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Fall in HDFC MF stock could be opportunity to buy: Analysts

HDFC Asset Management shares plunged 6.3 per cent on Tuesday — the highest single-day fall in nine months — as investors slammed the mutual fund’s decision to buy Essel Group debt securities from its schemes. Analysts said, however, investors could buy the shares if they weaken further on the ground that the country’s largest mutual fund is strongly placed to benefit from the shift in savings from gold and real estate to equity and bonds.

Shares of HDFC AMC, which closed at Rs 1,807.75 on Tuesday, fell as much as 6.8 per cent earlier in the trading session. The fall — its highest since September 2018 – resulted in a loss of nearly Rs 2,600 crore in market capitalisation.

HDFC Asset, in a stock exchange disclosure, said it bought papers of Essel group held by the fund’s fixed maturity plan worth Rs 500 crore. The market interpreted it as the mutual fund’s move to bail out unit holders of its schemes at the expense of shareholders.

Morgan Stanley said HDFC AMC could be assuming a financial risk in the event of an under recovery. It retained an overweight rating on the stock with a target price of Rs 2,000.

Subhash Chandra-controlled Essel Group has pledged to sell a stake in its flagship firm Zee Enterprises and repay mutual funds before September

30. About eight fund houses hold Essel group papers worth Rs 7,000 crore. In April, when some FMPs of Kotak and HDFC Mutual Fund came up for maturity, HDFC had rolled over one of its FMP by 380 days, while Kotak Mutual Fund repaid investors minus their holdings in Essel Group companies. The move did not go down well with the Securities and Exchange Board of India, which questioned the legal standing of the agreement between mutual funds and Essel.

“This is negative for shareholders as HDFC AMC is taking a hit on the P&L,” said Suresh Ganapathy, head of financial services research at Macquarie. “If they do it now, it will be provisioned for in the June quarter. In case Essel Group pays back then it will get reversed. In case they don't it will remain a permanent hit.”

Some analysts believe while it may impact the company in the near term, there are benefits of such moves in the long run.

“This is a good move by the biggest AMC, as they will get investor loyalty and this will outweigh any near-term impact,” says Pankaj Murarka, founder, Renaissance Investment Managers.

HDFC Asset shares have gained 21 per cent in the last three months. The stock has gained 64.3 per cent from its IPO price of Rs 1,100. The company made its market debut in August 2018.

“In the long term, this gesture will help HDFC AMC garner higher assets. Distributors will believe their investors will be protected and could allocate more to them,” says Dhiraj Sachdev, CIO, Roha Asset Managers.
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