Underperformance of active largecap funds widened in 2022

During 2022, the benchmark for Indian mid or small-cap funds -- the S&P BSE 400 Midsmallcap Index -- rose 2 percent with 55 percent of active managers underperforming the index.

On the other hand, S&P BSE 200 rose by almost 6 percent, and 77 percent of Indian Equity Linked Savings Schemes (ELSS funds) underperformed this index.

These are the findings of the SPIVA India Year-End 2022 report, which was released by S&P Dow Jones Indices released on April 11. SPIVA stands for S&P Indices Versus Active Funds.

In the long run, the scorecard further noted that among all categories, mid or small-cap funds fared the best with 50 percent of them beating the S&P BSE 400 Midsmallcap index over the 10-year period ending December 2022.

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Over the 10-year time horizon, more than 60 percent of funds underperformed in all categories outside of mid or small caps.

According to the report, the S&P BSE India Government Bond Index increased by almost 3 percent in 2022. Interestingly, less than one-third of active managers beat the benchmark in 2022, with an underperformance rate of 68 percent.

Indian Composite Bond Funds fared the best in the same period, with only 45 percent underperforming the S&P BSE India Bond Index.

Benedek Voros, Director, Index Investment Strategy, S&P Dow Jones Indices said, “Indian markets fared far better than most global markets in 2022; although main equity and fixed income benchmark indices dropped in H1, they staged a remarkable recovery in the second half of the year. Tightening lending standards weighed more heavily on smaller firms, with the S&P BSE 500 Midsmallcap Index underperforming the S&P BSE 200 by 4 percent, the most since 2019.”

The report also noted that ELSS funds achieved the second-highest long-term survival rates across all categories in the SPIVA India Scorecard, with 77.8 percent of them still surviving after 10 years.

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Meanwhile, 76.9 percent of Indian ELSS funds underperformed the index. Over a 10-year period, some funds improved, with 63.9 percent underperforming the benchmark.

Past performance

Thanks to the big jump in Indian equities, Indian active funds witnessed a rebound in their performance in 2021, as 50 percent of equity large-cap schemes outperformed their benchmark in the one-year period ending December 2021.

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However, long-term underperformance had remained intact as 82.26 percent large-cap funds failed to beat their benchmark (S&P BSE 100) and 79.07 percent of the ELSS funds underperformed S&P BSE 200 on a five-year basis. Moreover, 68 percent of large-cap funds underperformed their benchmark over the 10-year period.

Earlier, over the one-year period ending in December 2020, the S&P BSE 100 was up 16.84 percent, with 80.65 percent of funds underperforming the benchmark. Notably, over the second half of 2020, 100 percent of the funds underperformed the S&P BSE 100.

Over longer horizons, the majority of actively managed large-cap equity funds in India underperformed the large-cap benchmark, with 68.42% of large-cap funds underperforming over the 10-year period ending in December 2020.