Introduction

HDFC Asset Management Company Limited (AMC) was incorporated under the Companies Act 1956 on December 10, 1999. After being granted permission by the Securities and Exchange Board of India (SEBI) in 2000, HDFC AMC began its journey as a mutual fund company.

Fast forward 18 years, and HDFC AMC has achieved a monumental milestone by listing on the stock exchanges. This article explores the details of the IPO, including its performance, significance, and what it tells us about the Indian market.

Issue Details

Issue Period: July 25-27, 2018 Bid Lot: 13 equity shares (with multiples of 13 thereafter) Issue Offer Price: Rs. 1095 - 1100 IPO Size: 25,457,555 equity shares of Rs. 5 each (up to Rs. 3462 cr) Allocation: QIB: 50%, HNI: 15%, Retail: 35% Allotment Date: August 3, 2018 Listing Date: August 6, 2018

These details highlight the scale and structure of the IPO, providing investors with a clear understanding of the process involved.

Company Performance

HDFC AMC, backed by Housing Development Finance Corporation (HDFC), one of the top 30 companies making up the SP BSE Sensex, has shown strong performance. As of March 31, 2018, HDFC AMC was the second-largest fund house in India, with assets under management (AUM) of Rs 2.91 trillion. This represented 13.7% of the total industry and 16.8% of actively managed equity-oriented AUM.

The company's strong market presence is directly linked to the success of the IPO, illustrating that the performance of the company is crucial in determining the fortunes of its IPO.

IPO Performance

Despite uncertainty, the IPO received a 83x subscription, indicating a high level of investor interest. On listing, the share price surged to Rs 1844, marking a listing gain of approximately 67%. The closing price settled at Rs 1815, giving HDFC AMC a market capitalization of approximately Rs 38500 crore.

These figures demonstrate the robust performance of the IPO, generating significant gains for investors.

Significance of the IPO

The Hindu is valued almost three times that of its fellow listed AMC, Reliance Nippon Life Asset Management Ltd. Several factors contribute to this high valuation:

Strong Parentage: The backing of HDFC, one of the most trusted financial institutions in India. Market Performance and Profitability: Consistent high growth and profitability. Strong Financial Ratios: Positive valuation metrics such as Price/AUM, Earnings Growth, Net Profit Margin, and Return on Net Assets.

While these factors justify the valuation, the high premium over Reliance Nippon can be attributed to the scarcity of quality stocks in the Indian market at that time.

Investment Consideration

Given the high listing gain, should investors opt for the HDFC AMC IPO or its mutual fund schemes?

For short-term traders, investing in the IPO can yield significant returns. However, for common investors, it is advisable to consider long-term investments rather than merely listing gains as "trading."

HDFC AMC's best equity scheme, the HDFC Small Cap Direct Plan, delivered a 22% return in one year, while its worst equity scheme, HDFC Infrastructure Fund, suffered a 11% loss in the same period.

Investors should choose a consistent performer and regularly review their investments. For those looking for a low-maintenance investment, index funds could be a better choice.

Conclusion

The IPO of HDFC AMC represents a significant milestone in the Indian financial market, highlighting the trust and confidence invested entities like HDFC hold. Investors should exercise caution and wait for the market to value the stock correctly.

In the broader picture, the choice between directly investing in HDFC AMC IPO or opting for a mutual fund scheme lies with the individual investor's preferences and risk tolerance.