2x in its user base last year and active weekly engagement rate of over 50%. We have 48,000 plus registered partners on our website with active engagement rate, again, of 34%.

Now, move to financials. The profit after tax for the year ended March 2022, grew by 5% to INR13.93 billion or INR1,393 crores. Revenue from operations grew by 14%, while operating profit from core asset management business grew by 10%. The employee benefit expense for the year ended March ’22 stood at INR3,122 million as against INR2,268 million, an increase of 38%. INR3,122 million includes INR633 million of non-cash charge towards amortized cost of outstanding employee cost options. The corresponding number in the previous year was INR73 million. Ex this non-cash charge, employee cost has increased by INR294 million or 13.4%. Operating profit from core asset management business, excluding non-cash charge towards amortized cost of outstanding employee stock option grew by 14% from INR14,069 million to INR16,008 million.

In terms of other expenses, we have seen an increase of 27%. This can be attributed to low base effect due to lockdown during the last part of the previous financial year, coupled with expenses that we’ve incurred for our for NFO launches as well as other regular business promotion in current year. We have an optimistic view on our business and would not want to shy away from these expenses, which in our opinion would lead to future growth. We are also investing further into technology and digital infrastructure, of course in a calibrated manner. For the quarter ended March 2022 profit after tax grew by 9% to INR3,435 million as compared to INR3,159 million for the quarter ended March ’21.

Finally, our Board earlier today has approved a dividend of INR42 per share as against INR34 per share last year, which of course is subject to shareholders’ approval. At INR42 per share, it translates into a dividend payout ratio of 64%.

Thank you once again for joining the call. Navneet, Naozad and I are very much available for questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Ravi Naredi from Naredi Investments. Please go ahead.

Ravi Naredi – Naredi Investments — Analyst

Thank you to give me this opportunity. I would request to give at least one-hour time to study result and con call, then you start the con call so we can discuss everything. Before two minutes, you have posted the highlights of investment — investor highlight, and now you are making con call. So how it is possible to make the question and ask you. First thing. Second, we have two main intelligent person of mutual fund industry, Mr. Prashant Jain and Navneet Munot, inspite we do not make any growth in AUM and growth in company. Where we are weak, will you elaborate, you are working? Thank you.

Simal Kanuga — Chief Investor Relations Officer

So, sir, I appreciate the feedback. Our Board meeting got Extended slightly longer. We would be — we you would take care of this in future. Of course, the challenges, we are trying to also meet the deadline for the investors sitting on the, on the Southeast Asia part of the world. So them it gets a bit delayed if we start the call later. But the feedback taken and hopefully next time, we’ll take that into account.

Navneet Munot — Managing Director and Chief Executive Officer

And if I can add on the growth side, you are absolutely right that over the last couple of quarters we have seen a bit of decline in our market share. But I think as we have been mentioning over the last several calls that significant efforts have been made to stem the fall in market share and we are quite hopeful that with everything that we have done including the help from the improving performance, what we have done on the new product launches, over the last year, we have done 8 NFOs. This would be more than what we would have done over the last several years. We have significantly enhanced our marketing efforts, our engagement with our distributors, several of the digital initiatives that Simal talked about, also enhancing the customer service and a lot of new initiatives that we have taken. We are pretty sure that over the next several quarters, we should start seeing better market share.

But a bigger thing what Simal touched upon briefly about our vision as well as the mission, the mission we have set for ourselves is to be the wealth creator for every Indian. Over the last 20, 21 years, I think we have created have a great franchise in the asset management business, which has scale, which has quality and which has high profitability, but — and mutual fund industry, of course, has scaled new highs this year. We have almost NR37 lakh crore, INR38 lakh crores of overall AUM. The number of folios have gone about INR13 crores, whether you look at equity, fixed income, money market, I mean industry has done well. But still, if we look at the unique accounts, there are only 3-odd crores, I mean, a little over 3 crore investors. In fact, a good number of them have got added only in the last 12 months. We believe over the next several years industry is poised for multi-fold growth. And the franchise that we have built with our people, with our processes, with the category that we have, with the presence, both on the physical side as well as on the digital side, with our platform that we have built, I think the relationship we enjoy with all the partners, I think with all of that over a period of time we believe that we would not only be having a higher market share compared to where we are, but we will also contribute a lot to the industry to expand its footprint to increase its reach across every nook and corner of the country.

And in last one year, just like, I mean we would have done over the last several years. I think we are making significant efforts not only for our growth, but overall industry growth, particularly on the investor awareness et cetera. There are significant campaigns, you would have also noticed.

Operator

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

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Hi. So just wanted to check firstly on the integration or the merger between HDFC Limited and HDFC bank. How do you see that helping the business going ahead over over the medium to longer term. And secondly, would appreciate your thoughts on overall expenses, where and how does HDFC AMC’s expenses pan out? Earlier you had guided for 12 to 13 basis points of AUM to be there in terms of cost. That would stay. So yeah, those would be my first two questions.

