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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to Q1 FY [ '24 ] Earnings Conference Call of HDFC Asset Management Company Limited. [Operator Instructions] Please note that this conference is being recorded. From the management team, we have with us Mr. Navneet Munot, Mr. Naozad Sirwalla; and Mr. Simal Kanuga. I now hand this conference call over to Mr. Simal Kanuga, who will give us a brief following which, we will proceed with the Q&A session. Thank you, and over to you, Mr. Kanuga.
Thank you. Thanks, Nirav, and good evening, everyone. So we'll start with the data for the industry. The quarterly average assets under management for the quarter ended June 2023, has now reached to INR 43.1 trillion, a growth of 14% year-on-year. Quarterly average AUM for actively managed equity-oriented funds stood at INR 20.6 trillion, while equity-oriented index funds stood at closed to [ INR 0.6 trillion ]. The net flows into equity-oriented funds amounted to INR 198 billion for the quarter ended June 2023. The breakup of this number is INR 172 billion in actively managed equity-oriented fund, while the remaining INR 26 billion came into equity-oriented index funds, approximately 13% of the net flows. SIP continued their journey, reaches flows of INR 147 billion in June of 2023, compared to INR 123 billion in the same month of the previous year. Over the quarter, SIP close total to INR 432 billion, which accounted for nearly 37% of industrial gross active -- equity flows. We now move to net funds. Inflows into debt funds remained strong, even post the tax changes introduced in March. The quarter saw net flows into debt-oriented funds, including debt index funds and debt ETF, adding INR 642 billion. QAAUM for debt fund grew by 6% Y-o-Y to reach approximately INR 10 trillion. The QAAUM for liquid funds grew by 7% year-on-year. The category of others, which has ETF, arbitrage funds and fund of funds investing overseas experienced a healthy growth of 15% year-on-year. We now move to [ us ]. The company concluded the quarter with quarterly average assets under management of INR 4,857 billion with equity-oriented constituting to 54.2%, relatively better than the industry in this regard. Our unique investor base grew to 7.1 million unique investors at the end of quarter ended June 2023, a share of 18%. Our market share in terms of QAAUM reached 11.3%. And if we exclude ETF, it stood at 12.6%. Our market share for actively managed equity-oriented funds based on QAAUM was 12.1% and 12.2% on the closing basis.
In debt funds, market share for quarterly average AUM, including net index funds amounted to [ INR 13.2 billion ] while our market share for quarterly average liquid funds stood at 13.7%. During the month of June 2023, we processed 5.03 million systematic transactions amounting to INR 18.9 billion. For comparison, the corresponding figure in March of 2023 was INR 17.1 billion and number for June 2022 was INR 12.8 billion. Continuing our commitment to meet the diverse needs of our customers we expanded our product portfolio by launching an equity-oriented thematic [ stock ] sectoral fund that is HDFC Defense Fund. The new offering garnered healthy interest and further enriched our range of investment strategies. Furthermore, we have continued to broaden our selection of passive strategies, reinforcing our dedication to be a one-stop shop for investment needs. Now we move to financials. We closed the quarter with total revenue of INR 7,325 million and profit after tax of INR 4,775 million. Our revenue from operations came in at INR 5,745 million, a growth of 10% Y-o-Y and other income came in at INR 1,580 million. It would be important to spend a minute on other income. Firstly, we have investments of over INR 3 billion in equity-oriented mutual funds. This is to comply with the skin in the game circular. We experienced healthy mark-to-market growth on this part of the portfolio during the quarter. Also, we experienced a mark-to-market growth on our fixed income investments due to downward movement of interest rates. On the employee cost front, it grew by 7% to INR 838 million as against INR 780 million in the corresponding quarter of the previous year. If we consider the number, excluding noncash charge on account of ESOP, it stood at INR 728 million as against INR 677 million in the previous year, a Y-o-Y increase of 8%. In terms of other expenses, we have seen an increase of 17% year-on-year. This can be principally attributed to expenses that we've incurred for our general business-related expenses and technology spends. Consequently, our profit after tax grew by 52% year-on-year and 27% quarter-on-quarter. As you would have noticed, the effective tax rate is lower primarily due to decrease in the deferred tax charge for the current quarter, mainly attributed to the holding period of certain investments transitioning from short term to long term. Our operating profit margin as a basis point of AUM stood at 34 basis points for the quarter ended June 30, 2023, with operating revenue margin at 47 basis points. So thank you very much for your patient hearing. Navneet, Naozad and I are available for taking questions from here on. So Nirav, if you can just kind of start queuing up the questions, please.
