Over half of large-cap schemes lag Nifty100 amidst weak market breadth

17 of 37 schemes beat index's returns of -6.4%, but only 3 were positive

A little over half of the 37 large-cap schemes have underperformed the Nifty100 index year-to-date.

Seventeen schemes beat the benchmark’s returns of -6.4 per cent given this year, of which only three schemes have provided positive returns, data from Value Research shows. JM Core 11 Fund has been the worst performer, with returns of -17.6 per cent. Only regular plans were considered. 

The Nifty50 has rallied thanks to the outperformance of a select few names such as Dr Reddy’s Laboratories, Divi’s Laboratories, Cipla, Infosys, Reliance Industries, and Wipro. In the Nifty100 universe, only 29 per cent of stocks have provided double-digit returns, led by pharma stocks, data compiled by BS Research Bureau shows.

As on September 30, the top five Nifty stocks contributed 44 per cent of index weight, with RIL making up 14.9 per cent. The top four sectors — financial services, IT, oil & gas, and consumer goods — formed 84 per cent of index weight.

Experts believe large-cap schemes might see a further impact if market breadth does not improve. The pandemic is expected to tip the scales further in favour of companies with higher market share and well-entrenched businesses. This may exacerbate the problem of polarisation further.

“There will be periods when a few stocks break out and rally, which can hamper performance. The categorisation has also put some restriction on the number of stocks one can invest in, but it is possible to outperform the benchmarks over longer timeframes,” said Pradeepkumar G, CEO of Union MF.

Fund managers faced a tough time beating the benchmarks in 2018 and 2019, with large sums of money chasing too few stocks. Regulatory changes — such as categorisation of schemes as well as the introduction of total returns index, in lieu of a simple price index — have also impacted performance vis-à-vis underlying benchmarks.

Earlier, the net asset value of MF schemes took dividends into account for computing returns. The schemes were, however, benchmarked against simple price-return indices that did not take into account the dividend component. The average annual dividend yield for Indian equities is 1-1.5 per cent.

Forty per cent of large-cap funds had underperformed the benchmark over a one-year period ended December 2019, according to S&P Indices Versus Active India scorecard.