Navneet Munot — Managing Director and Chief Executive Officer

Yeah. So your first question on the impact of HDFC Bank merger of HDFC AMC, so merger announcement stated that upon the scheme becoming effective the subsidiaries and associates of HDFC Limited will become subsidiaries and associates of HDFC Bank. This will facilitate more efficient cross-selling of banking and financial services products that includes insurance and mutual funds. I’m sure you would have heard Keki Mistry on the analyst call, he had mentioned that the bank has also requested RBI to permit the Bank to hold equity in the subsidiaries and associate companies of HDFC Limited. These requests are under consideration by RBI in terms of the latter. They have set the date till April 1. So I think let us wait to hear further on this.

Your second question was the operating expenses. We have been guiding that — I think there have been around 13 basis point, which has been the trend over the last several years and I think despite the fact that we will spend more money on let’s say business promotion, on marketing, the 8 NFOs that I talked about that we had during the year and offer slightly higher CSR expense, despite all of that I think we have been able to maintain that.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Okay. Just one more on the alternate assets. It’s been few quarters and we been speaking about them — about the segment. Could you give some more thoughts on as to how do you see this alternate assets growing going ahead and what kind of aspirations we have with respect to AUM size and contribution to profitability and revenue for the overall entity?

Navneet Munot — Managing Director and Chief Executive Officer

So we have been saying that we are a dominant player when it comes to active equity, active fixed income and money market. We want to be a relevant player because keeping the profitability aspect in mind on the passive side, but want to have a full product book. And that’s why we launched a couple of products and are launching more, but the third, which is alternative business will also be important for us for future growth. More on the profitability side than the overall AUM. And we are doing multiple things on this front. Let me try and expand on that. I think Simal did cover some bit of it in his opening remarks.

Firstly on the PMS, as we mentioned in the last call, we have got a Portfolio Manager on the Board, we have started talking of our services to key partners and clients, we have started seeing some interest, and hope to grow in this space over the next few quarters. Secondly on the Category II AIF, we are filing PPM with SEBI soon. This would be a fund of fund investing into Category 1 and Category II AIFs. Our team has already interacted with over 40 funds, and are reaching out to more. With several of them, there would be second round of meeting or diligence going on. This should go live some time in quarter 2 of the current financial year, of course subject to all the regulatory and the other approvals. Thirdly, on the Category III AIF, we hope to file PPM for this fund over the next few weeks, and we’ll keep you posted on developments on this front.

So definitely see enhanced level of activity in the alternative space. We have been very much on our ajar and look forward to building a state-of-the-art alternate business.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Alright. That’s pretty helpful. And just lastly, if I can slip one more in, your thoughts on equity is they have been trending down for the entire industry. Do you see that the intensity of this fall reducing going ahead out, how do we see this movement over the next couple of years?

Navneet Munot — Managing Director and Chief Executive Officer

So I think in the last call, we had this issue in detail and I would like to request you to refer to previous transcript. I remember giving a detailed answer with the set of numbers to explain this drop in margin. But let me expand further. Let us keep the focus on the revenue margin. That is what comes as revenue into the books of the AMC, the fall in this margin can be on account of two reasons. And here, I’m talking mainly of equity oriented funds margins. We haven’t really seen any material change in margin on the non-equity side of the business.

So drop in TR, one, is due to increase in the AUM of the scheme. As you know, I mean the sliding scale on the TR, so back of the envelope competition shows that 2 to 3 basis point drop on the entire AUM once it crosses INR5,000 crores in terms of multiple. To explain that better, when the fund AUM rises from say INR24,000 crores to INR26,000 crores, say by market movement, the TR drops by 2,3 basis point on the overall AUM of INR26,000 crores. So as and when one or more of our larger funds go through this change, there is a visible impact in margin in terms of basis points.

If you ask me, this is not a bad problem to have. Let me put it this way, I mean it is as per regulation. So for example, we make, let’s say, 80 basis point or INR24,000 crores, that is INR192 crores, and say margin drops to 77 basis point on INR26,000 crores. So we will make INR200 crores. And this problem tends to even out to an extend over a period of time as we generally modify distribution cost on new flows in that particular product. It is neither desirable nor practical to keep changing brokerages or existing assets as and when the funds keep moving up and down. So further flows get aligned to our overall plan in margins and with a lag. There is a catch up to an extent. But yes, there is a drop as and when we cross the hurdle as defined by regulations.

In terms of numbers during the year, due to strong markets, we saw a large part of our AUM cross this so-called hurdle. So our largest product balanced advantage went up from little over INR39,000 crores to INR43,000 crores. Another product, Flexi Cap went up from INR23,000-odd crores to INR27,000 crores, so on and so forth. This I’m telling you March ’21 versus March ’22. And nearly like maybe I think 70%, 75% of our AUM would have cross this kind of hurdle resulting in say, nearly 2,3 basis point drop in the overall margins in equity oriented funds.

The second is drop in net revenue due to increased brokerages, and I talked about it in the last call, that there is a challenge industry as a whole is grappling with. And then further to what we mentioned in our last call, we said NFOs have been priced much better, we are seeing competitive intensity in terms of distribution costs settling down to an extent. It’s not going to be and if you have close to where we were, say, couple of years back, but are better off as compared to where we were, say in the first half of the financial year that went by. So just to reiterate what we stated in last quarter, higher gross sales with not so good gross to net ratio is also a key reason for rapid drop in margins. So gross sales in equity oriented funds during the last 12 months has been nearly INR6 trillion, over starting AUM of INR13 trillion approx as against gross flows of INR6 trillion, net flows of INR2.7 trillion.