[Operator Instructions] The first question is from the line of Swarnabha Mukherjee from B&K Securities.
So my first question is on the yields. So just wanted to understand in terms of the new flows that are coming in, how are the yield levels, so is this similar to what you have been mentioning in the prior quarters? Or has there been a compression from that, if you could highlight the same? And also, how was the experience in terms of yields for the NFO that we did during the quarter. So that is the first question. Secondly, I also wanted to understand that in terms of gross flows, how are we seeing the market share develop. I think in terms of SIPs, we do see that the market share is curbing up in terms of flows. But overall, how are you seeing the number? And lastly, on the other expense side, wanted to understand that the slight increase in other expenses sequentially, is this pertaining to NFOs or is this the kind of run rate that we should expect to see going ahead in the years.
So the first question on the margin on the new flows. I think you mentioned last time that we are seeing some bit of rationalization in brokerages in market, the pressure that a huge number of NFOs that created last year and year before last, I think that's been -- seems to be settling now. You would have seen the direct plan TER, so for recently launched NFOs of HDFC MNC Fund and recently the Defense Fund and also the overall numbers. That was the one second on how the market share has been shaping up. You mentioned about the SIP flows and the -- we disclosed the systematic transaction flows, which include both SIPs and STPs that has seen a healthy growth in terms of incremental share in new folios in the net new addition of new PAN, we have got a very high market share and market share on equity across all channels, initial distributors, banks, mutual fund distributors, fintechs, direct across all channels, we have been seeing our market share improving.
Right, sir. Sir, just a follow-up on the first one. So the slight softening in terms of the yields that we have seen this quarter. This is sir entirely the -- there is no incremental levers, right? So it is more -- I mean, entirely to the levers that you have mentioned previously in terms of product mix and lower -- slightly lower yields in the new flows.
Sure. So, let's talk about the overall margin. The number for this quarter is 47 basis points on quarterly average AUM. The operating revenue for March 23 was INR 5,409 million, and the quarterly average AUM was INR 4,498 billion. The resultant operating revenue margin is around 48 basis points. So net-net decrease of around -- basis point. Some of you might have looked at our last full year number of 49 basis points, and hence, the fall might have looked more than what one would have estimated. So let me expand on the margin. When we are referring to margins, it is predominantly about our equity-oriented area. We have mentioned it in the past and continue to say that our book margin is higher than flow margin and would lead to margin dilution with every new rupee flowing in. The impact does get further magnified when the existing low-cost AUM moves out. This is structural. Of course, the pace of dilution has slowed down meaningfully, which I mentioned earlier, due to rationalization of brokerages that has happened in market. Secondly, the TER formula does clearly entail fall in TER with increase in AUM. To make it easier to understand our pulled-out data for our schemes in terms of AUM and the TER, the TER is regular plan TER and is completed based on SEBI's formula. So this is gross TER number, so no impact from distribution costs, et cetera. So say, if I take HDFC Balanced Advantage Fund, for example, the AUM was approximately INR 52,000 crores, and the TER as on 31st March was 1.5%. AUM of INR 52,000 crores and TER of 1.5% as on 31st March. The AUM moved to over INR 57,000 crores, which is a combination of mark-to-market gain as well as the fresh flows as on 30th June and the TER fell to 1.47%. So 3 basis points fall on entire AUM due to change in the AUM. And this fall is what, if you remember, even SEBI's Chairperson referred to in our last Board meeting interview, that the economies of scale are being passed out to investors. As we saw a rapid increase in the AUM during the quarter, the same is the case with a couple of our other larger schemes too. So that's just to explain the impact of rising AUM and consequent impact on the TER and the second was on the flow side. I mean, the newer flows are coming at a lower margin than the margin that we are on the book. But let me make this point very clearly that from our perspective, think about it. The example that I gave a Balanced Advantage Fund, INR 57,000-odd crores into 1.47% gives us higher revenue as compared to INR 52,000-odd crores at 1.5%. So clearly, I mean, a higher AUM while will lead to a margin dilution given the formula, but for us, I think it's a higher absolute profit. Now I'm sure somebody may ask a follow-up question then why don't you cut the commission on the book every time this happens. So easier said than done. Also, market movement of 5%, 10% can make this swing one way or other and has not practical. I hope that answers your questions.
