Take the pledge to vote

For a better tommorow#AajSawaroApnaKal
  • I agree to receive emails from News18

  • I promise to vote in this year's elections no matter what the odds are.
  • Please check above checkbox.

    SUBMIT

Thank you for
taking the pledge

Vote responsibly as each vote counts
and makes a diffrence

Disclaimer:

Issued in public interest by HDFC Life. HDFC Life Insurance Company Limited (Formerly HDFC Standard Life Insurance Company Limited) (“HDFC Life”). CIN: L65110MH2000PLC128245, IRDAI Reg. No. 101 . The name/letters "HDFC" in the name/logo of the company belongs to Housing Development Finance Corporation Limited ("HDFC Limited") and is used by HDFC Life under an agreement entered into with HDFC Limited. ARN EU/04/19/13618
LIVE TV DownloadNews18 App
News18 English
News18 » Business
2-min read

India's Passive Funds Set to Beat Active Funds for Second Year

Active funds have historically outperformed passive funds in India when share price moves were more broad-based and market inefficiencies helped stock pickers as they hunted for shares whose prices were not truly reflective of their worth.

Reuters

Updated:November 13, 2019, 3:32 PM IST
facebookTwitter Pocket whatsapp
India's Passive Funds Set to Beat Active Funds for Second Year
Representative image.

Mumbai: India's passive index-tracking equity funds are set to beat their active stock-picking counterparts in returns for a second successive year as fund managers grapple with volatility and the challenges of outperforming benchmark indexes.

According to Refinitiv Lipper data, India's passive funds have delivered an average return of 9.6% so far this year, much higher than active funds' 5.7%. In 2018, passive funds posted 2.3% gains, while active funds had negative returns.

Active funds have historically outperformed passive funds in India when share price moves were more broad-based and market inefficiencies helped stock pickers as they hunted for shares whose prices were not truly reflective of their worth.

But India's stock market rally has been much narrower in the past two years, with investors preferring some well-established heavyweights over smaller ones owing to broader uncertainties around a slowing domestic economy and the U.S.-China trade war.

For instance, the Nifty index has risen 9.67% so far this year, but the Nifty Midcap index has shed 6.2% and the small-cap index has slumped 11.4%.

Pratik Oswal, head of Passive Funds at Motilal Oswal Asset Management Company, said 85% of the Indian stock market had become efficient.

"Finding mispricings has become harder than it was 5-10 years ago," he said.

"A sharp correction in mid and small caps, coupled with mega caps becoming larger, has led to underperformance of most active fund managers."

Also, the Securities and Exchange Board of India's (SEBI) rules on holdings of large-cap and mid-cap firms have affected the performance of active funds, analysts said.

At the end of 2017, SEBI said a large-cap equity fund must invest at least 80% of its portfolio in large-cap stocks and mid-cap funds must invest at least 65% in mid caps.

Prior to that, active fund managers had the flexibility to allocate larger amounts to other categories to boost their funds' performance.

Nonetheless, active funds remain more popular with Indian investors who still haven't taken to index investing, unlike in developed markets.

The passive funds' assets under management (AUM) is lower than that of active funds, according to Refinitiv Lipper data. Active funds' AUM stood at $94.4 billion at the end of third quarter, while passive funds' AUM were just $3.3 billion.

In the United States, passive funds' AUM stands at more than half of the active funds' AUM, the data showed.

"We don't have a lot of long-term money flowing into index, the way it does in America or other developed markets," said Dhirendra Kumar, founder and chief executive officer of Value Research.

"Indian investors have become curious and they are beginning to invest (in passive funds). But I don't think it is very big time."

Get the best of News18 delivered to your inbox - subscribe to News18 Daybreak. Follow News18.com on Twitter, Instagram, Facebook, Telegram, TikTok and on YouTube, and stay in the know with what's happening in the world around you – in real time.

Read full article
Next Story
Next Story

facebookTwitter Pocket whatsapp
Most Active
Company Price Change %Gain
Indiabulls Hsg 300.65 3.23
Tata Motors 177.35 2.31
TCS 2,054.60 1.67
SBI 329.15 2.27
Yes Bank 46.35 2.21
Company Price Change %Gain
Indiabulls Hsg 300.80 3.17
Tata Motors 177.40 2.34
Yes Bank 46.35 2.21
Infosys 709.30 1.06
SBI 329.15 2.28
Top Gainers
Company Price Change %Gain
Axis Bank 747.20 3.48
Vedanta 148.75 3.30
SBI 329.15 2.27
Tata Motors 177.35 2.31
Yes Bank 46.35 2.21
Company Price Change %Gain
Axis Bank 747.00 3.52
Vedanta 148.85 3.40
TML-D 72.50 2.91
SBI 329.15 2.28
Yes Bank 46.35 2.21
Top Losers
Company Price Change %Gain
Dr Reddys Labs 2,814.00 -3.15
Bharti Airtel 429.15 -2.17
Bharti Infratel 247.95 -1.69
Zee Entertain 281.00 -1.16
Kotak Mahindra 1,696.30 -1.12
Company Price Change %Gain
Bharti Airtel 429.45 -2.02
Kotak Mahindra 1,696.55 -1.12
Bajaj Auto 3,235.60 -0.78
Asian Paints 1,742.10 -0.51
Tech Mahindra 752.40 -0.47

Live TV

Countdown To Elections Results
To Assembly Elections 2018 Results