SBI AMC, HDFC AMC in focus: Kotak initiates ‘Buy’ on SBI, upgrades HDFC; downgrades ABSL

According to fresh market updates, Kotak Institutional Equities has initiated coverage on SBI Funds Management with a 'Buy' rating and fair value (FV) of Rs 600, while upgrading HDFC Asset Management Firm to 'Buy' from 'Add'. The brokerage has downgraded Aditya Birla Sun Life AMC to 'Reduce' from 'Add', citing valuation concerns.

Kotak additionally retains 'Reduce' on ICICI Prudential AMC and Nippon Life India Asset Management, while maintaining an 'Add' rating on UTI Asset Management Firm.

The brokerage stated large asset managers benefit from scale, established performance track records and stronger brands, but face risks from moderating fund performance, intensifying competitive pressure from smaller AMCs and distributors' preference for elevated-commission products.

"SBI AMC has built a difficult-to-replicate franchise through its integration with SBI's branch and digital ecosystem," Kotak stated, adding that this provides access to a "vast and largely underpenetrated customer base" and supports expansion in systematic investments and retail participation.

Kotak anticipates SBI AMC's earnings to compound at around 15% over FY2027-29E, supported by similar expansion in topline and mutual fund AUM, stable margins and disciplined cost management. At 30x one-year forward P/E, it considers valuations reasonable but stated they factor in earnings recovery from market performance and stable-to-improving fund performance.

For HDFC AMC, Kotak revised its FV to Rs 2,800 from Rs 3,000. The brokerage anticipates around 15% core earnings CAGR over FY2027-28E, led by around 18% AUM CAGR and annual fee compression of around 3%.

Kotak downgraded ABSL AMC to 'Reduce' with an FV of Rs 1,010, saying valuations of around 25x FY2028E EPS already capture anticipated improvements in operating metrics.

It retained 'Reduce' on IPRU and Nippon, while maintaining 'Add' on UTI with an FV of Rs 1,020, down from Rs 1,100. Kotak stated UTI stays inexpensive at around 14x one-year forward core EPS, but the upside depends on clearer catalysts, particularly sustained improvement in fund performance and net inflows.

"Selective opportunities" stay in the sector, Kotak stated, but these are contingent on a recovery in broader market indices.