Yes, yes, very clear. Sir, lastly, on the cost side, so the other expenses, there has been a slight increase. I wanted to understand whether this is something that we should expect or this a certain one-offs in terms of maybe additional expenses for the NFO.
Are you talking of sequential quarter from March 23 to June 30?
Sequential.
That's like of INR 4 crores at least 5-odd percent. Some of it is actually because of some CFR expenses, but I would assume that a 5% increase absolute amount of INR 4 crores should be a sort of normal that we expected over the year, right?
[Operator Instructions] Next question is from the line of Dipanjan Ghosh from Citi.
Yes. Sir, just 2 questions. First, on your SIP book, now your SIP flow market share has increased considerably. But if I look at the AUM market share, that continues to remain broadly flattish. So how should one read into that? Second, on the yield part, you mentioned that there has been some rationalization on payout, but just wanted to get some sense of what will still be the delta on equities between fresh versus existing book. Just give some color on that because that will give us some color on incremental trajectory as the flow market share improved. And lastly, maybe I will just get in one question on the cost side. You have added a couple of fresh employees during the quarter. So I just wanted to get something of whether the fully diluted cost base captures it as a whole? Or should we see some amount of upward pressure on that going into 2Q or 3Q?
Okay. So the SIP is anywhere in the outstanding 7...
So it depends on the SIP AUM that is outstanding is INR 7.9 trillion. If you look at for industry as a whole, right? So for a delta to occur via increasing flows in terms of market share that you are referring to, will take some time to get really reflected, right? You've seen a substantial increase in our systematic transaction book over on a Y-o-Y basis. But that kind of translating flow is translating into AUM and gain on market share tends to happen with a bit of lag. Does that help?
Sure, on the other 2 questions.
Yes. So that was the first thing. Second thing you referred to is the last point you made a mention about is increase in the number of employees. That's what you referred to?
Yes, yes.
That's from 1,280 to 1,320 or so. It's not a substantial increase and mostly in sales, client services, I think some of the support staff in digital, et cetera.
This would be the junior to junior middle kind of employees. So you will not see this kind of changing delta in terms of cost of people.
Got it. And lastly, on your fresh versus blended frozen equity, and this question was asked by the other participants. But I can give some color on what will still be the delta between the 2 so that we can get some idea of how much more drag can be there just because of the organic shift from flows to AUM?
No. I think dependent, we really don't get to that number. Having said that, I think Navneet did refer to some of the direct plans of the newly launched NFOs. So if you look at what we did in the M&C fund, if you look at what we have done in the defense fund, you can even look at our noncyclical consumption fund, which closed very recently. All these are running at a direct plan anywhere between 90 to 110 basis points. Having said that, we definitely don't have that kind of margin luxury when it comes to our bigger funds, right? Because you need to kind of also be well placed in the market in terms of competition. So keeping that in perspective, I think you can get a broader idea. So if our book margin is in terms of the late 60s, the flow margin is at a healthy discount to that number.
Next question is from the line of Lalit Deo from Equirus Securities.
Yes. Sir. I just have 2 questions. So firstly, like for the promoter change to HDFC Bank. So like what are the initial changes which we have done in terms of the distribution or like in the strategy formulation in terms of transferring to the customers of HDFC Bank?
So on the merger, we are very optimistic view of this opportunity. As you know, bank is a formidable distribution machine, and we will put in enough and more effort to capitalize on it. We already are deeply involved with them across all levels, but alignment of interest can definitely be a big tailwind for us. We are seeing material improvement in the engagement, and we'll continue to work on strengthening it further. While HDFC Bank is committed to maintaining an open architecture approach as a distributor, but given our range of products across various asset classes and brand familiarity, we are confident in gaining a share of HDFC Bank's customer base. And as you are aware, bank has been expanding rapidly in terms of branch expansion and the number of clients that they have, there is a lot of opportunity for us to leverage on that. The kind of support and welcome we have got from them is absolutely overwhelming.
