HDFC AMC shares have more downside in store as valuations are 'rich'; Citi remains cautious

The 50% rally seen in shares of HDFC AMC Ltd. over the last six months, has positioned the stock for some downside, Citi wrote in its note, expressing its cautious stance.

Citi reiterated its "sell" rating on HDFC AMC with a price target of ₹4,775 per share, which implies a potential downside of 17% from Monday's close.

The brokerage recently held a meeting with the company's top management in Singapore, where they discussed HDFC AMC's focus on scaling its non-mutual fund business, control expenses, and managing profitability.

HDFC AMC's management intends to scale up its market presence in the alternate space backed by sustained new product launches. However, it intends to scale up in a guarded manner while retaining its investment discipline, Citi's note said.

The management spoke about product innovation, investment discipline and graded approach as key levers to achieve market leadership in non-mutual fund segments over the next decade, according to the note.

HDFC AMC's management also remained constructive on structural growth in equity MF flows aided by steady and sticky recurring SIP flows, albeit acknowledging near-term volatility in flows in an environment of sustained sluggishness in listed equities, Citi said.

While the execution risks remain, Citi said it is enthused by the managment's increasing focus on non-mutual funds. However, the current richness of the stock, at 36 times its financial year 2027 estimated earnings per share (EPS), drives the brokerage's guarded stance.

Of the 28 analysts that have coverage on the HDFC AMC stock, 19 have a "buy" rating, eight have a "hold" rating and one has a "sell" rating.

HDFC AMC shares were down 0.9% at ₹5,608.5 apiece around 10.40 am on Tuesday. The stock has gained 50.3% in the past six months.

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