SECTOR UPDATE 14 OCT 2019 Insurance/AMC/Broking Tracker AMC and... · 2019. 10. 14. · Life Insurance: We expect private insurers’ indiv. NBP/APE growth to moderate to 16-22%/12-17%

SECTOR UPDATE 14 OCT 2019

Insurance/AMC/Broking Tracker

2QFY20: Insurance slowing, MF tepid, broking toughLife insurance: After a strong 1Q (+27.8 YoY), private life insurers’ individual NBP growth tapered to 13.5% YoY in 2QFY20. Base numbers are high after a FY17-19 growth CAGR of ~22.8%. Additionally, we believe that slowing economy has put 2HFY20 growth for the sector at risk.

Growth in group business has also slowed down considerably in 2QFY19 to 12.9% vs. 38.3% in 1QFY20 as a slowdown in loan growth for banks and even more so for NBFCs is having a bearing on the credit protect business.

Mutual funds: For 2QFY20, monthly SIP inflows remained stable at ~Rs 82bn aggregating to Rs 248bn (+8.2/1.1% YoY/QoQ), while lump-sum outflows declined substantially to ~Rs 27bn (1QFY20: Rs 162bn), leading to total equity (ex. arbitrage and ETF) inflows of Rs 221bn (-32.3%/+2.7x YoY/QoQ). QAAUM growth is challenged as equity indices declined 2.7% QoQ.

Broking: Competitive intensity continues to remain at extremely elevated levels and brokers have resorted to lower pricing for intraday trades eg. Brokers are not charging for derivative trades being squared off within 5 mins. Total market ADTV (ex-prop) for 2QFY20, continues to grow at a healthy pace of 49.4/12.1% YoY/QoQ; cash ADTV (higher yielding) growth remained lackluster at -3.4/-1.0% vs. 51.8/12.5% YoY/QoQ for derivatives. Consequentially derivative : cash mix has moved further towards derivatives at 97.2% : 2.8% in

2QFY20 (vs. 95.7% : 4.3% in 2QFY19). Active clients base of discount brokers such as Zerodha, Upstox and 5Paisa Capital has increased by 15/178/121% respectively during 1HFY20. ISEC too has displayed a strong +62k (1HFY20) addition in active customers i.e. +7.4% over FY19.

Life Insurance: We expect private insurers’ indiv. NBP/APE growth to moderate to 16-22%/12-17% for FY20E. Our top pick in the sector is SBILIFE with TP of Rs 930. As a result of slower APE growth in 1HFY20 and recent run up in stock price, we downgrade IPRU to NEUTRAL with TP of Rs 440.

AMC: We believe investor confidence is low, given significant underperformance of many schemes and jittery equity markets along with a difficult corporate default cycle. Surprisingly, SIP inflows continue to remain strong. We suspect aggregate MF equity inflows in FY20E to be materially lower than FY19. We have a NEUTRAL on Nippon India AMC and MOFS with TP of Rs 240 and Rs 641 respectively.

Broking: Increased competitive intensity driven by adoption of fixed/subscription based pricing is likely to keep profitability subdued. Additionally, lower TERs on distribution of mutual funds will also negatively impact profitability. Cost control will be key. We have a NEUTRAL on ISEC with TP of Rs 265.

Life Insurance Company Mcap

(Rs bn) CMP (Rs)

TP (Rs) Rating

HDFCLIFE 1,187 591 459* NR IPRU 632 440 440 NEU MAXF 140 407 599 BUY SBILIFE 840 840 930 BUY

Asset Management Company Mcap

(Rs bn) CMP (Rs)

TP (Rs) Rating

HDFCAMC 581 2,726 2,250* NR MOFS 85 587 641 NEU RNAM 164 267 240 NEU

Broking Company Mcap

(Rs bn) CMP (Rs)

TP (Rs) Rating

ISEC 86 266 265 NEU Source: HDFC sec Inst Research

*Fair Value

Madhukar Ladha, CFA [email protected] +91-22-6171-7323 Keshav Binani [email protected] +91-22-6171-7325

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

INSURANCE/AMC/BROKING TRACKER

Life insurance Sep-19: Private insurers Sep-19 indiv. NBP/APE growth plunges to just 4.3/2.5% YoY

Individual business Individual NBP and APE growth for private players

slumped in Sep-19 to +4.3/2.5% YoY respectively.

LIC’s Individual NBP/APE reported a steeper decline at 31.8/10.6% YoY.

Total industry (including LIC) NBP/APE declined 14.5/2.8%.