Sure, sir. And sir, like -- also like you mentioned that we have been seeing improvement in our market share across channels. So just wanted to understand like in terms of big national distributors or the smaller distributors, could you quantify like -- as compare to like over the last 1 years, how is it -- how much it has improved? And whether it is better. And in terms of like the AUM market share, how much is the difference over there?
So I mean we disclosed at the stock level, but all I can tell you is that across all channels, when you look at the equity inflows, MFDs contribute a little over 30%, then this contribute a little over 20%. Banks would be around 20-odd percent. [ Direct ] would be 16-odd percent, fintech would be around 9% or so. And across all channels, our market share has improved quarter-on-quarter as well as year-on-year.
Sure sir. And sir, lastly, like any product pipeline which we are having right now in terms of like in equity as well as it in the [ asset ] funds or in the alternate segment as well.
I think now with all the NFOs we have done in the last couple of years, we have an absolutely best-in-class product range. There is one NFO which is -- which we'll have now is the transportation and logistics fund. And the other fund, which, in fact, I will take this opportunity to make a passionate appeal through everybody to look at as our cancer cure fund for a different reason. But from an -- I mean, incremental product range, I think we are more or less full on the product side when it comes to equity as well as fixed income. On the passive side, where we have done lots of products over the last 2 years, idea would be to grow all of those products over a period of time. Little bit here and there. There could be some sector fund or a thematic fund here and there. But I think more or less, we believe we have an absolutely best-in-class product range.
Next question is from the line of Prayesh Jain from Motilal Oswal.
Just a few questions from my side. Firstly, when you talk about the year, you mentioned about stock versus flow. Is it fair to assume that a good lion's portion or you can say, 80%, 85% of the book would have churned by now in -- from old to new. That would be my first question.
What percentage of book would have got churned by now. So we don't give the close number. I mean earlier also, you would remember, people have asked about like when will your entire book will reprice. So this is dependent on multiple variables and is difficult to predict. I think it will depend on what part of AUM is going out? Is it more recent high-cost AUM or the older AUM. And we also have to factor in the mark-to-market impact, different funds have different, I would say, vintage of money. Gross sales as a percentage of outstanding AUM will also guide the speed of dilution. And when the AUM grows multiple times from where it is today, the impact of old AUM on the margin will get fairly diluted. But yes, long way to go is what I would say.
Okay. Okay. Got that. And could you talk us about or talk something about the customer behavior today on the equity side right now given that the markets are at new highs. And do you think that redemption pressure is that can be expected because generally on up cycles, you've seen that happening. And even the ship flow for the month of June was flattish compared to the previous month, and there are some statistics which kind of reflect that the net flows have been declining on the ship side. So could you throw some light as to what's the customer behavior on the ground today?
I think over the last couple of years, we have seen Indian investors becoming very mature you have seen during times of stress in market when valuations are lower, entry opportunities better, you have seen flows increasing. And whenever market has turns to a new high, our valuation is running a little higher, you have seen a little slowdown in the flows. But amidst all this, the most heartening feature is the continuous increase in the SIP flows. So even in the month or last 2 months when you talked about slowdown in overall flows, the SIP book has continuously been increasing for the industry. Number of accounts are increasing the overall amount in the SIP flow has been increasing. And that's the most interesting feature. And I think that is a behavioral aspect that we that we really kind of get very enthused about. And as a house, if you ask me, what is our #1 priority for our entire organization. Each and every none of us are fully determined to make the most of it. All of us have been working very hard to keep enhancing our systematic transaction book because we think that, that's the best way of like garnering flows and building an order book for the future, and this is very good for the investors also to create their wealth.
Just a couple of more questions. Firstly, on the debt side, post this taxation implication, what has been the behavior of the customers? And how do you see the debt segment kind of behaving in the say, next couple of years? That last question would on the ETF side as to how do you think -- now you've launched a variety of products, but how would you kind of -- what efforts or what strategies would you kind of implement to raise the increase of volumes on the exchanges? Because that becomes a critical element for the ETF portfolio to really grow and those would be last 2 questions.