So honestly I’m more excited with this kind of gross sales rather than getting bothered about short-term drop in margins. Indian household are quickly adopting to equity culture, which is very heartening. We are a large savers of capital and over a period of time as meaningful part of that find its way into equity and equity oriented mutual funds, in particular, in then the last 18 months or so we have seen huge interest in direct equity, I mean, demats accounts, as you are aware, going from 4 crores to 8 crores, but I mean we are also seeing increased interests through SIPs and the mutual funds as well. Over a perio of time, we expect much bigger traction on that side.

So AUM can develop multiple times over the coming years. And that’s the big picture I don’t want my team or me to take eyes off from. And, I mean, we discussed it last time, in last two calls that in April ’14 the industry AUM of equity was around INR2 trillion and now we are well over INR18 trillion. This is like 9 times in last eight years. So this is something that you wouldn’t want to keep your eyes on the potential, where we can be as an industry.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Thanks for the detailed answer. Thank you so much, sir.

Operator

Thank you. The next question is from the line of Kunal Thanvi from Banyan Tree Advisors. Please go ahead.

Kunal Thanvi — Banyan Tree Advisors Pvt. Ltd. — Analyst

Hi. Thanks for the opportunity. So I had two questions, one was on the overall…

Operator

Sir, sorry to interrupt you, but your voice is breaking.

Kunal Thanvi — Banyan Tree Advisors Pvt. Ltd. — Analyst

Yeah. So thanks for the opportunity. My first question was on the overall yield. If you look at the industry and HDFC AUM, part of equity, we just talked about, so is there a shift in the mix of the assets that’s happening around, because passive is also becoming a decent size of the overall industry like in terms of growth. If you see, the incremental growth has been higher on the passive side. And there has been lot of growth, like even if you look at our growth, most of them would be towards passive. So from a longer-term perspective, how do we look at the yield on the profitability scenario of the E&P industry itself? Because back in the day, the best way to track the industry was on profit as a percentage of the AUM. However, with passive becoming larger as a percentage of the total AUM, that number will keep on shrinking. However, absolute profit may not, like any color on how we think about it, how should we think about it from the industry and HDFC AMC’s point of view?

Navneet Munot — Managing Director and Chief Executive Officer

So I think there will be growth in like all three markets. You talked about the active funds, while of course passives are growing at a faster rate, but there is tremendous potential, I would say in India, for active funds to grow as well, both in equity as well as on the fixed income side. Passive will grow as well over the next several years. Of course, margins would be lower there, while margins would be higher in active. And the third piece which we referred to in one of the questions earlier in the alternative, will be like low volume but high margin business. Active, I would put as moderate margins and moderate growth, and passive would be like higher growth and lower margins.

And I think we want to build the scale and this profitability in all the three spaces. And I see tremendous growth opportunity in all three segments. I mean if you look at it, blended will be a function of variety of things. I mean your mark to market gains versus the flows, it will be like within the asset classes what grows more, there could be periods, where let’s say, there is higher growth in fixed income and the money market versus equity or the other way around. So I think it will be a factor of a variety of things, but important aspect is are we getting our right share in all these opportunities that we present.

Kunal Thanvi — Banyan Tree Advisors Pvt. Ltd. — Analyst

Sure, sure. And my second question was on the fact that if you look at the retail participation in India, like last one and a half years, post COVID it has done wonders, both on the demat side and lately on the equity flow side as well. So how do we see in terms of sustainability, because in the previous cycles it has also had a fair share of cyclicality wherein after making the peak there is a pause for a while before the next cycle picks up. How do we see from AMC industry point of view in terms of the retail participation with the market, where it is and where it’s headed with lot of uncertainty?

Navneet Munot — Managing Director and Chief Executive Officer

So I think all the efforts made by the industry policymakers, our partners, media, everybody put together to kind of, I mean in terms of the investor awareness that has got created that mutual funds from a long-term savings perspective is one of the best revenue, I think the heartening feature, most heartening feature in our flows has been the growth in our SIP both in terms of number of accounts as well as amount that we have been seeing month after month. And over the last several years, we have seen, I mean variety for reasons that led to heightened volatility, but it’s still there and I think that number has consistently been increasing. So of course there is a cyclical aspect. I mean you would see markets ups and — I mean the market up and downs impacting the flows into equity. And it’s just like I mentioned about the other asset classes as well. But there is a structural aspect, which is a lot more important for us to keep an eye on that as an economy of INR3 trillion growing at the nominal GDP rate at which it is growing, I mean, you look at the household savings rate, I think, which has fallen in last several years, but we expect as the job creation comes back, income growth comes back over the next several years to go up, along with that, the household savings rate. And a larger and larger proportion of that comes into the financial assets and mutual fund would be a beneficiary of that.

But as I mentioned earlier that we have also seen a significant increase in the investors going for the direct equity, but we have seen those cycles before. And I think mutual funds as a product is definitely superior product for I would say most of the retail investors, most of the individual investors. And I see tremendous growth potential for a long time. So that’s the structural part. In between, there would be some cyclical aspect as well which will impact flows a little bit.