HDFC Life: Sep-19 NBP/APE declined 23/20% YoY to Rs 5.9/4.3bn. The growth comes off an extremely high base as Sep-18 NBP/APE growth was at 47/20% respectively.

IPRU continues to disappoint as the individual NBP/APE declined 5/7% YoY to Rs 6.7/5.8bn as the company continues to focus on higher margin protection business.

MAXL reported positive growth as NBP/APE grew +7/2% YoY to Rs 4.6/3.6bn. The growth comes off a high base of Sep-18 NBP/APE growth of 25/30% YoY.

SBILIFE stands out with continued strong double digit growth as Ind. NBP/APE grew +18/11% YoY to Rs 10.1/8.8bn, this is despite the high base.

Private companies (ex. SBILIFE and IPRU) recorded NBP growth of mere 2% YoY in Sep-19.

Amongst other private insurers, TATA AIA’s NBP grew 37%, while Birla Sun Life’s NBP declined 11%.

2QFY20 Individual NBP and market-share (Note: Private insurers’ market-share is calculated excluding LIC.) Private insurers NBP grew 13.5% YoY to Rs 124.8bn in

2QFY20. LIC’s market share increased by 395bps to ~55.8%

while NBP increased a 33.1% to Rs 157.2bn. HDFCLIFE’s NBP market share declined by ~125bps to

15.6% as NBP came in at 19.5bn (5.1% YoY) IPRU’s NBP premium growth (2QFY20: -1.9%)

remained soft as the company printed NBP of Rs 20.7bn, consequently leading to loss of market share to the tune of ~260bps to 16.6%.

Max’s 2QFY20 NBP was at Rs 12.8bn (+22.5% YoY), well above pvt. insurers growth leading to increase in market share to 10.3% (+75bps YoY).

SBI Life printed NBP at Rs 29.7bn (+24.4% YoY). Market share improved by ~210bps to 23.8%.

Group Business NBP/APE growth for pvt. insurers came in at 16/20%

YoY. At times when credit growth is moderating in the economy, group business growth positively surprises us.

HDFCLIFE’s NBP increased only 3% YoY, while IPRU, MAXL and SBILIFE reported growth of 108%, 11% and +245% respectively.

SBI Life has reported highest ever monthly group business in Sep-19 at Rs 8.7bn (+~2.5x YoY).

Private insurers Sep-19 indiv. NBP/APE growth plunges to just 4.3/2.5% YoY. Growth was better in group business as private insurers NBP/APE increased 16/20% YoY in Sep-19. In group business, HDFCLIFE’s NBP increased only 3% YoY, while IPRU, MAXL and SBILIFE reported growth of 108%, 11% and +245% respectively.

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View We remain positive on the long term prospects of life

insurers, however strong sales growth (+26.0% p.a) in FY17 and FY18 followed by 16.6% growth in FY19 has set the companies up with a high base.

As expected moderation of growth is getting more apparent (in last two months). Growth was strong in Apr-Jul’19. We remain conservative in our stance given the high base and slow down visible in the economy. We expect growth in 2HFY20 to most likely fall short of our expectations.

Despite the high base due to the

commissions/incentive payout arbitrage for distributors (effective Oct-18), we expect FY20E indiv. NBP/APE for the private sector insurers to grow ~16-22/12-17%.

Our top pick in the sector is SBILIFE with TP of Rs 930 (+10.8%).

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Private sector Individual NBP growth was 4% in Sep-19

NBP (Rs bn) Individual Group Total YTD - Individual YTD - Group YTD - Total

Sep-19 YOY (%) Sep-19 YOY (%) Sep-19 YOY (%) FY20TD YOY (%) FY20TD YOY

(%) FY20TD YOY (%)

Aditya Birla Sun Life 1.3 -11 2.3 -42 3.6 -34 7.4 19 6.8 -35 14.2 -15 Bajaj Allianz Life 1.6 24 3.6 -3 5.2 4 8.1 23 14.4 13 22.5 16 Bharti Axa Life 0.5 2 0.2 -19 0.7 -4 2.9 11 1.2 -10 4.1 4 DHFL Pramerica Life 0.1 -56 0.3 -57 0.5 -57 0.9 -52 2.1 -65 3.0 -62 HDFC Standard Life 5.9 -23 7.2 3 13.1 -10 39.4 28 40.6 27 80.1 27 ICICI Prudential Life 6.7 -5 2.7 108 9.4 13 36.0 0 15.5 129 51.5 20 IDBI Federal Life 0.5 -18 0.1 9 0.6 -13 2.0 -22 0.6 42 2.6 -12 Kotak Mahindra Life 2.1 39 1.5 -17 3.5 9 8.2 25 12.2 47 20.4 38 Max Life 4.6 7 0.4 11 5.0 7 21.1 22 1.8 -1 22.9 20 PNB Met Life 1.1 -9 0.5 107 1.5 8 5.7 5 2.0 120 7.7 21 SBI Life 10.1 18 8.7 245 18.9 69 48.5 30 29.7 60 78.1 40 Tata AIA Life 2.4 37 0.3 214 2.7 46 12.4 68 0.7 46 13.1 67 Private players Total 43 4 30 16 73 9 217 19 141 24 358 21 LIC 30 (32) 97 54 128 18 249 22 651 51 900 42 Industry total 73 (14) 127 43 201 15 466 21 792 45 1,258 35 Source: IRDAI, HDFC sec Inst Research Individual NBP Market Share: Private players gaining big

