Active Fund Managers Struggle To Keep Pace With Market Boom: S&P SPIVA India Year-End 2023 Report

The SPIVA India Year-End 2023 report by S&P Dow Jones Indices, released on March 28, has revealed intriguing insights into the performance of active fund managers across various categories. Despite a robust surge in benchmark indices, particularly in mid-/small cap and large cap sectors, many fund managers have struggled to match or outperform the market indices.

The report highlights that amidst a backdrop of stabilizing interest rates and commodity prices, certain sectors witnessed remarkable growth, creating significant winners within the corporate space. Such movements emphasized the importance of sector weight, presenting an opportunity for active managers to capitalize on potential value additions.

According to the SPIVA India Year-End 2023 report, a staggering 73.6% of active fund managers in mid-/small cap schemes underperformed the S&P BSE 400 MidSmallCap Index, despite the index soaring by 44% in 2023. This underperformance trend was also noticeable in the large-cap equity funds, though with a slightly improved scenario compared to the previous year. Only 52% of actively managed funds underperformed the S&P BSE 100 in 2023, compared to 88% in 2022.

Delving deeper into the performance metrics, the report reveals varying trends among active fund managers across different categories. While the large-cap segment saw a relatively better performance over a 10-year period, with the underperformance rate dropping to 62.1%, mid-/small cap funds exhibited a dismal performance in the long run. A staggering 75% of these funds lagged behind the S&P BSE 400 MidSmallCap Index over the same duration.

Benedek Voros, Director of Index Investment Strategy at S&P Dow Jones Indices, remarked on the market's vigour, underlining the significant gains posted by the S&P BSE 100 and S&P BSE 200 indices in 2023. He emphasized the pivotal role played by the macroeconomic environment, characterized by stabilizing interest rates and commodity prices, in sustaining the market's growth trajectory.

The report also sheds light on the performance of Equity Linked Savings Scheme (ELSS) funds, where just 30% of Indian ELSS funds underperformed the S&P BSE 200 Index in 2023, showcasing a relatively better performance compared to other categories. However, over a 10-year period, the performance of ELSS funds deteriorated, with 67.6% of them failing to beat the benchmark.

Interestingly, ELSS funds demonstrated resilience in terms of long-term survival rates, with 73% of them still surviving after a decade, marking the second-highest survival rate across all categories in the SPIVA India Scorecard.

In contrast, the Indian Government Bond fund category witnessed a challenging landscape for active managers, with less than one-fifth of them managing to beat the benchmark in 2023. The S&P BSE India Government Bond Index saw a modest increase of 7.9% during the year. Although active government bond funds performed relatively better in the intermediate term, the long-term underperformance rates remained high, with 90% of funds failing to outperform the benchmark over a 10-year period.

The SPIVA India Year-End 2023 report underscores the complex dynamics of the Indian financial markets, where active fund managers grapple with the challenge of consistently outperforming benchmark indices. Despite sporadic successes in certain categories, the overall trend suggests a need for a nuanced approach to investment strategies, particularly in navigating sectoral shifts and long-term market trends.