From the last few trading session, both the stocks-CAMS and HDFC AMC has to fall by above 10%. Let’s discuss the reason behind this fall in the stock price in this short article as we move ahead.
Computer Age Management Services Limited (CAMS) The company is mutual funds transfer agency. It provides investor services, distributor services, and asset management companies (AMC) services. While HDFC AMC is one of the largest AMCs in India with total assets under management (AUM) of 406800 Cr. as of Dec 2020. The company offers a large suite of savings and investment products across asset classes.
Reasons behind the fall in Stock Price in HDFC AMC & CAMS:
- Both the stocks HDFC AMC & CAMS trades on a premium valuation of more than 50 PE Ratio. While the other AMC companies like Nippon AMC, and UTI AMC are trading at a PE ratio of around 25.
- Also, the specific reasons behind the fall in the share price of HDFC AMC were because foreign promoter Standard Life Investments is likely to sell 1.06 crore equity shares (5 percent stake) in HDFC Asset Management Company via an open market transaction on September 29, 2021.
- The premium valuation which HDFC AMC used to enjoy due to scarcity premium has now decreased on account of the arrival of other players in the market. In past, where HDFC AMC used to trade at a P/E Ratio of around 65, has now trading at a P/E ratio of around 45.
- While specifically, CAMS has also reported a downfall in the stock price because the majority of the earnings of the company is derived from the Mutual Fund Registrar & Transfer Agent Business. Due to this, the earnings of CAMS will only increase when the earnings of these AMC businesses will grow.
- CAMS owns 70% Market share in Mutual Fund Registrar and Transfer Agent Business. Therefore, the company is dependent on this business and it can face hard competition if a new player or any advanced technology comes over.
- And hence, the stock of CAMS has witnessed some downfall in the share price due to the Aditya Birla Sun Life AMC IPO which is live from September 29, 2021, to October 1, 2021, as this IPO is expected to list at Price to Earnings (P/E) Ratio of around 30 which will impact the scarcity premium valuation of HDFC AMC and CAMS.
This fall in the stock price of HDFC AMC and CAMS is not a matter of concern, as there is a great under penetration in this sector in the country as well this industry has a solid earnings visibility. But the major thing one should be watchful of here is the increasing competition which will lead to a reduction in the Expense Ratio. The stocks discussed above are not direct investment advice and hence one should follow due diligence before making any investment decisions.