Particulars Individual Group Total YTD - Individual YTD - Group YTD - Total

Sep-19 YOY (bps) Sep-19 YOY (bps) Sep-19 YOY (bps) FY20TD YOY(bps) FY20TD YOY(bps) FY20TD YOY(bps) Aditya Birla Sun Life 3.0 -53 7.6 156 4.9 -316 3.4 -1 4.8 -438 4.0 -23 Bajaj Allianz Life 3.8 59 11.9 281 7.1 -32 3.7 12 10.2 -98 6.3 -176 Bharti Axa Life 1.2 -3 0.6 -21 1.0 -13 1.4 -10 0.9 -32 1.2 66 DHFL Pramerica Life 0.3 -41 1.2 -40 0.7 -100 0.4 -60 1.5 -376 0.8 233 HDFC Standard Life 13.8 -478 23.9 -482 17.9 -384 18.2 120 28.9 81 22.4 952 ICICI Prudential Life 15.5 -152 9.1 -524 12.9 47 16.6 -318 11.0 508 14.4 -107 IDBI Federal Life 1.1 -30 0.4 -10 0.8 -21 0.9 -48 0.5 6 0.7 8 Kotak Mahindra Life 4.8 121 4.8 -518 4.8 1 3.8 18 8.7 140 5.7 145 Max Life 10.6 23 1.3 4 6.8 -11 9.7 25 1.3 -32 6.4 61 PNB Met Life 2.6 -38 1.5 2 2.1 0 2.6 -37 1.4 61 2.2 -113 SBI Life 23.6 267 29.0 965 25.8 922 22.3 192 21.1 482 21.8 -113 Tata AIA Life 5.5 132 0.9 54 3.6 92 5.7 166 0.5 8 3.7 -22 Private players* 58.6 1053 23.6 -547 36.4 -199 46.6 -59 17.8 -313 28.4 -335 LIC* 41.4 -1053 76.4 547 82.2 199 53.4 59 82.2 313 71.6 335 Industry 100.0 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 0 * LIC, Total private players market share on total market share basis while individual insurers on private market share basis Source: IRDAI, HDFC sec Inst Research

Among top insurance companies, SBI Life’s Individual NBP growth has been the best at 18%. HDFC Life’s growth was disappointing as indiv. NBP declined 23%.

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Private sector Individual APE growth was 3% in Sep-19

(Rs bn) Individual Group Total YTD - Individual YTD - Group YTD - Total

Sep-19 YOY (%) Sep-19 YOY (%) Sep-19 YOY (%) FY20TD YOY (%) FY20TD YOY (%) FY20TD YOY (%)

Aditya Birla Sun Life 1.2 -9 0.2 -45 1.5 -17 6.9 20 0.7 -45 7.6 8 Bajaj Allianz Life 1.6 25 0.4 -3 1.9 18 7.8 24 1.4 12 9.3 22 Bharti Axa Life 0.5 2 0.0 -18 0.5 1 2.7 12 0.1 -10 2.8 10 DHFL Pramerica Life 0.1 -55 0.0 -57 0.2 -55 0.8 -53 0.2 -65 1.0 -56 HDFC Standard Life 4.3 -20 0.7 3 5.0 -17 27.5 35 4.1 27 31.5 34 ICICI Prudential Life 5.8 -7 0.3 108 6.1 -4 30.5 -3 1.5 129 32.0 0

