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Why the stock prices of two companies 400 percent in last 3 years
Rising demand for mutual funds on account of growing preference towards financial assets may boost asset under management of domestic money managers to over $1.1 trillion by 2025.

The professional asset management industry in India manages $626 billion as of today and has grown at a 23 per cent CAGR over past three years. These asset managers oversee some of the faster-growing asset classes: mutual funds, portfolio management services and alternate assets.

Considering the prolonged weakness in the real estate market and softer return from gold, there are expectations that systematic investment plans (SIP) will continue to grow, enhancing businesses of distributors and portfolio management companies in the coming years.

Already, sales of companies like Edelweiss Financial Services and IIFL Holdings have grown at a CAGR of 31.42 per cent and 7.48 per cent over last five years, whereas net profit swelled 39.48 per cent and 17.44 per cent CAGR, respectively, during the same period. Shares of Edelweiss and IIFL have rallied up to 406 per cent in these past three years.

Investors invested Rs 1.4 lakh crore into mutual funds in April, raising industry’s asset base by 9 per cent to a staggering Rs 23.25 lakh crore from Rs 21.36 lakh at the end of March, latest data from the Association of Mutual Fund in India (Amfi) shows. India’s asset management industry had 42 players at the end of April.

Monthly SIP contribution has doubled to over Rs 7,000 crore in March 2018 from Rs 3,000 crore registered in April 2017.

Global brokerage Credit Suisse expects the current trend of increased mutual fund investments to continue, thanks to rising preference for financial assets in savings, continued weakness in the real estate market and settling in of habits (SIPs). The brokerage projects long-term MF AUM growth rates to remain healthy at around 16 per cent.

Analysts believe asset managers that are ahead of the curve are likely to benefit the most.
Credit Suisse highlighted that distributors or wealth managers like Edelweiss and IIFL Holdings stand to benefit the most, especially since they are already ahead of the curve in nurturing alternate assets.

The brokerage has initiated coverage on Aditya Birla Capital with an ‘outperform’ rating on account of rising franchise in the mutual fund business with growing profitability.

ABCL is one of the top three players in the mutual fund business, with growing market as well as equity share. Credit Suisse is bullish on the company with a target price of Rs 175.

Shares of the company traded around Rs 147 on May 31, down over 40 per cent since September last year.

Credit Suisse has also initiated coverage of JM Financial with a ‘neutral’ rating with target price of Rs 150. JM generates superior return on assets on its lending business, with higher yields and lower credit costs against peers, and the group is conservative on leverage levels.

There is a significant opportunity for these companies, as India lags in savings in financial assets compared with developed economies. Credit Suisse expects asset management companies to post 22 per cent profit growth CAGR till 2025.