So on the debt side, very interestingly, after several quarters of witnessing outflows, we have actually seen -- as an industry I'm talking about, we have seen positive flows in the last quarter more at the front end of the curve in products like ultra short, money market and those kind of fund, not so much at the long end, maybe at some stage where people have more confidence about downward movement in interest rates, there could be more money into the longer-dated duration fund. But as you are aware, in the last couple of days of March, post the announcement of changes in the taxation, the industry witnessed good flows in the long-term bond funds also, particularly in bond index funds. There was a question on the flows on the debt side, right?
Yes. So just -- so from a -- you mentioned about the tool that in the near term, you expect the uptrend in the longer duration. Would that translate into better ease as well?
For the -- you are saying for us from a margin perspective, if more money comes into credit funds or long-duration funds?
Yes.
That would be margin accretive. For us, I mean, I think maybe in a different manner, I would like to repeat this. So for us, there are 2 ways to look at it. One is we get hyper-focused on blended margins. And the other way to look at it for us, we are an asset manager. Our mission is to be the well creator for every Indian, every money that comes in adds to the absolute profit. So let's say, I mean, the bond index fund as a category becomes more popular, and we get a lot of flows where the margins may be slightly lower than credit fund. The margin at the blended level in fixed income will look a little lower, but [ forex ] good because it kind of enhances our overall absolute revenue and absolute profit.
Sure. And my question on the ETF, sir?
Sorry?
ETF, ETF market making on the ETF side, how...
We have launched a large number of products. Some of them have got good amount of flows in the last couple of months. You can see that our bank hedge fund. On our [ RIT ], ETF, our private bank, ETF, so on and so forth. And we have put a dedicated lead and have hired a couple of people to focus on growing that part of our business.
But sir, I mean just to earn on this -- because the market making and this and how do you scale up volumes on the exchanges?
So as of now, the money that has come into some of the ETF is from direct customers, who are doing the unit creation at our end. At the same time, we are also focused on enhancing our secondary market volumes and engaging with the market makers and looking at every possible way that we get a higher share in the secondary market volumes also.
Next question is from the line of Viraj from Banyan Tree Advisors.
Hello, am I audible?
Sir, your voice is coming muffled.
Yes is it better now?
Yes.
Yes. Sir, on the distribution part -- sir in the presentation, I see that we had like the same quarter last year, we had around 80,000-plus distributor partners. While in this presentation, we see it's reduced to 75,000. So anything to read there?
No, nothing actually, Viraj. It is basically just some of these kinds of like -- what kind of over a period merged into some of the other entities, some have moved to platform, so on and so forth.
Okay. Got it. And so the PMS and SMA AUM has fallen for us since the last year. So what is happening over there?
I think that was what we disclosed. I think a couple of quarters back, we had a large global mandate where the client decided to take money off the table from their location to India long only. And that's the reason which kind of has resulted in this change. If you look at on last couple of quarters, the numbers have been in line. So this happened. I think, if I'm not mistaken, sometime in quarter ended September of '22 or December of '22. One of two.
Okay. Okay. Got it. And one more thing on the commission structure basically. So for a mutual fund distributor, what we paid to them remains the same, like in terms of percentage of AUM, it remains the same for them, while the TER will fall for us. Is that right, understanding right?
I think there is no 1 line answer to this. In sense, it is different for a different set of distributors. Also even within the same distributor, you might see kind of ebbing out over a period of time. So first 3 year commissions can be different and the fourth year number might look different, So it depends on product, depends on distributors, so on and so forth.
Okay. So for -- even for equity, we don't have a single-line answer for this? Or how is it?
No, no, absolutely. So even like some of the -- absolutely. You're right. We don't have a single line thing on to this.
Next question is from the line of Srinath V from Bellwether Capital.
Just wanted to find out the blended equity yields for the quarter. I think last quarter was around 0.1%. So where are we in Q1 for our equity schemes?
So Q1 would be around late 60s, the equity.
I missed you. Can you back again?
For Q1 it will be in late 60s.
Again, in late 60s, is it like -- so since it's 0.7 for easy calculation, would it be like 0.68 or 0.65 some broad...