IDBI Federal Life 0.3 -37 0.0 3 0.3 -36 1.4 -25 0.1 30 1.5 -24 Kotak Mahindra Life 1.5 21 0.1 -20 1.6 16 5.9 13 1.3 34 7.1 16 Max Life 3.6 2 0.0 11 3.7 2 16.9 23 0.2 -1 17.1 22 PNB Met Life 1.1 -9 0.0 89 1.1 -7 5.7 5 0.2 101 5.9 7 SBI Life 8.8 11 0.9 240 9.7 18 41.8 22 3.0 58 44.8 24 Tata AIA Life 2.2 28 0.2 279 2.5 37 10.5 43 0.4 -8 10.9 40 Private players total 36.6 3 3.3 20 40.0 4 180.9 16 14.8 16 195.7 16 LIC 21.5 (11) 16.0 135 37.5 21 125.8 5 245.3 430 371.1 123 Industry total 58.2 (3) 19.3 102 77.5 12 306.6 11 260.1 340 566.8 69 Source: IRDAI, HDFC sec Inst Research Recent Individual NBP growth trend (%) Sep18 Oct18 Nov18 Dec18 Jan19 Feb19 Mar19 Apr19 May19 Jun19 Jul19 Aug19 Sep19

HDFC Standard Life 46.7 64.3 9.0 27.6 24.9 6.8 1.2 35.1 62.1 78.0 40.0 10.3 (22.6)

ICICI Prudential Life 2.5 (14.3) (24.3) (4.2) 10.6 12.2 9.7 (0.1) 1.9 5.4 4.0 (4.3) (5.0)

SBI Life 22.8 16.6 9.3 22.3 (0.1) 29.4 26.4 51.3 45.2 33.3 34.1 22.8 17.6

Max Life 25.0 24.9 11.1 6.6 33.0 25.0 15.8 24.0 22.4 20.8 42.3 25.7 6.6

Total Private players 22.4 19.8 2.0 17.3 16.7 18.8 21.0 19.4 32.3 29.4 26.0 12.7 4.3

LIC (2.7) (5.0) (48.8) 46.7 26.6 17.4 12.3 18.9 (0.5) 6.1 17.5 122.4 (31.8) Total Industry 8.0 4.5 (34.2) 29.9 21.6 18.1 16.5 19.1 13.6 17.2 21.6 69.4 (14.5) Source: IRDAI, HDFC sec Inst Research

Individual APE growth at 3% for the Industry during Sep-19 was disappointing. SBI Life’s growth in group business is spectacular at 240%. SBI Life continues to deliver above expected growth. SBI Life’s individual NBP growth in Jul/Aug/Sep-19 was at 34.1/22.8/17.6% Industry growth continues to taper off and the growth will moderate further as high base kicks in 2HFY20.

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Industry over the years

Particulars Individual NBP (Rs bn) Growth YoY (%) Market Share (%)

FY15 FY16 FY17 FY18 FY19 FY20TD FY15 FY16 FY17 FY18 FY19 FY20TD FY15 FY16 FY17 FY18 FY19 FY20TD Aditya Birla Sun Life 7.7 7.1 9.6 11.5 22.0 7.4 (12.9) (6.9) 34.9 19.9 91.0 18.9 3.4 2.8 3.0 2.9 4.7 3.4 Bajaj Allianz Life 10.6 8.9 10.7 14.6 18.0 8.1 (10.3) (15.7) 19.6 36.6 23.7 23.2 4.7 3.5 3.3 3.6 3.8 3.7 Bharti Axa Life 3.5 3.6 4.0 4.7 6.4 2.9 20.0 2.5 11.2 16.0 37.7 11.3 1.6 1.4 1.3 1.2 1.4 1.4 DHFL Pramerica Life 1.4 1.8 2.2 3.6 3.2 0.9 27.5 27.2 22.0 66.9 (13.0) (52.3) 0.6 0.7 0.7 0.9 0.7 0.4 HDFC Standard Life 33.1 36.6 42.0 59.4 76.4 39.4 29.8 10.4 14.8 41.5 28.6 27.6 14.7 14.3 13.1 14.7 16.2 18.2 ICICI Prudential Life 48.2 53.6 69.8 84.0 81.4 36.0 40.4 11.1 30.3 20.4 (3.1) 0.0 21.4 21.0 21.7 20.8 17.3 16.6 IDBI Federal Life 3.5 4.9 6.3 7.3 6.4 2.0 14.6 40.3 30.0 15.5 (12.0) (21.8) 1.5 1.9 2.0 1.8 1.4 0.9 Kotak Mahindra Life 7.5 10.6 14.4 19.7 21.3 8.2 16.5 42.0 35.1 37.3 8.1 25.2 3.3 4.2 4.5 4.9 4.5 3.8 Max Life 23.6 26.1 33.1 39.8 47.5 21.1 14.5 10.6 26.6 20.4 19.1 22.3 10.5 10.3 10.3 9.9 10.1 9.7 PNB Met Life 7.2 9.2 10.3 12.5 13.9 5.7 23.8 28.7 11.6 21.5 11.1 4.7 3.2 3.6 3.2 3.1 3.0 2.6 SBI Life 37.6 49.8 64.7 84.1 96.4 48.5 16.7 32.5 30.0 29.9 14.6 30.4 16.6 19.5 20.2 20.8 20.5 22.3 Tata AIA Life 2.4 6.1 10.5 14.0 23.5 12.4 (12.6) 160.6 71.3 33.4 67.5 68.2 1.0 2.4 3.3 3.5 5.0 5.7 Private players total * 225.9 254.9 320.9 403.6 470.7 217.0 17.7 12.9 25.9 25.8 16.6 19.2 40.8 43.7 41.3 43.8 48.0 46.6 LIC* 327.9 327.9 455.9 517.4 510.1 248.7 (21.5) 0.0 39.0 13.5 (1.4) 22.0 59.2 56.3 58.7 56.2 52.0 53.4 Industry total 553.7 582.8 776.8 921.1 980.9 465.7 (9.2) 5.3 33.3 18.6 6.5 20.7 100.0 100.0 100.0 100.0 100.0 100.0 Note: * LIC, Total private players market share on total market share basis while individual insurers on private market share basis Source: IRDAI, HDFC sec Inst Research

