On 6 August, I was feeling like our whole stock market has again turned positive supported by many sectors, midcaps and smallcaps. It was like our markets are again getting ready for the next bull buying coming in this year! HDFC AMC IPO was the biggest factor of this. Whereas many stocks are still struggling to start recovering, HDFC AMC IPO saw a bumper listing with a premium closing of more than 60 percent.
Before, when its IPO had knocked the doors of Primary Market, it had received a great response from all type of investors. Against IPO size of just 1.88 crore shares, it had received bids for almost 156 crore shares means a total subscription of more than 80 times. This data also indicates that company had received a total amount of Rs 1,72,000 crore for Subscription/allotment which is really a big enough number as compare to Company’s itself AUM which is around Rs 3.5 lakh crore crore. It was due to this response which makes HDFC AMC now among the top IPOs since 2015.
As everybody knows that HDFC is among the most trusted brands/Names of India by Investors, its all listed companies generally trades at a premium valuations than its peers. For many decades and years, HDFC has always tried to keep its image better which helps them to trade at premium valuations in market.
Few months ago, HDFC had also bought another IPO of its Life Insurance Subsidiary i.e HDFC Standard Life or HDFC Life. Before its listing, it was a question that HDFC IPO would list on a positive note or will list in negative? But after its listing, it becomes clear that HDFC is a BIG HIT because within 2 months, stock had rallied for more than 60 percent. And now if we compare its valuations with its peers, we would find that HDFC Life is trading at almost 50 percent premium. You can assume this Premium as the premium of Confidence of Investors on HDFC which helps HDFC to gain higher market capital.
The same thing has happened with HDFC AMC which is trading at a very rich valuation. Before its IPO listing, HDFC AMC was oversubscribed by 83 times which itself explains how much investors were curiously waiting for the IPO. Next thing which helped this IPO to list at such premium is limited options availability!
HDFC AMC IPO vs Reliance Nippon AMC
In our market, Reliance Nippon AMC was the only listed company having pure Business of AMC. Reliance AMC was doing well and holds a fourth position in Mutual Fund Business in India. But it had not got such response that HDFC got.
For many years, Anil Ambani Shares have never generated a good return and wealth for the investors. Since 2010, Shares of ADAG were on a continues decline because of many reasons like Rcom started loosing market share continuously, Competition in market started getting tough and debt problems started arising in its few companies. Because of this, ADAG shares have just become traders favourite stocks instead of investors favourite. These all could be the reasons for why Reliance Nippon is still trading at such valuations.
Suppose, if we change the name of Reliance Nippon to other more investor supported name like SBI Nippon AMC! Then at what price it would be trading? Maybe, it was possible to see this stock trading at Rs 350! Price could be more higher depending upon the strength, Growth Rate, and customer reach of the company. Perhaps, i don’t think HDFC AMC should be classified as expensively valued stock because Reliance Nippon has comparatively less valuations.
Reasons for HDFC AMC Premium Valuations
Therefore, at current levels, HDFC AMC Stock Valuations looks well justified because of these reasons
- HDFC carries a special attraction of Investors as compare to its peers. Therefore, it is common to the affect of this attraction in the HDFC AMC IPO also.
- As of now, pure listed AMCs are not enough in market so that Investors could pick different qualities AMCs. Investors have very limited options.
- Because of lower valuations of ADAG shares which affects Reliance Nippon AMC share also, it is not wise to assume that HDFC AMC is expensive stock because Reliance Nippon AMC is comparatively trading at lower valuations!
Now if we take a look at the level of opportunities available for AMCs, every expert in market believes that for next 3-5 years, AMCs are going to get favourable amount of inflows in their different Financial products.
Still at present, the penetration level of Savings kept in the homes is very high. So with the passage of time, more awareness towards Financial planning would definitely lead to more customers investing their savings in the Financial Products offered by different types of Financial firms.
So overall, I think it is true that HDFC is trading at a premium valuation but it cannot be called as expensive stock because its Valuations are Justified. But don’t assume this justified valuations means to almost no risk!
Nifty and Sensex have recently made new lifetime highs despite of Smallcaps and Midcaps still trading at far below their 52 week highs. This rise in market also doesn’t means that Investors are not worried about trade war and rising crude oil prices. Nifty and sensex can anytime face selling pressure which may lead to 5–8% fall in major indices. And if these indexes falls, HDFC Group will also be in the list of lossers. Therefore, from current levels it is possible to see 1450-1500 levels in stock if selling pressure arises in market. But as of now, more chances are that stock would either consolidate here or would see some jump in price soon which may lead to its share price crossing Rs 2000 in short term.
HDFC AMC Share Price Forecast
Therefore, I think 1450-2100 is a range in which HDFC AMC stock may trade for short-term maybe for whole 2018 also. For long-term investors who wants to buy HDFC AMC because they don’t get any allotment, I think best option is to accumulate this stock at current levels or if available at lower levels if they are ready to take little risk. If HDFC AMC for some reasons rises sharply, then Investors will have an only remaining option to buy some Shares of Reliance Nippon AMC!
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