Over 70% of PMS plans, investment vehicle for the wealthy, lagged in 2022

Small-cap schemes only ones to do better than their respective indices in 2022

Seven of 10 schemes, or 154 of the 212 schemes, underperformed the market among a segment of investment vehicles aimed at the wealthy.
 

Only 27.4 per cent of portfolio management service (PMS) providers delivered higher returns than their respective benchmarks, shows an analysis by Business Standard of data from tracker PMS Bazaar. PMS investments have a minimum ticket size of Rs 50 lakh, and the industry manages over Rs 2.4 trillion worth of equity assets, besides an additional Rs 21 trillion in debt.
 

The data looked at 212 schemes across market segments for which information was available for the past year.
 

Only around 20 per cent of mid-cap-focused PMS schemes beat benchmark returns. The figure was 23.4 per cent for multi-cap funds, and 24 per cent for large-cap schemes. The small-cap segment was the only one where the majority of schemes outperformed the benchmark. A total of 76.5 per cent of schemes in the small-cap segment delivered better returns than the benchmark index.
 

Large asset managers are struggling to generate alpha, and many may have failed in 2022 because of sectoral bets that didn’t go as planned, according to Daniel GM, founder-director at industry-tracker PMS Bazaar.
 

A number of boutique asset managers managed to do well, and schemes focused on smaller stocks outperformed as well.

However, schemes looking to exit smaller stocks may be affected by the limited trades that take place in such counters, which may lower the returns they are able to ultimately generate when booking profits, according to Daniel.
 

“The challenge for them is liquidity,” he said.
 

Capital markets regulator Securities and Exchange Board of India (Sebi) recently moved to improve reporting of returns for such schemes. It said that the Association of Portfolio Managers in India would prescribe benchmarks for various strategies.
 

“[A] portfolio manager shall disclose relative performance of its investment approach in all the marketing material where performance of the concerned investment approach is being presented. Such disclosure of relative performance shall, at minimum, include the following… performance relative to the selected benchmark… (and)… performance relative to other portfolio managers within the selected strategy,” said the Sebi’s circular issued on December 16.
 

The circular added that the norms would come into force on April 1.
 

The median multi-cap fund return was -2.5 per cent as against a 3.3 per cent gain in the benchmark S&P BSE500 index. The median large-cap fund return was -1.2 per cent, compared with a 4.3 per cent gain in the benchmark Nifty50 index. The median mid-cap fund return was -2.4 per cent, as against a 3.5 per cent gain for the Nifty Midcap100 index.
 

The median small-cap scheme, however, delivered positive returns of 3.2 per cent, compared with the S&P BSE SmallCap index, which declined 1.8 per cent.
 

Investors looking for future outperformance may find it in the small-cap and mid-cap space, said Nipun Mehta, founder and chief executive officer for multifamily office BlueOcean Capital Advisors. The growth trajectory for many companies outside the blue-chip universe remained positive, though the small-cap index generated negative returns in 2022.
 

“You haven’t had too many years where there was such a sharp underperformance in mid-cap and small-cap (stocks)… despite the fact that earnings for a lot of them have been better,” he said.