BS jury picks best mutual fund managers in the debt and equity category

While mutual fund managers struggled this year as well, those in the equity category fared better

After a blockbuster year which saw equity asset segments ranging from small caps to blue chips deliver 24-59 per cent returns, hopes for 2022 on this front were not very high. The benchmark indices, however, managed to keep themselves above water with a return of 4 per cent. This was a seventh consecutive year of positive returns for the Nifty50 index.

While low single-digit returns after three years of double-digit gains is not something to write home about, Indian equity markets managed to outperform most of their global peers last year. A robust domestic macro environment and worries about a recession for globally-linked economies, coupled with domestic concerns in China, led to India’s superior performance.

While the benchmarks outperformed their global peers, the small-cap indices came under pressure, denting investor wealth by slipping between 2.5 per cent and 4.4 per cent. This was a far cry from 50 per cent-plus returns a year ago.

Brokerages point out that the underperformance of small-cap companies was largely due to a rise in raw material costs, their inability to pass on the sudden surge without impacting volumes, and interest-rate increases by central banks, including the country’s banking regulator, the Reserve Bank of India (RBI).

The key event which had a cascading effect was the Russia-Ukraine war. Supply disruptions and rising commodity prices resulted in higher inflation, prompting central banks to hike interest rates. This hit earnings of companies which, coupled with worries that the Covid-19 pandemic would make a comeback, impacted overall investor sentiment.

Amid these challenges, Anish Tawakley, who manages the ICICI Prudential Bluechip fund, was declared the winner, outperforming the category and benchmarks with a three-year average return of 16.14 per cent. To stay ahead of the market, Tawakley looks for a demonstrated track record of profitability, a top-three market position and future compounding ability while picking stocks.

In the mid- and small-cap category R Srinivasan of SBI Small Cap Fund was adjudged the winner. He delivered a return of 28.71 per cent. Even on a one-year basis, while the BSE 250 Small Cap Index delivered a return of -1 per cent, Srinivasan outperformed, with a gain of 8.14 per cent. 

In the Flexi-cap category, Sailesh Raj Bhan of Nippon India Multi Cap Fund took the honours with a three-year average return of 19.35 per cent. His one-year return during this period, at 14.12 per cent, was also the highest among peers in this category. Bhan credits his superior performance to the early bets he took over the past three to four years. These include stocks in engineering, hotels and retail, among others available at attractive valuations during Covid, which are bearing fruit now.

The going for debt funds has been tough over the last couple of years, when they generated 3-4 per cent returns, compared with 7-12 per cent across categories in 2020. Central bankers’ resort to large rate hikes in view of inflationary pressures has led to tighter financial conditions and weighed on bond prices. Since May last year, the RBI has raised the repo rate by 250 basis points, from 4 per cent to 6.5 per cent.

Amid this background, Manish Banthia topped the charts in debt (short-to-medium duration category). The ICICI Prudential Short Term fund he runs delivered a return of 4.66 per cent in CY22 and 6.35 per cent over the three-year period. This is the second consecutive year that Banthia has won the award in this category.

The jury decided not to announce any award in the long-term category, as the Sharpe ratios of most fund managers were in negative territory, signifying that the risk-free return, or the benchmark, was greater than their returns. Most fund managers, thus, failed to outperform their respective benchmarks.

As has been the case over the last couple of years, the four-member Jury met virtually and deliberated on the performances of the fund managers before picking the winners. The panel was headed by G N Bajpai, former chairman of the Securities and Exchange Board of India (Sebi) as well as the Life Insurance Corporation of India (LIC).

The other members were Jaspal Bindra, executive chairman, Centrum Group; Kaku Nakhate, president and country head, Bank of America India; and Sandeep Parekh, managing partner, Finsec Law Advisors. The data examined was for the 12-month period (one-year) and three-year period ended December 31, 2022, and was provided by Morningstar India.

The Jury this year focused more on three-year average returns in addition to one-year returns, thus giving weightage to consistency as well as annual returns.

The rankings for both equity and debt are on the basis of the Sharpe ratio, which takes into account returns generated by the fund (or funds) in excess of the risk-free return based on the monthly closing value of the FBIL-Mibor overnight rate, and the volatility that such returns are subject to.

The average one-year return for the FBIL-Mibor overnight rate was 4.95 per cent for the one-year period, while the average for the three-year period was 4.16 per cent for the period ended December 31, 2022. All decisions taken by the Jury were by consensus and unanimous, with the winners in most categories outperforming their respective benchmarks.