No, I mean, so you can budget that in 68, 69 kind of a number. What you will have is -- just kind of be aware that this would keep changing depending on how the AUM also moves, right? What Navneet referred to in the kind when you explain the whole margin thing. Where he mentioned that the AUM increases very rapidly, you might see this going down faster because of the way the SEBI ER formula works.
Fair. Justed wanted a number so that it would be easier to calculate how yields are moving.
[Operator Instructions] Next question is from the line of Madhukar Ladha from Nuvama Wealth Management. The line for the participant dropped, we move to the next participant. The next question is from the line of Sahej Mittal from 3P Investment Managers.
Sir, just one question from my side. What would be our -- what would be HDFC AMC's share in equity flows being generated at HDFC Bank?
Sahej, we don't comment on the flow data. We have commented on the AUM data, right? So if you look at the...
Which is around 5.5% for the overall AUM and a little over 8% on equity AUM currently on the stock.
Right. No, sorry. This is for Their flow I'm asking, yes, yes. So for the overall flows being generated at HDFC Bank, what would be our share.
Yes, that will be in the handle of 30.
Sorry, at 30%.
Yes. in 30 [indiscernible].
Next question is from the line of Amit Jain from Axis Capital.
Just wanted to check that you said that in the other income, there was a component of MTM. So is it possible to quantify that?
So largely, the INR 158 crore other income, I mean, large or MTM, it's a function of between equity and debt. Since we have seen in the game, circulars has come into play, we have a sizable amount of our investments in equity mutual funds, and they have given it as in line with the market and based on our fund returns and the debt is largely as we explained you to the interest at the movement.
And sir, sir, in that case, sir, how should we look at this income for the remaining part of the year? I mean, is it going to be in this ballpark range or any guidance would you want to give?
It is totally market linked. I mean whatever the market will perform on the equity side, the equity funds will perform, approved accordingly. And the debt investments in refer to mutual funds is going lines in with interest rate movement, yes. So you guys can predict based on how markets move.
[Operator Instructions] Next question is from the line of Madhukar Ladha from Nuvama Wealth Management.
Congratulations on a good set of numbers. And more importantly, I think operationally, things are looking better every quarter for the company. So a couple of questions. One, see on with these changes in the taxation on the debt side, how do you expect investor behavior to change? And maybe you can talk a little bit about corporate HNI and retail investors. And over the longer-term perspective versus pre this change in tax regime and now in this new tax again, what sort of impact could it potentially have? I know it's not very easily quantifiable, but I would like to get some sense from you on this.
So as I told you earlier that interestingly, in quarter ending June, industry had positive flows large positive flows in funds like ultra short term fund, money market fund, et cetera. And a lot of investors may wanted to kind of like take advantage of declining interest rates at the front end of the curve which is different than what we have seen in the previous 8, 10 quarters. I think the -- while as an industry, we would have liked the tax advantage to continue. But I still believe that mutual funds have a lot of benefits. And in my opinion, we continue to make them a preferred alternative both for institutional investors as well as retail investors. You don't have liquidity related challenges. I think the debt mutual funds provide good liquidity, the tax gets triggered only on redemption. So still, there is some tax advantage there, who have flexibility in terms of part redemption, and you can also move across interest rate and credit curve index funds. And I mean a diversified portfolio of securities, where industry has delivered a very good track record for a long period of time. I think still there is a lot of potential for the industry to grow that segment of the market.
Right. But sir, certainly for...
Yes, I mean if you look at -- Madhukar, first of all, I mean, thank you for your compliments. I think the team is working very hard. And I'll pass on that to the entire team at RN. But on the -- I mean, even on the equity side, it took a long time for the industry to convince people that in the long run, you get very good returns if you can install much some volatility. So it took like 25 years for the industry to reach, let's say, the first INR 5,000 crores INR 6,000 crores of SIP book. And then the next INR 5,000 crores would have got added in a few quarters. I think it's on the fixed income side as an industry, the work is cut out for us. If you look at the size of opportunity, I mean, if the bank deposits are INR 180 lakh crores. And we compare that with mutual fund, that AUM, debt plus liquid would be around INR 15 lakh crores. So as a percentage, I mean, the debt and liquid AUM as a percentage of bank deposits has actually fallen in the last 5 years or 6 years, if you compare with 2016, '17 versus us now. Of course, I think in the last 2 or 3 years, maybe a movement in interest rate. I think some of the credit events, they also played a role in this. But I think as an industry, what we have done on the equity side, I think if we do something similar on the fixed income side, and I believe -- we're just talking about the inherent benefits of that mutual fund as an investing vehicle there is a lot of scope for us to grow in that space as well. And particularly for us, in HDFC, I think given our brand and pedigree, I think there is a bigger opportunity for us as and when that segment starts growing faster.
