Aided by mid-, small-cap rally, 80% of PMS schemes beat Nifty in 2021

They generated average returns of 40%, against the Nifty's 24%

Four out of every five portfolio management services (PMS) schemes beat the Nifty50 in calendar year 2021 (CY21) amid a sustained rally in mid- and small-cap firms.
 

Eighty per cent, or 200 of the 249 PMS schemes, beat the 24.1 per cent returns generated by the benchmark. Seventy schemes returned over 50 per cent during the year. The 249 schemes collectively delivered average returns of 40 per cent, higher than the 30.2 per cent delivered by the benchmark Nifty 500, but lower than the Nifty Midcap 100 (46.1 per cent) and NSE Smallcap 100 (59.3 per cent).

Green Portfolio’s Super 30 was the top performer with returns of 115.5 per cent, followed by Valentis Advisors’ Rising Star Opportunity (96.4 per cent) and Right Horizons’ Minerva India Under-Served (92.2 per cent).

“The most satisfying part for us was that we were able to generate significant outperformance by keeping beta way lower than the index. It means we took less risk and delivered more returns while maintaining liquidity,” said a note put out by Carnelian Asset Advisors, whose multi-cap Shift Strategy is among the top 10 PMS schemes, with one-year returns of over 79 per cent.

“We were in the minority while taking aggressive calls on the IT  and manufacturing (China +1) theme way back in September 2020 and positioned our portfolio accordingly. This contributed very well to our performance this year,” the note added.

Many PMS schemes lean towards mid- and small-caps in their portfolios and run concentrated portfolios of 15-20 stocks. Such portfolios increase the potential of higher returns, but are also prone to steep falls during corrections.

Companies that have low leverage, strong fundamentals, and high corporate governance did not necessarily do too well last year, according to Siddhartha Rastogi, COO & head of sales, Ambit Asset Management. Rather, cyclical businesses with a high debt-to-equity ratio outperformed, he said.

“Most of the PMS schemes chase momentum instead of consistency and those that were heavy on cyclicals did well last year,” Rastogi said.

According to experts, 2021 was driven by re-rating due to easy liquidity and low interest rates. Both are likely to reverse, which is why this year is likely to be the year of de-rating and modest earnings growth. Interest rates are bound to increase and market volatility will be higher. This will put companies’ earnings growth back into focus.

“Whenever such an environment is created, markets are volatile and alpha creation becomes difficult,” Carnelian said.

“Last year, the earnings didn’t increase so much, but PE multiples expanded. We are not going to see so much of that from here on. The PE multiples will decelerate and as the weighted average cost of capital rises, equities will give relatively lesser returns in 2022,” said Rastogi.

According to him, investors should book profits in businesses that are cyclical and where PE multiples have expanded irrationally.

PMS schemes managed Rs22.7 trillion under the discretionary portfolio, Rs1.44 trillion under the non-discretionary portfolio, and Rs2.23 trillion under advisory, latest regulatory data showed.

The PMS segment invests money on behalf of well-off individuals. The minimum investment that regulations allow is Rs50 lakh.