Kunal Thanvi — Banyan Tree Advisors Pvt. Ltd. — Analyst

Sure, Navneet. Thanks a lot. I’ll get back in the queue. All the very best.

Operator

Thank you. The next question is from the line of Amit Mukherjee, individual investor. Please go ahead.

Unidentified Participant — — Analyst

Yeah, thank you for the opportunity. I would really like to congratulate Mr. Navneet because as a customer, as an investor, I can see the difference in terms of funds performance and also in terms of bouquets that you are offering. And as I mentioned to you last time, I mean, one of my calls that 90% of my investment, I keep in HDFC AMC, but there is one specific element which I want to highlight to you. I really felt that I should tell this experience to you so that you know why the growth is not happening.

Around 2020 when the COVID time was there, on 23rd March, I invested in multiple small cap mutual funds and last year in September I booked my profit and the profit was big enough to invest in AIF fund. That was the size of the profit. Being an ordinary investor, I immediately called my branch, which is the AHDFC AMP, and I told the branch executive that this is the kind of fund I have. I want to invest in HDFC AMC, please guide me what should I do. And the first reaction that I got from the branch executive, I won’t tell you the branch name because the purpose is not to highlight the branch or the person, I’m highlighting to you, the process. I call the branch executive and and the branch executive gave a very lukewarm response and forwarded me a 70 slide ppt and told me this is the kind of fund that you have, that HDFC AMC offers, you can select whichever you want. So I told her that okay, please guide me which one should I is considering the market situation. Then there was no response. I said, okay, maybe the branch executive is not responsible for sales, branch executive is not responsible for cross-selling. I thought, let me call it the branch manager.

And then I give the call to the branch manager. The branch manager told me sir, my executive has already forwarded you the ppt. We can’t offer you anything more because each individual is different, they have their own unique needs. So please select any one of the product and invest. After that, there was no interaction with the branch manager again. I then thought, let me invest in HDFC Portfolio Management Service. And then I called back again the branch manager and I told the branch manager that couple of months or years back, I had tried to contact portfolio management on this pms@hdfcmutualfunds, but they just many of ppt, and after that nobody contacted. So can you please help me to connect with the portfolio management team? The branch person told me, the branch manager, that sir your portfolio is so big in the city that nobody is having such kind of a portfolio. We have small investors and we don’t deal in portfolio management service from our branch. I thought, okay, then please connect me to someone in Bombay who can — with whom I can talk. And he okay, sir, I will figure that out and I will let you know.

After that, even the branch manager never contacted me. So then I understood, okay, even, I think the branch manager is not responsible for sales, branch manager is not responsible for cross-selling. Anyway, I had all that fund, I invested it in the bond fund or the debt fund. And I started searching where should I invest this amount. And then, after few weeks, I again called the branch manager. I out that money, I thought, let me investing some other options while I was searching. And I called the branch manager again, and I asked him…

Simal Kanuga — Chief Investor Relations Officer

Sir, if I might just intervene, sir, I’m sorry for that, but I think what we’ll do is somebody senior from our end will reach out to you because, sir. I think in the interest of time, and it is something where we have like…

Unidentified Participant — — Analyst

No, but I completely agree. But I wanted to highlight it to the seniormost Management so that you know.

Navneet Munot — Managing Director and Chief Executive Officer

Thank you so much for the feedback, and we really appreciate your trust…

Unidentified Participant — — Analyst

Sale and cross-selling, I think you should make it as a key important KPI for your branch and executives, sir, that is my request. Otherwise, I’m very happy with other things that are happening right now.

Navneet Munot — Managing Director and Chief Executive Officer

No, thank you for the feedback and I will ensure that somebody gets in touch with you.

Unidentified Participant — — Analyst

Yeah. That’s okay, sir. Thank you so much. This is the only thing that I wanted to highlight to you. Yeah.

Operator

Thank you. The next question is from the line of Rohan Advant from Multi-Act Equity Consultancy. Please go ahead.

Rahul Peter — Multi-Act Equity Consultancy Pvt. Ltd — Analyst

Yeah. This is Rahul Peter here. Thanks for the opportunity. I wanted to get some insights on the yield side. A little while back you spoke about the gap between gross flows and net flows and the pressure on yields that is coming because of that. So I just wanted to understand if the current trends persist and the gross flows continue to be higher and while the net flows after considering outflows, continue to be at the similar rate at which they are, in how many quarters, like in two quarters, four quarters or maybe a couple of years, in exactly what kind of a timeframe do we expect the yields to stabilize?

Naozad Sirwalla — Chief Financial Officer

Yeah. Actually, it is very difficult for us to kind of give a number to this because of the very fact — see, the entire flows outflows that do happen, they don’t happen on the free flow basis, as you know. We have tried kind of right estimating this, but we have never got that right. So yes, I think if we look at it this way. The industry side was just about INR13 lakh crores at the start of the year. We are at INR18 lack crores, INR19 lakh crores. And of that INR18 lack crores, INR19 lakh crores just take out the impact that is mark to market. The balance is that the gross flows that have happened, which has resulted in increase of AUM has happened at a margin which is definitely thinner. So over a period of time, as and when the entire book get replaced, and as I started off with very difficult to kind of give a timeframe to that, but once the entire book get replaced that the margin kind of will stabilize.

