INSUBCONTINENT EXCLUSIVE:
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 per cent so far this year, much higher than active funds' 5.7 per cent
In 2018, passive funds posted 2.3 per cent 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 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
US-China trade war.For instance, the Nifty index has risen 9.67 per cent so far this year, but the Nifty Midcap index has shed 6.2 per cent
and the small-cap index has slumped 11.4 per cent.Pratik Oswal, head of Passive Funds at Motilal Oswal Asset Management Company, said 85 per
cent 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 per cent of its portfolio in
large-cap stocks and mid-cap funds must invest at least 65 per cent 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."(This story has not been edited by TheIndianSubcontinent staff and is auto-generated from a
syndicated feed.)Get Breaking news, live coverage, and Latest News from India and around the world on TheIndianSubcontinent.com
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