 "mutual fund equity market")
The sharp broad-based rally in the equity market during the financial year 2023-24 marked a reversal in fortunes of fund managers.
Contrary to past trends, active largecap funds fared much better than midcap and smallcap funds when it came to outperforming the benchmarks.
During the year, active largecap funds delivered 38 per cent return on an average vis-a-vis nearly 35 per cent rise in the NSE Nifty 100 Total Return Index (TRI).
Over two-thirds of the active schemes have delivered better returns than the index.
Compared to their passive peers, index funds and exchange-traded funds (ETFs), which track the Nifty 50 and Sensex, saw performance improve further with nearly 90 per cent of the schemes outperforming, shows data from Value Research.
Also Read
According to experts, the outperformance is largely a result of active schemes' significant exposure to midcap and smallcap stocks. These have done better than largecaps in the FY24 rally.
They also cite the broad-based recovery in the market and the underperformance of index heavyweights like HDFC Bank for this outperformance.
However, active largecap funds trailed the other largecap passive index — the Nifty Next 50. Passive schemes tracking these indices delivered over 60 per cent in FY24.
Mahavir Kaswa, head of research – passive funds, Motilal Oswal AMC, said the Nifty Next 50’s performance is in line with expectations.
“During a market rally, smaller stocks tend to go up more than the bigger ones. At the end of last year, Nifty Next 50's performance had suffered due to stock-specific issues. The recovery this year also boosted performance,” he said.
Adani group stocks had over 10 per cent weight in Nifty Next 50 in January 2023, when these companies got hit by the Hindenburg crisis. The rout in Adani group stocks had weighed on Nifty Next 50's performance.
The strong rally also aided the performance of factor-based indices.
Schemes tracking the Nifty Alpha 50, Nifty200 Momentum 30 and the Nifty Alpha Low Volatility 30 outperformed most of the plain-vanilla indices. The Nifty Alpha 50 and Nifty200 Momentum 30 delivered over 68 per cent.
According to analysts, their performance is also in line with the expectations as momentum as a factor does well during the bull phase.
While active largecap funds delivered a positive surprise, active small and midcaps faltered.
The small and madcap outperformance ratio dipped to 17 per cent and 14 per cent, respectively, even as their longer-term track record remained on the better side vis-a-vis active largecap funds.
The underperformance was a result of two major factors, experts said.
In a recent study, PGIM India MF pointed out that the index-level performance was largely driven by low quality and low growth stocks. This resulted in underperformance of active funds as they invested in better quality stocks.
In addition, the comparatively lower gains in the largecap share of smallcap and midcap funds also weighed on the performance.