Next question is from the line of Abhijeet from Kotak Securities.
So when you look at your net flows in the context of excellent alpha generation that has happened, what is your feedback or comfort around flows that you've been able to gather either on an absolute basis or relative to industry, some broad thoughts would help.
You are asking from a deployment perspective?
No, from your ability to gather assets in the market in terms of the strong fund performance. Whether based on your expectations, maybe 4, 6 quarters back, whether the incremental flow market share is spanning out as per expectations or if there's anything that you would like to kind of share on that regard.
Yes, in fact, it's improved substantially relative to where we were. Of course, I think we always want a higher and higher share. So we don't feel satisfied with any number given the pedigree we have, given the platform we have and you talked about the performance, which is absolutely best-in-class and the production that we have built so of course, I think our expectations would be higher. But if you look at the numbers in terms of -- I think our increase in net share across channels also, particularly the percentage of new bank creation that we have been able to garner in this quarter, the percentage of new volumes that have got created in the industry, the share in systematic transactions, all of that are like very harping to us. But of course, I think our over is always much higher than -- I mean, whatever we get, we remain hungry for more.
I'm just speaking, I mean, is there a possibility or need for some recalibration on payout across any of the large channels I mean, looking at some data, which we can see from outside, it does appear that HDFC AMCs sort of at the lower end of the band in terms of payout ratios. And in fact, some of the distribution channels even ask for higher payouts in the first year or second year. So I'm just thinking whether in terms of the rules of the game, is there a need to be a little more aggressive on payout or at the current level itself, you're kind of happy or satisfied with the flows that you're able to gather.
So I don't know some of your peers are asking questions on margin -- paying more or are you paying less. But I think if we look at from a holistic perspective for us, market share is important. We want to garner as much share of the flows as possible. At the same time, I think profitability is very important to us. I think I've mentioned those 3 words several times in previous calls. I think being part of HDFC Group, what is important for us is to build a business that has scale, that has quality and that has profitability, not one at the cost of others. We constantly look at on all 3 parameters, and that's how we build our business. There were times I think, last year and year before last, on several calls. We would have mentioned that given the competitive intensity, we had to increase our payout particularly when we were launching a lot of products in the NFOs to garner our share we had to enhance our payout. And now in the last few months, when I think competitive intensity has come down, you can clearly see better margins on some of the NFOs that we have launched in the last few months. So we keep calibrating all the time, ideas, as I mentioned, to have a healthy growth and look at the interest of all stakeholders. For us, our partners are very, very important. They bring like on more than 3/4 of our business. They are face to the investors, and we ensure that they make good margins at the same time. We ensure that we have a very healthy margin on every rupee that we gather.
Abhijeet, if I can just expand on that, see, there is not a direct correlation between paying higher brokerages and getting higher market share. So one of our larger funds where we pay the least possible brokerage is seeing healthier stock flows. So that kind of proves the point. And I'm not talking about one AMC versus other within the HDFC AMC scheme offering.
Next question is from the line of Anirudh Agarwal from ValueQuest Investment Advisors.
First question was slightly over the medium term. So there is going to be a structural pressure on yields like you've been discussing. So what kind of delta do you think you see between the AUM growth rate versus our top line and bottom line growth over the next 3, 4 years in your estimate.
I think I've mentioned earlier, because it depends on a variety of sectors, I think our asset mix between equity and fixed income and within equity also a different kind of product. The growth that you see from mark-to market versus flows -- flows also, I think, in existing products versus newer products. So there are lots of variables there and difficult to, I would say, predict that. Naozad, would you have?