But it is not something that would happen in next say, two, three years. It would happen over a fairly long period of time because what tends to happen as you would appreciate is basically the AUM keeps rising. So for example, today industry AUM is at INR19 lakh crores, let’s assume that the market go up by 10%, another INR2 lakh crores will get added to the number, and that INR2 lakh crore would give me the same amount of margin as what is on the existing book. So these kind of dynamics come into play. So very difficult to answer, but yes you pointed it out very right, if the gross sales are very large in the percentage of the AUM and the net sales are not that large, that means that the AUM is getting replaced. So the lower cost AUM is going out and the higher cost of AUM is coming in.

Rahul Peter — Multi-Act Equity Consultancy Pvt. Ltd — Analyst

Okay. And as a large part of that churn would have already happened because it would be front-ended. Do we expect the intensity of the fall to reduce going forward?

Naozad Sirwalla — Chief Financial Officer

It theoretically should but one really doesn’t know. See, what can happen is if the churn is very fast, rapidly it might happen in the shortest period of time. If it happens at a slow pace, it might happen back-ended. But yes you are right, some part of that has already happened.

Rahul Peter — Multi-Act Equity Consultancy Pvt. Ltd — Analyst

Okay. And one more question, if I look at the quarterly average AUM and the closing AUM, there seems to be a material gap in that in this quarter. So can you explain the difference and exactly what segment like debt or liquid funds, which is leading to that drop in the closing AUM?

Navneet Munot — Managing Director and Chief Executive Officer

Yeah. Right. So that’s on the debt and liquid side, and we see some of that several times in the last quarter of the year, in the month of March. There could be a significant outflows from some of the corporate investors.

Rahul Peter — Multi-Act Equity Consultancy Pvt. Ltd — Analyst

Okay, fine. That’s it from my side. Thank you.

Operator

Thank you. The next question is from the line of Ajay Ramnathan from Informist Media. Please go ahead.

Ajay Ramnathan — Informist Media — Analyst

Hello, sir. I just had one question. So recently, I think we’ve all seen the market being very hyped up or LIC’s IPO. Now given that report have mentioned — recent reports have said that LIC itself has increased it’s stake in HDFC. So I just wanted to know will HDFC sort of return that favor I look to invest in the coming IPO? What are your plans going forward in that regard?

Navneet Munot — Managing Director and Chief Executive Officer

I can’t comment on what our investment team will be doing. I mean the investment don’t get decided based on who are the shareholders.

Ajay Ramnathan — Informist Media — Analyst

Okay, sir. Okay.

Operator

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

Dipanjan Ghosh — Kotak Securities — Analyst

Hi, good evening. So three questions from my side. The first is, if you can give some color on both share of flows — equity flows that came into through the direct channel. I mean not trying to understand of how much of gross flows for the year, gross equity flows for the year, but for the direct channel. The second is, while we don’t get the absolute gross flow number company wise, if I see your market share in unique investors, over the past eight quarters, that has come down to 17% from almost 26% to 27%. So I just wanted to understand — can you give some color on how the overall acquisitions were — new customer acquisitions of new [Technical Issues] The third, since you mentioned investment in digital capabilities will continue to remain at the current trend and also you plan to have more number of NFOs and also on the AIF side you plan to come up with certain funds, so how should really think one build in the cost numbers from here onwards? And that’s all.

Navneet Munot — Managing Director and Chief Executive Officer

So first on the color on the share of flows. I mean as you are aware, we don’t give granular details on the flows beyond what has been published. On the your question on market share — but in terms of, let’s say, the share between direct and then distribution of some of those metrics won’t have changed much, I mean if this was the question. On the share in unique customers market share, so unique investors as identified by PAN, have grown to 3.37 crores, 33.7 million in March ’22 as against 22.8 million in March ’21. This means that industry has added almost 10.9 million new investors, which is a growth of shared below 50%. This is a very, very significant growth this year. During the same period, we have grown from 5.1 million to 5.8 million. We obviously went ahead and did a deep dive on this data. So our broad estimate state that more than half of these are investors who have invested only in ETFs say through fintech platforms on or some of the broking platforms. We obviously need to address this market where our presence has been relatively less. Keeping this in perspective, we have filed and have got approval to launch nine more ETFs. In today’s Board meeting, we have got approval for three more, and these documents will be filed with SEBI over the next few days. So all in all, we will have 12 ETFs and our product team is working on expanding this range further.

But that’s on the product launches side, having the full product bouquet, but also we are doing variety of other things in terms of increased engagement at all levels as well as I think some of the other efforts in terms of marketing, in terms of creating a separate brand, which we are calling it HDFC MF Index Solutions. in case you have not seen, we have a separate factsheet for our passive funds and are taking a lot of other efforts to have higher share in the ETF market as well.

Dipanjan Ghosh — Kotak Securities — Analyst

Sure.

