Shares of HDFC Asset Management Company Ltd (HDFC AMC) fell sharply by 5.43% to Rs 5,340 in early trade on Wednesday (October 29), after the Securities and Exchange Board of India (SEBI) released a consultation paper proposing to reduce expense ratios charged by mutual funds — a move seen as negative for the profitability of asset management companies (AMCs).
Market reaction
The stock opened lower and traded between Rs 5,288 and Rs 5,450 during the session, compared to the previous close of Rs 5,646.50. With a market capitalization of Rs 1.14 lakh crore, HDFC AMC has been one of the top-performing AMCs in India, but the latest regulatory proposal triggered selling pressure across the sector.
Reason for decline: SEBI’s new expense ratio proposal
The fall comes after SEBI proposed changes to rationalize Total Expense Ratios (TER) charged by mutual funds. Key highlights of the proposal include:
- Elimination of the additional 5 basis points (bps) that mutual fund schemes were allowed to charge across all categories.
- Upward revision of the first two slabs of expense ratios for open-ended active schemes by 5 bps to offset operational impact.
- Reduction in brokerage fees — from 12 bps to 2 bps for cash market transactions and from 5 bps to 1 bps for derivatives, aimed at increasing transparency.
- Exclusion of statutory levies like GST, STT, CTT, and Stamp Duty from the TER limit, ensuring any future changes are directly passed on to investors.
SEBI noted that the changes aim to simplify the cost structure, enhance transparency, and protect investors’ interests.
Analyst view and sector impact
Global brokerage Jefferies said the SEBI proposal could impact AMCs’ profitability significantly. A 5 bps cut in equity exit loads could potentially reduce FY27 profit before tax (PBT) for HDFC AMC and Nippon AMC by 30–33%, according to Jefferies.
The move may also have a knock-on effect on institutional brokers such as 360 ONE and Nuvama, which rely on brokerage fee structures tied to mutual fund operations.
While SEBI stated that some revisions could be neutral to earnings — as statutory charges would now be treated separately — market participants believe near-term earnings growth for AMCs could be under pressure.
Sector performance
Other AMC stocks, including Nippon Life India AMC and UTI AMC, also witnessed declines following the announcement. The Nifty Financial Services index slipped slightly as investor sentiment turned cautious towards fund management firms.
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