Wealthy retreating from PMS schemes
■ Redemptions add to stock volatility
Wealthy Indians seem to be losing faith in their portfolio managers, as most schemes have given negative returns following the rout in small- and midcap stocks.
Portfolio management services (PMS) that mainly carter to high net worth individuals (HNIs) are facing redemption pressure, as investors are pulling out money from the schemes.
An analysis shows that top portfolio managers were caught on the wrong foot in the small- and midcap space, with nine of the
10 best-known names in the industry losing money. These PMS schemes are showing negative returns ranging from 20-35 per cent for the past one-year period. Analysts say the huge selling seen in midand small-cap stocks in the recent past has mainly been due to offloading of stocks by portfolio managers to deal with the redemptions.
Managing assets worth
`29,400 crore (about $4.3 billion), PMS schemes delivered an average 20 per cent negative return in the last one year. Most funds have underperformed the benchmark with a huge margin as their bets have gone sour.
“PMS schemes are showing negative returns following the sell-off in small- and mid-cap segment. Now investors are pulling out money from these schemes, as they want to cut losses,” said an analyst with a leading brokerage firm.
“These fund managers are now offloading stocks to meet redemption pressure, adding to further weakness in the small- and mid-cap segment,” he said. Small-cap stocks have got a severe beating over the past one year. The BSE Small-Cap Index is down around 26 per cent over the past one year.
Small-cap stocks are highly volatile than their larger counterparts and have higher downside risk, but they do have the potential to deliver superior returns if the stock market performs well, analysts said. “You should invest in small-cap funds for the long-term and the allocation should be in line with your risk appetite,” they added.
Analysts said the big worry for the market is rising redemption by domestic investors in the recent past, which is keeping the markets on edge.
Recent data from mutual fund body Amfi shows net inflows into equity MF schemes have hit a 24month low, with only
`6,158 crore accruing in January 2019.
Unrelenting volatility in the stock markets and the political uncertainty seem to have impacted investor sentiment and redemptions are on the rise. In January, MFs saw redemptions of `11,397 crore, up from `11,234 crore in December.
The volatility, experts say, stems from the turmoil in the financial markets last year and uncertainty over the general elections due in AprilMay.