Navneet Munot — Managing Director and Chief Executive Officer

Your third question was on…

Dipanjan Ghosh — Kotak Securities — Analyst

On the cost side. Given that you will be coming up with a lot of new funds and investing in some of the digital capabilities, how should one think of ex ESOP cost number?

Navneet Munot — Managing Director and Chief Executive Officer

I mean what I mentioned earlier that around 12, 13 basis point of the AUM that we have been able to maintain over the last several years. I think we will try our best to keep there. Of course, with the new product launches, business promotion, marketing, technology, building our digital assets further, all of those will be the areas where we’ll be spending more. There is basically, I mean, our bullish view on the growth of this industry. But we will keep a tight lid on the overall cost side. And I’ve always mentioned that that propensity is something that is very much ingrained in our culture. And — but at the same time, neither in the past, nor in the future have we had or will step back from investing in growth of our business.

Dipanjan Ghosh — Kotak Securities — Analyst

Sure. Thank you. And that’s all from my side. All the best.

Operator

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

Devesh Agarwal — IIFL Capital — Analyst

Thank you everyone for the opportunity. The first question is, sir. I just wanted to understand, you did highlight that the performance of the scheme is improving on the equity side. So, historically what has been your experience in terms of lag in getting new flows on the basis of improved fund performance?

Navneet Munot — Managing Director and Chief Executive Officer

It takes a couple of quarters for the world at large to start noticing it. Also depends on the engagement, the product approvals that happen when it comes to channels like banking or the initial distributors. For most of the other partners, as well as investors, it takes a little bit of time to recognize that. But I think we are clearly getting a feedback process from investors, from my own sales team that I think everybody is recognizing the sharp rebound that we have in our equity performance and that’s across the board, across most of our products, they are looking pretty good across all time periods. And I think everybody recognizes that. I think incrementally in the new outflows, the share should improve over a period of time.

Devesh Agarwal — IIFL Capital — Analyst

Okay. And has over the say last three, four months, the share in the net flows or the gross flows have seen an improvement and probably have surpassed the share in the AUM?

Navneet Munot — Managing Director and Chief Executive Officer

Yeah, so there are green shoots which are very much visible.

Devesh Agarwal — IIFL Capital — Analyst

Okay. And sir, on the liquid side we’ve been losing market share. Equity, I understand, liquid, any particular reasons for losing market share?

Navneet Munot — Managing Director and Chief Executive Officer

No, so we used to be, if you remember correctly, I mean, couple of years back, we used to be more like 7%, 8% single-digit market share. That jumped to almost 20% in FY ’20 and then ’21. Also, I think the overall risk off environment, I think given the overall environment in the money market, money moves to safe haven and to the fund houses like us, over a period of time as the risk appetite comes back and also — I mean the when he gets distributed to other AMCs as well. The other aspect is that lot of these investors, I mean, their own funding need would have led to redemptions as well.

Devesh Agarwal — IIFL Capital — Analyst

All right. And, sir…

Navneet Munot — Managing Director and Chief Executive Officer

But if I remember correctly, in last couple of calls, I would have mentioned that market share of like 18%, 20% may not be sustainable in a product like liquid.

Devesh Agarwal — IIFL Capital — Analyst

Right. And sir, if we come to your strategy. Basically, how do you think about your AUM growth? The strategies that you plan, is it more on the market share basis or an absolute growth basis?

Navneet Munot — Managing Director and Chief Executive Officer

No, of course, both as I mentioned that our mission is to be the wealth creator for every Indian. There are only 3 crore investors in India, who have invested in Mutual Fund and we talked about it few minutes back. We believe this number is going to go up very substantially. Overall, as the economy grows, within that savings grow, within that higher proportion comes to financial assets, and within that higher comes to mutual funds and within that, we would aspire to have a higher and higher share of HDFC Mutual Fund. We believe we have the pedigree, we have people, we have processes, we have presence, we have the platform, we have the partnerships, and I think we are very, very, I would say on a missionary reel to not only expand the — I mean not only grow our share, but I think also grow the overall pie of the of the industry over the next several years.

Devesh Agarwal — IIFL Capital — Analyst

Perfect, sir. One last bookkeeping question. I see that the tax rate for the quarter has been lower. Is there any adjustment that has happened in the last quarter?

Naozad Sirwalla — Chief Financial Officer

No, it’s not material. The effective tax rate remains pretty much the same. And largely slightly higher because of ESOP costs, not necessarily being attacked in those items, but otherwise it’s pretty much in line.

Devesh Agarwal — IIFL Capital — Analyst

Perfect, sir. Thank you so much.

Operator

Thank you. The next question is from the line of Aditya Jain from Citigroup. Please go ahead.

Aditya Jain — Citigroup — Analyst

Thank you. Want to confirm on the movement in other opex. The INR57 crore to INR50 crore decline Q-o-Q, this is largely going away of NFO expenses or is there something else also happening there?

Naozad Sirwalla — Chief Financial Officer

Yes. Largely, that’s a call because of NFO and business promotion being lower in the last quarter, that’s about it.

Aditya Jain — Citigroup — Analyst

Got it. And then if you could just talk about the GIFT City subsidiary. What exactly is it intended to achieve? Would you expect it to result in better asset mobilization or may be lower fees payout or broadly maybe a business plan around why that is being done?