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Mutual fund flows 2QFY20: Over 2QFY20, equity (ex. arb. and ex. ETF) inflows picked up to Rs 221bn (-32.3%/2.7x YoY/QoQ). SIP inflows continued to remain strong at 248.2bn (+8.2% YoY), however flows were dragged down by lumpsum redemptions of Rs 27bn.

Over 2QFY20, inflow of low yielding AuM (ETF & Arbitrage) has been Rs 292bn (57% of total equity flows)

Turbulence in the debt markets resulted in outflows of Rs 41bn in 2QFY20. Overall AUMs for debt schemes declined to Rs 7.0tn (-4.7% YoY).

Equity (Sep-19)

Equity Inflows (ex. arbitrage and ETF) during Sep-19 slumped to Rs 38.6bn (vs. FY19 monthly average of 99bn, -60.7%). FY20TD inflows stand at Rs 304bn (-58.0% YoY).

Inflows were weak due to lump-sum redemptions to the tune of Rs 43.7bn. We believe this is due to jittery equity markets.

SIP inflows continue to remain steady at Rs 82.6bn (+0.4% MoM). FYTD SIP inflows have remained extremely strong at ~Rs 80-82bn/month aggregating to Rs 493.6bn (+11.0%).

Among equity schemes, Multi/large cap schemes witnessed high inflows at Rs 16.7/15.6bn respectively. Balanced schemes witnessed further outflows of Rs 19.3bn.

Low cost AUM: ETF inflows were weak at Rs 15bn vs FY19 average of Rs 36bn. Elevated market volatility has aided arbitrage funds garner Rs 48bn in inflows. FY20TD arbitrage inflows are Rs 255bn (+59.2% YoY).

Total equity net inflows (including arbitrage and ETF) were Rs 102bn (vs. FY19 avg. of Rs 129bn/mth). Total equity inflows for FY20TD were at Rs 729bn (-12.0% YoY).

Debt/Liquid Net outflows saw a sharp rise of Rs 133bn vs. FY20TD

avg. outflow of Rs 31.4bn.

Outflows continued in credit risk funds and FMPs. Fixed maturity plans reported an outflow of Rs 30 bn.

Liquid schemes recorded net outflows of Rs 1.5tn as 2QFY20 ended.

Note: As AMFI has changed reporting, we have clubbed Liquid, Money market and overnight fund in liquid.

View

We believe investor confidence is low, given significant underperformance of many schemes and jittery equity markets. Surprisingly, SIP inflows continue to remain strong.

We suspect aggregate MF equity inflows in FY20E would be materially lower than FY19.

Amidst the current debt crisis and series of defaults, investors preferred high quality assets as majority of inflows were in banking and PSU debt funds.

Also inability of money managers to beat benchmark returns has paved way for ETF investing in India which is gradually picking up (12.6% of equity AUM vs 8.8% in Sep-18). Although it is worthwhile to note that ~87% of ETF AUM is held by Institutions and only ~5% is held by retail.

We have a NEUTRAL on Nippon India AMC and MOFS with TP of Rs 267 and Rs 641 respectively.

Lumpsum redemption of Rs 43.7bn led to total inflows declining to Rs 38.6bn in Sep-19. FY20TD SIP inflows have remained extremely strong at ~Rs 80-82bn/month aggregating to Rs 493.6bn (+11.0% YoY). Total equity net inflows (including arbitrage and ETF) were Rs 102bn (vs. FY19 avg. of Rs 129bn/mth). Total equity inflows for FY20TD were at Rs 729bn (-12.0% YoY).

