Large-cap PMS schemes lag index returns in Jan

Those providing portfolio management services (PMS) had a tough time beating the benchmark index in January, with more than half of the schemes investing in large companies underperforming in the run-up to the Union Budget.

The Nifty50 index was down 2.5 per cent during the month. Only around 44 per cent of PMS schemes did better, among those investing in large-cap companies. The analysis is based on data from industry tracker PMS Bazaar.

Exactly half the mid-cap schemes outperformed, while the rest underperformed. The ratio improved for multi-cap schemes, where around 62.2 per cent gave higher returns than the corresponding benchmark. Small-cap schemes, though, were the major outperformers. Around 10 schemes did better than the index out of the dozen for which data was available.

As many as 159 schemes were considered for the analysis across categories. Returns were calculated on a time-weighted rate of return basis, which eliminates the effects of inflows and withdrawals from the schemes to get a clearer sense of the fund manager’s performance.

The PMS segment invests money on behalf of well-off individuals. The minimum investment that regulations allow is ~50 lakh. It was ~25 lakh earlier. The Securities and Exchange Board of India (Sebi) had sought to increase the amount as part of a larger tightening of PMS regulations. This also included increasing net worth requirements and compliance standards.

There are currently 361 registered portfolio managers, according to the latest Sebi data.

“There were 155,796 total clients in PMS industry at the end of October, of which 145,404 belong to discretionary services category, 8,409 clients to non-discretionary services category, and 1,983 to advisory services category of portfolio management services,” said the January Sebi bulletin.

It pegged the assets under management at ~19.2 trillion. Around ~14.6 trillion was provident fund capital that asset managers count under PMS assets.

Daniel GM, founder-director at industry-tracker, PMS Bazaar, said the correction of a few large companies ahead of the Budget contributed to the underperformance as they were held by multiple players. The PMS segment typically has higher volatility and should also do better when markets rise, he added.

Suresh Sadagopan, founder of the Ladder7 Financial Advisories, who advises clients investing in PMS schemes, says the case is becoming weaker for largecap schemes as Indian markets become more like developed ones. Passive funds seeking to replicate index performance rather than beat it are more the norm in places like the United States of America. Investors there prefer such funds since most fund managers find it hard to beat the market.

“I think we are moving the US way,” he said.

Schemes investing in the mid-cap or small-cap space, where companies are less well known could be the ones to add more value, according to him.

The multi-cap schemes under consideration had assets of ~55,438 crore. The assets across large-cap, midcap, and small-cap companies was a total of over ~6,300 crore. This is based on disclosed assets. Many have not provided information on the assets that they manage.