MUMBAI Nov 25 In a year when Indian shares have
hit record highs, the country's embattled fund managers are
headed for a milestone of their own: their worst performance
since the global financial crisis in 2008.
The poor showing comes at a bad time for an industry already
under pressure from a market regulator angry about results and
an ongoing exodus of retail investors from Indian stocks.
India's top 20 diversified equity funds, with $12.4 billion
in assets, are up only 0.5 percent this year, Thomson Reuters
data shows, even as the BSE index has risen 8 percent
after hitting a record high early this month.
That is the worst relative performance since 2008, which
also saw the BSE's Sensex benchmark hit a record high before the
global market meltdown. Although each fund has its own benchmark
measure, performance against the Sensex is the broad yardstick
used by investors.
Their poor showing could make the Securities and Exchange
Board of India (SEBI) scrutinise more harshly applications for
Chastened fund managers blame a volatile year that saw the
rupee plunge to a record low, as well as a drop of as
much as 10.2 percent in the BSE index through mid-August before
it surged to a record high.
"If you followed the news flow at the beginning of the year,
coupled with all the uncertainties about the Fed taper and rupee
correction, our mandate was to be very, very conservative," said
Prashant Jain of HDFC Asset Management, one of India's most
famous stock pickers. "Clearly that played to our disadvantage."
HDFC Asset Management's Top 200 Fund is flat
this year, while its Equity Fund is down 2.2
percent. India's two largest equity funds, both managed by Jain,
each manage more than $1.5 billion.
In addition to being overly cautious at the beginning of the
year, Jain was hurt by bigger exposure to state lenders such as
State Bank of India, which have struggled.
Meanwhile, Reliance Capital Asset Management, India's
second-largest fund house, was heavily weighted towards riskier
midcaps, which went on to struggle, whereas blue chips
outperformed on strong foreign inflows.
"Foreign investors have been more active than domestic
investors, and as a result of that, the money has been largely
concentrated in very few large companies," said Sunil Singhania,
head of equities at Reliance Asset Management.
"You have had this temporary aberration where nothing except
the top companies have done well," he added.
Singhania's two funds, with a combined $1.4 billion in
assets, are down 5.3 percent and 7.9 percent, respectively,
according to Lipper data.
Fund managers have also made mistakes selecting blue chips.
For example ITC Ltd was among the top picks at six of
India's top ten equity funds, but its shares fell by almost a
fifth from its all time high earlier this year after the
cigarette and consumer products maker posted unexpectedly slow
At an investment conference in June, SEBI chairman U.K Sinha
stunned his audience with a speech rebuking "non-serious"
players and admonishing them to find a new business model.
His remarks were seen to have been targeted at
the smallest of India's 47 fund houses, most of which are
"I think SEBI has become very cognizant and proactive in
terms of looking at fund houses and also individual schemes'
performance, especially on how funds are doing compared to the
benchmark," said Mahesh Patil, co-chief investment officer at
Birla Sun Life Asset Management Co Ltd.
The government wants to encourage retail investors to put
money into the stock markets. As part of that drive, SEBI this
year proposed a slew of rules meant to protect retail investors.
Just this month, SEBI tightened disclosure rules by listed
Although SEBI has not specified what actions it might take
against under-performing funds, asset managers fear regulators
could increase scrutiny of new funds.
Poor performance has contributed to net redemptions of 106
billion rupees ($1.7 billion) by retail investors from equity
funds this year, according to industry data. That marks the
fourth year in five the industry has seen money flowing out,
leaving managers to rely on lower-margin debt funds and advisory
Not every fund has struggled. The two biggest funds managed
by S. Naren, chief investment officer of ICICI Prudential Asset
Management Co, are up 9.2 percent and 10.7 percent respectively,
thanks to a bias towards big caps early in 2013.
Globally asset managers have had a better run. Equity funds
in the United States and Japan, two countries that have seen a
rally in shares, have on average outperformed their respective
broad market indexes, according to Lipper data.
However in Indonesia, another country dogged by a weakening
currency, funds have lagged, posting an average rise of 3.2
percent compared to the 4.5 percent rise in the IDX Composite
"It's very disappointing that the flagship equity funds in
India have fared so poorly," said Dhirendra Kumar, CEO of mutual
fund tracker Value Research. "SEBI scrutiny has put asset
managers on their toes and performance this year does not win
them any favours with the regulator."
($1 = 62.4450 Indian rupees)
(Additional reporting by Patturaja Murugaboopathy in BANGALORE;
Editing by Rafael Nam, Tony Munroe and Simon Cameron-Moore)