No, I think as Navneet actually mentioned, there are various set of factors that will determine our sort of top line growth and then in turn, the operating profit growth, right? So it's difficult to put a number on it or a trajectory on to it.
Right. Okay. The other thing is like giving the regulators focus also now on getting the benefits of better economical scale passed on to customers, will be see significant operating leverage benefits playing out with this kind of growth? Or do you think a lot of that will have to get passed on in some form or the other.
You're asking about the TBTR regulation?
Yes. Not just on a regulatory perspective, but even in general, I mean, supposing top line growth at 15% for the next few years, do you see bottom line growth significantly outpacing that or a lot of the operating leverage benefits will in some form or the other get passed on to customers or the channel also?
No, I think some part of the operating leverage will get passed out to the investor, and that is, I think, the regulators clearly stated mandate. Having said that, of course, our business the way this functions is the cost growth is not directly correlated to the growth in AUM and thereby some bit of operating leverage advantage will also fall in our favor.
Right. So just final question on the competitive side. So there are a lot of new players essentially that are either that have either entered the industry or you're looking to enter the industry, any changes on the ground that you're seeing in forms of competitive intent you tend to do?
At any point in time, there have been many competitors. If I remember correctly, out license number was 44 or so when got setup 23, 22 year back. We were the 26th AMC at that particular point and time and some people were thinking that a lot of multinationals who have a lot global experience would end up doing very well. Before that, in early '90s, if you remember, some of the public sector bank sponsored asset managers were doing very well because of the distribution franchise. At different points in time, people thought that competition could be from that particular space. Given the huge opportunity of growth financialization of savings as such an early stage in India. I mean, all said and done, we talk about the highest ever AUM and the growth in the industry over the last couple of years, SIPs, et cetera, the fact is that we are only 3.8 crore unique investors. So we haven't really done the surface. I mean if there are -- even if I compare with people who have passport on our filing income tax returns or doing the foreign travel or own a 4 [ wheeler ]. With all of that, the total addressable market is substantially higher. And I'm sure people would be eyeing this space. It's a very beautiful business from a long-term profitability perspective. So this will invite a lot of players. Having said that, I think that the [indiscernible] we have built in terms of our people, our processes, our product range, our presence, both physical as well as digital the partnerships that we have built, the platform that we have built and on top of that, if I can add 2 more, I think the passion with which we are working and the deep sense of purpose that we have put for ourselves to be the wealth creator for every Indian, we believe we will continue to do well.
Next question is from the line of Mohit from BOB Capital Markets.
Just 1 question. On the distribution network, if you see the bank share -- is this kind of stable at 10.5%, now...
Mohit, your voice is breaking.
Yes, is it better now?
Yes, yes.
Seeing the bank share in the distribution stands stable at 10.5%. Now if you see anything pre 2019, this number used to be 13%, 14% now with bank as a parent. Do you think the share will go up in the future?
That's what our expectation is. But at the same time, I think we want to grow across all channels. One of our stronghold has been the MFDs, mutual fund distributors will continue to grow there. the national distributors. I think we enjoy a very good relationship. We work very hard with them with all the other banks, we continue to work with them, the fintech channel, which has been bringing newer SIPs. We continue to engage more with them. So I think we'll continue to grow all of that. But of course, I think over the next several quarters, a lot of our focus will also be on how do we make the most of the opportunity that has opened up with the merger. Given the network of HDFC Bank and the pace at which they have been expanding, we believe there is tremendous opportunity for us to grow together.
Next question is from the line of [ Saha Jotul ] from Zen Wealth Management.
It was interesting to listen that the competitive intensity has reduced off late. Can you please elaboraten and...
But I didn't say that -- okay, sorry, on the brokerage side, you are saying?
Yes, exactly. Exactly.
This industry has always been competitive, will always be, I think, yes, yes. That was in the context of brokerages, yes.
Okay. That's fine. Actually it was answered in the last question and my question was answered in the question.
[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Navneet Munot for closing comments.
So thank you all for joining this conference call today. We are enthused by the potential growth our industry has to offer. Thank you once again, and look forward to speaking with you all again next quarter.
Thank you very much. On behalf of HDFC Asset Management Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.