Equity AUM in MF industry to touch Rs 100 trillion in 6 years

The Indian mutual fund industry, with Rs 65 trillion in equity AUM, is set for significant growth. Raamdeo Agrawal of Motilal Oswal predicts it will hit Rs 100 trillion in six years. He sees a bright future for equity mutual funds, noting how the sector has doubled in three years. Despite high valuations, there are undervalued opportunities. Motilal Oswal's AUM recently surpassed Rs 1 lakh crore, with plans for expansion and a top-five ranking, showcasing a positive industry outlook.

The mutual fund industry in India, with equity assets under management (AUM) currently at Rs 65 trillion, is on a remarkable growth trajectory. According to Raamdeo Agrawal, the chairman and co-founder of Motilal Oswal Financial Services, this industry, expanding at a rate of 20-25% per year, is poised to hit the Rs 100 trillion mark in AUM within the next six years.

Agrawal is optimistic about the future of equity mutual funds in India, describing the ongoing retail equity revolution as unprecedented. In just under three years, the equity AUM has surged from Rs 20 trillion to around Rs 40 trillion, a trend he believes will continue at a steady pace of 20-25% growth.

The potential in the equity mutual fund space is enormous, as Agrawal foresees the equity AUM alone reaching Rs 100 trillion in the next 6-7 years. This surge in equity capital and liquidity has bolstered entrepreneurs' confidence in entering the market, with the main challenge lying in meeting the demand.

While acknowledging the high valuation multiples driven by expectations of strong future earnings, Agrawal points out that a significant portion of the market remains undervalued, particularly in the large-cap segment. According to Navin Agarwal, the group managing director at MOFSL, around 70-75% of the market is reasonably valued or even cheaply valued compared to historical levels.

Despite some overvaluation in certain segments, Agarwal emphasizes that pockets of undervaluation also exist, as is common in markets worldwide. The overvalued space, including small and medium-sized enterprise stocks, is not a major concern for mutual funds, which typically avoid investing in such segments due to their risk profiles.

Notably, Motilal Oswal Asset Management Company recently announced that its AUM has crossed Rs 1 lakh crore as of August 26, 2024, with the portfolio management service (PMS) and alternative investment fund (AIF) AUM standing at Rs 14,556 crore and Rs 13,801 crore, respectively. The company's strategic focus includes nationwide expansion and aspirations to secure a position among the top five fund houses in the near future, reflecting a promising outlook for the industry.