ICRA Nepal has reaffirmed FMQR of [ICRANP] AMC Quality 3+ (AMC3+) assigned to Nabil Investment Banking Limited (Nabil Invest or the company). The rating indicates adequate assurance on management quality.
The rating reaffirmation factors in the company’s fair track record in mutual fund (MF) management and the adequately established organizational structure to manage the existing MF schemes. The rating action also considers its satisfactory investor service practices and the processes followed by it, while adhering to the regulatory guidelines and investment policies. The rating further draws comfort from the majority ownership and continued technical support of Nabil Bank Limited, a Class ‘A’ commercial bank in Nepal (rated [ICRANP-IR] AA-for issuer rating). The company’s experienced fund supervisors and senior management, involved in the supervision and management of the schemes, also provide comfort. Additionally, a stable Government with a target to increase the pace of the country’s economic growth, along with the ongoing improvement in the capital market and the regulatory framework remain positives for market development and hence fund returns.
Nonetheless, the rating is constrained by the evolving nature of the MF industry, along with the muted equity returns of its operational MFs. This has impacted the net asset value (NAV) of the schemes amid a significant downturn in the market index since their launch. As a result, the MFs have also slowed their pace of incremental investments/trading in equities and have reported a modest performance among its peers. The volatility in the market could be partly attributed to the tightening liquidity in banking, the increase in listed shares over the last few years and the lack of large institutional investors/market makers. Any changes in the regulatory framework or banking liquidity, which could impact the market, could also have a bearing on the scheme’s performance, given the AMC’s target to increase the equity investment in its MF schemes. Since the equity market is currently dominated mostly by the financial sector, the ability of the fund manager to diversify will also remain constrained. Additionally, the rating is constrained by the limited diversification avenues even in debt markets, the unavailability of hedging tools for investment in the market and the evolving risk management framework with respect to fund management. Hence, the company’s ability to maintain prudent asset allocation (i.e. mix of equities, fixed income investment and cash), in line with the market movements, while improving the NAV of the schemes would drive the schemes’ performance. The company’s ability to make prudent investment decisions and maintain a healthy growth in the NAV over a longer timeframe would remain a key rating sensitivity.
Source: ICRA Ratings Nepal