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Equity inflows: FYTD inflows are down 58.0% Monthly equity inflows

Source: AMFI, HDFC sec Inst Research Source: AMFI, HDFC sec Inst Research

Equity AUM growth was at 14.8% YoY 2QFY20: M2M impact of Rs -321bn on equity AUM

Source: AMFI ,HDFC sec Inst Research Source: AMFI,HDFC sec Inst Research

As net inflows picked up meaningfully from FY14, industry equity AUM grew more than 4x during FY14-18. Monthly equity inflows have been largely supported by SIP inflows. Jittery equity markets led to M2M loss of Rs 321bn for equity schemes during 2QFY20.

119 13

1

86

67

52

40

86

12 19

52

98

85

39

-

20

40

60

80

100

120

140

Sep-

18

Oct

-18

Nov

-18

Dec-

18

Jan-

19

Feb-

19

Mar

-19

Apr-

19

May

-19

Jun-

19

Jul-1

9

Aug-

19

Sep-

19

Net inflows (Rs bn)

16

8 62

47

41

15

(118

)5

(144

) 203

809 93

8 1,02

8 2,

608

1,18

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FY09

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FY13

FY14

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FY16

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FY19

FY20

TD

Net Inflows(Rs bn)

(791

)

(210

)

237

105

(219

) (74)

661

185 21

6

(99)

(615

)

(131

)

424

(1,000)(800)(600)(400)(200)

-200 400 600 800

Sep-

18

Oct

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Nov

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Dec-

18

Jan-

19

Feb-

19

Mar

-19

Apr-

19

May

-19

Jun-

19

Jul-1

9

Aug-

19

Sep-

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M2M (Rs bn)

9,24

5

9,16

6

9,48

9

9,66

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4

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10,2

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30.0

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8,000

8,500

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Sep-

18

Oct

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Nov

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Dec-

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Jan-

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Feb-

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Mar

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Apr-

19

May

-19

Jun-

19

Jul-1

9

Aug-

19

Sep-

19

AUM (Rs bn) Growth YoY (%) - RHS

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SIP supporting total equity flows

Note: Arbitrage funds inflows data is available beginning Apr-18. Prior to Apr-18 the same has been clubbed in equity. Source: AMFI,HDFC sec Inst Research

Liquid funds ETFs attracting flows

Source: AMFI,HDFC sec Inst Research Source: AMFI,HDFC sec Inst Research

Arbitrage funds continue to see inflows. Flows during 2QFY20 were Rs 163bn (2.6x/1.8x YoY/QoQ). TERs on such schemes are comparatively lower than other equity schemes.

77 80 80 80 81 81 81 82 82 81 83 82 83 1 22 24

(22) (11) (5) (40)

15 46 32 58 57 48 24 28 16

109

7 52

105

(42)

27 56

126

(13)

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6

(14) (29) (41)

5

(70)

(63) (29)

14

2

(44)

(150)

(100)

(50)

-

50

100

150

200

250

300

350

Sep-

18

Oct

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Nov

-18

Dec-

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Jan-

19

Feb -

19

Mar

-19

Apr-

19

May

-19

Jun-

19

Jul-1

9

Aug-

19

Sep-

19

SIP Inflows Arbitrage Gold ETF/FoF ETF ex. gold and FoF Lump sum equity Flows

Rs bn

24

28

16

109

7 52

105

(42) 27

56 12

6

(13) 15

904

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(200)-

200 400 600 800

1,000 1,200 1,400 1,600 1,800

Sep-

18

Oct

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Nov

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Dec-

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Jan-

19

Feb-

19

Mar

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Apr-

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May

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Jun-

19

Jul-1

9

Aug-

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Sep-

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Inflows (Rs bn) AUM (Rs bn)

3,94

8

4,54

4 5,93

5

4,46

2

5,09

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4,88

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86)

(3,000)(2,000)(1,000)

-1,000 2,000 3,000 4,000 5,000 6,000 7,000

Sep-

18

Oct

-18

Nov

-18

Dec-

18

Jan-

19

Feb-

19

Mar

-19

Apr-

19

May

-19

Jun-

19

Jul-1

9

Aug-

19

Sep-

19

AUM (Rs bn) Inflows (Rs bn)

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Rise of low yielding AUM (ETFs and arbitrage)


Rise of low yielding flows (ETFs and arbitrage)


Inability of money managers to beat benchmark returns has paved way for ETF investing in India. ETF investing is gradually picking up (12.6% of equity AUM vs 8.8% in Sep-18). About 87% of ETF AUM is held by Institutions and only ~5% is held by retail.