Navneet Munot — Managing Director and Chief Executive Officer

That would be our vehicle to attract more global money into India through the GIFT City. And of course over a period of time, there could also been opportunity to mobilize in saving through LRS into the global product.

Aditya Jain — Citigroup — Analyst

Okay. Got it. Thank you.

Operator

Thank you. The next question is from the line of Kunal Shah from Carnelian Asset Management. Please go ahead.

Kunal Shah — Carnelian Asset Management LLP — Analyst

Hi, thank you for the opportunity. You had answered this question in bits and pieces, but more from the industry perspective, there are quite a few challenges. I mean, it’s becoming difficult to beat the benchmark, passive is kind of getting a lot of traction, even direct schemes are kind of a growing. Also, there is quite a few competition from alternatives, PMSs, AIFs, and lastly, also the direct equity culture, which we are seeing, the number of demat accounts that have been opening up. So looking at all of these challenges. What are your thoughts for the industry per se? I mean I do understand quite a few under penetration is still there. But looking at all of these challenges for the AMC industry per se, yields getting challenges one part obviously, but also be absolute profitability growth historically what we have seen, could be under challenge going forward because of all of these concerns?

Navneet Munot — Managing Director and Chief Executive Officer

So I mean I would look at all that you lifted challenge as well as an opportunity. You mentioned about the rise of passive but it could also be an opportunity, I think we are expanding our product bouquet. I think people who are interested in just meeting the market through our passive product will have our offering, of course, margins will be lower there. But I still see tremendous potential for growth of active for us in India is very well known. We are big believers of active management and in our view is that, in India, still there is material has fallen off. We need to get our communication right on this front. People have talked — I remember a year back people talking about last several years, mutual funds have not generated as fund and in future are we only going to see massive fund selling and look at the alpha, our equity funds — most of our equity funds, almost all, have generated in last one year, just when people wrote off active managers. And I think the one thing that we need to kind of get the communications right that alpha is not something that can be achieved on a daily or say annual basis. Our funds have generated alpha over medium to longer period of time. And I would not mind sticking my neck out and stating that this is something we believe we’ll be able to achieve in future as well. If by believes and wider participation by companies in terms of growth, active management should be their choice and vice versa. We are of the opinion that broad markets over a bit of time will outperform, and this makes a strong case for active product. So I mean, we believe that we have the right capability in place, we have the resources in place, right people and process in place to fully, I mean I would say, take advantage of the alpha opportunity.

You talked about the challenges on the alternative side, but again, I would say that that’s an opportunity as well. And earlier I talked about what we are planning to do on the PMS front, on the AIF front, both Category II and Category III. You talked about the number of demat accounts that are getting opened up, so people experimenting — people investing directly versus coming through the mutual fund. Again, I mean I would look at both as a challenge as well as opportunity. Challenge in terms of if people find that investing on their own delivers better results, but I think if some of the recent studies are anything to go by clearly shows that large number of investors don’t have a very good experience or a happy experience of investing on their own. I think professional fund managers add a lot of value, and I think — I strongly believe that a good number of those investors would convert themselves into investing through mutual funds.

In fact, if you see the growth of the SIP, there is also a reflection forth like several of these investors, while they may be trading on their own and also looking at investing in a systematic or a more disciplined manner. What else? I think, yeah, these are the things that you talked about our challenges but I think I would look them as opportunities. Sir, just…. Again, I mean as I said that, I mean it depends on, I mean if you look at globally, margins have come down in this industry. A lot of consolidation has happened, but there are advantages on the scale side, I mean if that happens, then obviously larger players like us with the resources that we have deployed in growing this business over a period of times, would be better off. And at the same time, the higher profit segments like alternatives, I think if we are able to build our franchise over a longer period, that way we have built a great franchise on the mutual fund side, I’m sure we’ll be able to reap the benefits on that side as well.

Kunal Shah — Carnelian Asset Management LLP — Analyst

Would you like to share your thoughts basically on the absolute profit growth or operating profit growth? Historically what we have seen kind of tapering down now going ahead with all the opportunities and challenges that we talked about. Any thoughts on that absolute profitability growth perspective?

Navneet Munot — Managing Director and Chief Executive Officer

No, I mean in a way you are right. In fact in the contracts or some other question on margin I mentioned that, I mean, you look at the growth potential over the next several years, where the AUMs scale up many fold over the next decade or two decade. And that’s a big picture one needs to focus on. I mean I was looking at, let’s say, a large fund manager in U.S., Fidelity, I mean late ’70s on let’s say capital which had an AUM of like, it’s a single-digit in terms of billion dollars, so Fidelity, I think in mid-’70s or so was like or $4 billion to $4.5 billion and would be like $4.5 trillion. They have gone up 1,000x. And U.S. as a mutual fund industry in ’70s was like five decades old. It wasn’t like a nascent industry or it wasn’t like a startup. It was like a five or six decades in existence with good participation and still you look at the growth over the next several years. I think something similar, is likely to happen here. And then all the, I would say forces that led to that kind of growth in the U.S. I think are very much in play when you look at India today.

