“This topic of discussion of TER reduction, everybody thought was out in terms of any changes by the regulator. So, it has come as a big surprise for the industry,” said Pankaj Tibrewal, a leading fund manager at IKIGAI Asset Managers in a conversation with ET Now.
Tibrewal explained that the proposal could affect three key parts of the ecosystem — AMCs, brokerages, and distributors. “There are three parts to it. All the three parts of the ecosystem will get impacted. One is the manufacturer which is the AMC. The second, there are some changes being passed on the brokerage commissions, so brokerages will also get impacted and third is that a part of that will be passed on to the distribution and hence the MFDs cum distributors will also get impacted,” he said.
He estimated a 3% to 5% impact on AMCs’ profit after tax (PAT) as some of the hit is expected to be passed on to distributors. However, the final outcome will depend on how the consultation paper evolves and how brokerage players respond to the regulator.
“From 12 basis points coming down to 2 basis points will be a big hit,” Tibrewal noted. “But do not forget that already large players in the AMC had moved to (3:14) and the average brokerages which I understand was between five to seven basis points for large AMCs to the brokerage houses.”
He added that while the proposal could dent profitability, it must be seen in context. “Definitely a dent on the profitability and the stocks had done really well over the last two-three years — whether it be an AMC, a distribution platform, or a combination of brokerages plus AMC together. So, there could be some downward revision in earnings and hence you are seeing the reaction to stock prices today.”
Regulatory Risk Weighs on Valuations
When asked if the correction presents a buying opportunity for long-term investors, Tibrewal struck a cautious tone.“Large part of the returns which we saw over the last two-three years in most of the names on the capital market side was definitely driven by earnings growth plus a lot of rerating on the multiple side as well,” he said.
He warned that regulatory risks tend to compress valuation multiples, and investors should assess whether this move is a one-off or part of a broader regulatory overhaul. “Whenever we have seen in any sector regulatory risk coming on the forefront, the multiples get compromised and that we have to see — is it the first and the last one which the regulator wanted to do on the AMC side or is it more to follow?”
Tibrewal advised waiting for clarity before buying into the dip. “We will wait and watch for the dust to settle down before jumping in today even at the 4-5% correction.”
Constructive View on Broader Markets
Despite short-term pain in the AMC sector, Tibrewal remains constructive on Indian equities. He said his team had outlined this optimism in their September quarterly newsletter.
“We have not been that negative on markets. Actually, we have been constructive on markets for the last few months,” he said, highlighting multiple factors that support the bullish stance.
He expects earnings growth to improve meaningfully from the third quarter onward. “We believe that second quarter earnings will be subdued, maybe 6-7% earnings growth, but starting from third quarter onwards we should see decent recovery in the earnings going into FY27.”
The banking sector, which has seen subdued performance recently, could lead the next phase of earnings recovery. “The worst situation is behind us and from third quarter onwards we should see NIM recovery and asset quality starting to show stability. In FY27, we believe mid-teens earnings growth from banking is likely which will support overall earnings growth for Nifty and broader markets.”
Tibrewal also cited early signs of strength in consumption. “Consumption begins to look good and driven by autos and few consumer discretionary names and the festive season the early feedback has been quite good,” he said, expecting robust consumption recovery in FY27.
He projected Nifty earnings growth of 7–9% this year, rising to 12–13% next year, adding that valuations appear “neither cheap nor very expensive.”
Global Underperformance and FIIs’ Role
Tibrewal observed that India has underperformed global peers significantly this year, particularly against emerging markets like Korea, Taiwan, and Greece. “We believe that whenever such situations have happened in the past in the last 15-20 years, we have seen a strong comeback,” he said, suggesting that the current phase could present an opportunity to allocate more capital to Indian equities.
He also pointed to macroeconomic tailwinds and potential trade deal developments as additional positives. “Our sense is almost three lakh crores has been provided in the hands of consumers which will start showing its impact starting third quarter, fourth quarter onwards and hence macro should be good,” he said.
On global trade negotiations, Tibrewal noted, “Nobody is expecting the trade deal to happen in our favour… but there are sound bites coming out from the government and from different quarters that very soon we should see a trade deal happening.”
With FIIs gradually reducing short positions after relentless selling over the past two years, Tibrewal believes the worst may be behind the markets. “There could be a more consolidation phase maybe in the next few months, but from here on for the next 12 to 18 months we remain constructive on the markets and we believe that markets could see upside rather than downside.”