147

224

499

777

1,39

1

1,53

9

- - - - 521

685

3.8 5.0

7.4 7.8

11.5 12.6

- - - -

4.3 5.6

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

FY15 FY16 FY17 FY18 FY19 Sep-19

ETF AUM (Rs bn) - LHS Arbitrage AUM (Rs bn) - LHSETF AUM as % of equity AUM Arbitrage AUM as % of equity AUM

8 78 203 231 429 170

-

-

--

(39)

255

1

8

16

8

27

23

- - - -(2)

35

(5)-5 10 15 20 25 30 35 40

(100)

-

100

200

300

400

500

FY15 FY16 FY17 FY18 FY19 FYTD

ETF inflows (Rs bn) - LHS Aribtrage inflows (Rs bn) - RHS

ETF flows as % of total equity flows Arbitrage flows as % of total equity flows

Page | 10


Broking On account of increased volatility in equity markets, total market ADTV (ex-prop) for 2QFY20, continues to grow at a healthy pace of 49.4/12.1% YoY/QoQ; cash ADTV (higher yielding) growth remained lackluster at -3.4/-1.0% vs. 51.8/12.5% YoY/QoQ for derivatives. Consequentially derivative: cash mix has moved further towards derivatives at 97.2%: 2.8% in 2QFY20 (vs. 95.7%: 4.3% in 2QFY19). Key takes

Cash ADTV (ex-prop) declined 3.4/-1.0% YoY/QoQ. Growth in 1QFY20 was 2.9/0.8% YoY/QoQ.

Whereas derivatives ADTV growth continues to remain very strong at 51.8/12.5% YoY/QoQ. In 1QFY20 growth was 70.2/27.1% YoY/QoQ.

Delivery volumes share in 2QFY20 was at 23.0% (-115/-130 bps YoY/QoQ).

Share of F&O in the overall mix has been consistently rising. Historically F&O in the mix has been at

94.0/95.2/95.5% in FY17/18/19 respectively. Even within F&O volume growth has sharply been for options (see chart) where yields are significantly lower than futures.

The financial performance of the sector shall continue to remain under stress as traditional brokers with credible names like Axis Securities and Angel Broking have moved to fixed/subscription based business models. We believe this can lead to further decline in yields.

Active clients base of discount brokers such as Zerodha, Upstox and 5Paisa Capital has increased by 15/178/121% respectively during 1HFY20.

Amongst traditional brokers, ISEC has done well with active client base growth of 7.4% to 9.06mn.

Amongst brokers, we cover ISEC and have a NEUTRAL with TP of Rs 265 i.e. (14x Sep-21E EPS).

Active clients base of discount brokers such as Zerodha, Upstox and 5Paisa Capital has increased by 15/178/121% respectively during 1HFY20. Amongst traditional brokers, ISEC has done well with active client base growth of 7.4% to 9.06mn. Growth rates of other traditional players such as HDFC, Sharekhan, Axis, Kotak have been muted at -5.4/-5.7/+5.7/+4.7% during 1HFY20.

Page | 11


Rising share of derivates ADTV Falling delivery volumes

Source: NSE,BSE,HDFC sec Inst Research Source: NSE,BSE,HDFC sec Inst Research Active clients data for top 10 brokers

Source: NSE, HDFC sec Inst Research

Share of delivery volumes continue to remain low at 24.1%. Rising share of F&O in the mix and fall in share of delivery based volumes have contributed to fall in blended yields for most brokerages.

16.4 16.1 15.4 16.7 15.4 11.8 9.8 6.7 6.1

75.9 77.4 78.3 76.6 78.6 83.4 86.1 90.4 91.4

7.7 6.6 6.4 6.7 6.0 4.8 4.1 2.92.5

-

20.0

40.0

60.0

80.0

100.0

FY13

FY14

FY15

FY16

FY17

FY18

FY19

1QFY

20

2QFY

20

Futures (%) Options (%) Cash (%)