Kunal Shah — Carnelian Asset Management LLP — Analyst

Fair enough, sir. Sir. Just one question if I may pull in. I mean, which you’ve answered in bits and pieces, but engagement with distributors. I mean what actions are we taking out there to improve our engagement with distributors? If you could help understand a little bit more because the feedback that we get is that there has been an increase in engagement for sure, but still some resentment, so just wanting to understand what actions we should look forward as far as engagement increase with distribution — distributors go, both national distributors and other distributors?

Navneet Munot — Managing Director and Chief Executive Officer

You’re absolutely right. I mean that engagement is very, very critical. Performance is one part but in terms of engaging with all of them to explain our performance, to explain our philosophy, to explain our investment process, is very, very critical. And I think given the large presence we have across the country, with 227 branches and large number of people on the sales side constantly do that. The number of all that, we have increased from our product team as well as from the fund management side. In fact, as we speak on another call, Chirag is addressing several of our partners. On the content side, I think we have continuously been working to improvise our content that we share with our partners as well as investors. On the digital support, there is a lot of work that has happened over the last several quarters in terms of amplifying the distribution. I think, in his opening remarks, Simal mentioned about the distributor have that we have another product called Enact, that we have which has in amplifying their business. And all of those efforts are very much on, which over a period of time, given the strong partnership we have with our partners, should give us good results.

Kunal Shah — Carnelian Asset Management LLP — Analyst

Great. I wish you all the very best, sir. Thank you for all the answers.

Navneet Munot — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Kunal Thanvi from Banyan Tree Advisors. Please go ahead.

Kunal Thanvi — Banyan Tree Advisors Pvt. Ltd. — Analyst

Thanks for the opportunity, again. So in the earlier part of the conversation, you had mentioned about the merger of HDFC Bank Limited from shareholder perspective. Can you also press upon from the distribution perspective because now with HDFC Bank becoming the parent for HDFC AMC, how does it changes the distribution, or it remain the same? The reason I ask this question is if you look at other competing banks that AMCs, their parent would have very high share of distribution when we look at the distribution, whereas for HDFC Bank, number would be lower than the median of the industry and even lower than — very low compared to the share like SBI. Just wanted to understand on the distribution side, as mutual fund company, we stand to benefit out of this merger? Any qualitative data would help.

Navneet Munot — Managing Director and Chief Executive Officer

So, I mean if you — you mentioned about few other banks. I think they either have a closed architecture or very guided architecture. HDFC Bank has always believed in open architecture. Having said that, we become part of a much — I mean of an entity which has a much wider network, which have much bigger scale. So we move from being a sibling of them to parent-child relationship, and I hope that that gives us lot many more opportunities to look forward to.

Kunal Shah — Carnelian Asset Management LLP — Analyst

Sure, sure. And just last, I can squeeze in. One of the key indicator for safe low market share has always been the SIP market share. Like there also we still are lagging compared to the market markets in terms of market share. Any thoughts, any early signs that you see on the SIP flows, which of course will translate into the overall market share over the course of period?

Navneet Munot — Managing Director and Chief Executive Officer

So, no, Kunal, are absolutely right that. I mean if you look at the overall flows of the equity flows, I mean if you look at the overall equity flows also, a good part of that comes from the SIP and if the market share is lower on that side, that also impact the overall market share. And we were a pioneer of SIP. We were one of those fund houses, who took I would say huge amount of effort to spread the word around SIP, to create the awareness of long-term investing, disciplined investing, power of compounding, which we have been beneficiary of creating the equity AUM, the stable AUM that we have created. Having said that, sure, I think our market share has come off for variety of reasons, which we may have discussed over the last several calls. But all the efforts that we are making today and they are highly, highly focused on gaining market share back in SIPs. And we have huge potential there. I think the way we used to be several years back in terms of absolute leadership in SIP, and where we are today, there is definitely a gap, and then we want to close that gap as early as possible. So whether it’s the engagement with our partner, whether in terms of content, whether in terms of marketing, whether in terms of the new product launches or creating more awareness about our existing our product, spreading the word around the bounce back in performance, every single thing that we need to do, I mean, I’ve made some references to all the digital effort that we have been making, whether in terms of what we are doing on our website, or our app, we believe we have all that’s required very well in place. And all the other efforts that we are making hopefully should result in better share in SIPs going forward. We don’t want to be where we are today when we look at our share in incremental SIPs. I think it is a much higher share compared to where we are today.

Kunal Thanvi — Banyan Tree Advisors Pvt. Ltd. — Analyst

Sure. Navneet. Thanks a lot. All the very best to the entire team. Thank you.

Navneet Munot — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you very much. In the interest of time, that was our last question. I would now like to hand the conference over to Mr. Navneet Munot for closing comments.

Navneet Munot — Managing Director and Chief Executive Officer

No, thank you so much for for being with us this evening. And as I mentioned earlier that we have set a mission for ourselves which is to be the wealth creator for every Indian. And the vision that we have set for ourselves is to be the more respected asset manager in the world. And each and every member of my team is highly committed to realize this mission and this vision over the next several years. Thank you so much for your support.

Operator

[Operator Closing Remarks]