Quite a few schemes have underperformed their respective benchmarks as well. Eighty-two of the 160 large-cap schemes, for instance, have given returns lower than S&P BSE LargeCap Total Return Index for a one-year period. Sixty-six such schemes have underperformed S&P BSE 100 TRI for the same period.
have shed 1.4 per cent and 3.5 per cent, respectively over the past year. Indian equities have been under pressure from an earnings slowdown, tight liquidity conditions, negative credit events and the Budget announcement to increase surcharge on non-corporate entities.
The market capitalisation of BSE500 is down 11 per cent from its peak of Rs 148 trillion in August 2018. Over the same period, the market cap of the Nifty-50 is down by 6 per cent, NSE Midcap 100 by 17 per cent and NSE Smallcap by 15 per cent, as per a research note by Motilal Oswal Financial Services.
The underperformance of MF schemes has been exacerbated by large sums of money chasing too few stocks, and the impact of regulatory changes such as categorisation of schemes and the introduction of total returns index, in lieu of a simple price index.
About 80 per cent of correction in the Nifty’s market capitalisation since August 2018, for instance, has been driven by select names such as Maruti (17 per cent), ITC (15 per cent), ONGC (12 per cent), Yes Bank (10 per cent), M&M (9 per cent), Coal India (9 per cent) and Sun Pharma (9 per cent), according to the Motilal Oswal’s research note. Sectorally, media (m-cap down 37 per cent), metals (-37 per cent) and autos (-36 per cent) have been the worst performers. Had it not been for select names such as Tata Consultancy Services, HDFC, ICICI Bank, HDFC Bank, and Kotak Mahindra Bank, the fall in benchmark indices could have been steeper.
“The last year has seen the emergence of a polarised market, with few stocks, even those that are richly valued, driving up the indices. Most equity schemes
hold anywhere between 50-60 stocks, making it difficult to outperform benchmarks,” said Dhaval Kapadia, director, portfolio specialist, Morningstar Investment Adviser (India).
Returns of equity schemes are now benchmarked against a total returns index (TRI) instead of a simple price return index. This has impacted the overall alpha for equity schemes, especially for large-cap funds. The TRI assumes that any cash distributions, such as dividends, are reinvested back into the index.
The regulator has also tightened the definition of what constitutes a large-, mid-, small-, and multi-cap funds. This means fund manager are no longer be able to change styles, known in sector parlance as “style drift”.