ICICI Prudential AMC gains on yields but equity flows and share weaken

Investment View and Valuation

Prabhudas Lilladher retained its BUY rating on ICICI Prudential Asset Management Company following its October 13, 2026 Q2FY27 result update. The broker considered the quarter decent, with a core-income beat driven by better mutual-fund yields, while the PMS and AIF businesses continued to grow healthily.

However, the report flagged soft investment performance and industry fragmentation as constraints on net equity flows. Prabhudas Lilladher reduced its target price to Rs 3,420 from Rs 3,550 after lowering the valuation multiple to 38 times from 40 times and rolling forward its valuation to September 2028 core EPS.

Q2FY27 Financial Performance

The decline in other income to Rs 169 million from Rs 1,808 million in Q1FY27 was attributed to mark-to-market movements.

Mutual-Fund AuM and Yield Trends

Equity quarterly average AuM, including balanced funds, increased 4.4% sequentially to Rs 6.62 trillion. The mutual-fund yield rose 1.5 basis points sequentially to 47.9 basis points.

Management attributed the improvement in yield to net flows shifting away from large flagship schemes, which carry lower yields, towards smaller and higher-yielding equity schemes. Equity plus balanced funds accounted for 57.3% of AuM, an increase of 40 basis points sequentially, while debt's share declined 103 basis points to 15.4%.

Equity Flows and Market Share

The principal operational concern is the decline in equity-flow market share. ICICI Prudential Asset Management's net equity-flow share fell to about 11% in the first five months of FY27 from about 19% in FY26. The decline reflected weaker relative performance and lower exposure to small-cap, mid-cap and flexicap categories, where industry flows were strong.

Equity market share declined 29 basis points sequentially to 13.8%. SIP and STP flows declined 4.1% from June 2026 to Rs 46.7 billion in September 2026. Management remains cautious on small-cap and mid-cap categories following their recent upmove and is awaiting more attractive valuations before increasing sales efforts.

Alternatives and New Business Initiatives

Alternates remained a positive offset to the weakness in equity flows. Combined PMS and AIF quarterly average AuM grew 6.4% sequentially to Rs 551 billion, while PMS AuM rose 21.4% year-on-year to Rs 307.9 billion.

Management expects the acquisition of ICICI Securities' PMS business to expand the customer base. It also plans to scale listed equity, private credit, real estate, private equity and early-stage private equity alternatives before entering infrastructure.

SIF AuM increased to Rs 49.5 billion in Q2FY27 from Rs 26.8 billion in Q1FY27. Four funds have been launched, with a fifth planned in Q3FY27. Advisory AuM declined because of FII and FPI outflows.

Estimates and Earnings Outlook

Prabhudas Lilladher trimmed its FY28E and FY29E revenue estimates by 0.6% and 1.0%, respectively, while reducing core EPS estimates by 1.6% and 1.8%, respectively.

Key Thesis Risks

• Sustained weak relative investment performance.
• Further market-share loss in equity flows.
• Continued industry fragmentation favouring smaller players.
• Lower systematic flows.
• Volatile mark-to-market income.