32.6 32.9 51.6 49.7 60.5 83.2 87.2 21.9 22.5

30.7

%

31.8

%

32.3

%

31.6

%

33.8

%

30.4

%

26.1

%

25.3

%

24.1

%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

-

20.0

40.0

60.0

80.0

100.0

FY13

FY14

FY15

FY16

FY17

FY18

FY19

1QFY

20

2QFY

20

Cash Turnover (in tn) Delivery (%) - RHS

18 30 62

166

541

909

1,045

501 595

560 618

798 844

906

-

200

400

600

800

1,000

1,200

FY14 FY15 FY16 FY17 FY18 FY19 Sep-19

Zerodha ICICI Securities HDFC Securities Sharekhan Kotak Securities

Angel Broking AXIS Securities Motilal Oswal RKSV Securities Karvy

in '000

Page | 12


NSE Active Clients data Broker FY15 FY16 FY17 FY18 FY19 Jun19 Sep19 Zerodha 30,379 61,970 165,586 540,905 909,008 979,241 1,044,847 ICICI Securities 594,714 560,438 618,359 798,355 843,975 878,884 906,082 HDFC Securities 347,555 408,059 483,244 602,493 672,044 650,114 635,425 Sharekhan 342,592 335,843 366,468 535,003 509,787 504,796 480,764 Kotak Securities 268,459 246,945 273,895 368,638 437,822 389,512 462,801 Angel Broking 160,354 170,808 230,194 363,663 412,809 426,716 432,414 Axis Securities 120,292 184,325 259,006 404,769 419,455 443,461 338,110 Motilal Oswal Financial Services 152,608 165,844 207,194 307,647 319,138 326,011 326,146 RKSV Securities 7,372 10,622 17,229 43,889 99,546 186,456 277,113 Karvy Stock 172,489 166,923 181,384 244,753 266,287 265,798 265,211

5Paisa Capital NA NA 3,652 36,034 106,280 147,499 234,338 SBICAP Securities 113,810 125,828 169,345 213,616 209,301 210,892 213,334 IIFL Securities 286,032 262,930 197,996 225,435 214,149 203,702 200,669 Geojit Financial Services 158,271 177,397 160,317 183,466 162,789 160,984 156,799 Reliance Securities 114,086 97,390 83,430 122,858 120,227 119,904 115,128 Edelweiss Broking 47,123 77,459 74,631 104,643 120,132 122,784 114,945 SMC Global Securities 63,148 64,231 74,227 103,047 105,981 106,354 103,525 Nirmal Bang Securities 59,283 61,362 72,795 95,918 93,607 92,975 88,503 Anand Rathi Share And Stock Brokers 57,205 58,264 64,451 77,554 76,095 75,204 73,262 Ventura Securities 51,471 59,228 68,519 82,753 76,088 74,353 70,589

Growth (%) Zerodha 73.4 104.0 167.2 226.7 68.1 7.7 6.7 ICICI Securities 18.8 (5.8) 10.3 29.1 5.7 4.1 3.1 HDFC Securities 24.7 17.4 18.4 24.7 11.5 (3.3) (2.3) Sharekhan 24.7 (2.0) 9.1 46.0 (4.7) (1.0) (4.8) Kotak Securities 20.2 (8.0) 10.9 34.6 18.8 (11.0) 18.8 Angel Broking 14.4 6.5 34.8 58.0 13.5 3.4 1.3 Axis Securities 55.6 53.2 40.5 56.3 3.6 5.7 (23.8) Motilal Oswal Financial Services 24.0 8.7 24.9 48.5 3.7 2.2 0.0 RKSV Securities 59.2 44.1 62.2 154.7 126.8 87.3 48.6 Karvy Stock 36.6 (3.2) 8.7 34.9 8.8 (0.2) (0.2) 5Paisa Capital NM NM NM 886.7 194.9 38.8 58.9 SBICAP Securities 66.6 10.6 34.6 26.1 (2.0) 0.8 1.2

Page | 13


Broker FY15 FY16 FY17 FY18 FY19 Jun19 Sep19 IIFL Securities 21.6 (8.1) (24.7) 13.9 (5.0) (4.9) (1.5) Geojit Financial Services 6.8 12.1 (9.6) 14.4 (11.3) (1.1) (2.6) Reliance Securities 22.8 (14.6) (14.3) 47.3 (2.1) (0.3) (4.0) Edelweiss Broking 99.7 64.4 (3.7) 40.2 14.8 2.2 (6.4) SMC Global Securities 13.5 1.7 15.6 38.8 2.8 0.4 (2.7) Nirmal Bang Securities 19.0 3.5 18.6 31.8 (2.4) (0.7) (4.8) Anand Rathi Share And Stock Brokers 14.7 1.9 10.6 20.3 (1.9) (1.2) (2.6) Ventura Securities 29.0 15.1 15.7 20.8 (8.1) (2.3) (5.1) Source: NSE, HDFC sec Inst Research Note: Growth in Jun-19 and Sep-19 is QoQ growth

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Page | 15


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Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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mailto:[email protected]


HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013 Board: +91-22-6171-7330 www.hdfcsec.com

Page | 18

Documents

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