January 2025 was a challenging month for Indian equities, and Category III Alternative Investment Funds (AIFs) reflected broader market headwinds. Several macroeconomic factors—including geopolitical tensions, currency depreciation, and US-led global trade disruptions—contributed to investor uncertainty. Additionally, corporate earnings for Q3FY25 were underwhelming, with the worst earnings downgrade ratio since Q1FY21.
Despite stable performances from BFSI, technology, telecom, healthcare, and capital goods sectors, overall earnings growth was subdued. Nifty 50's profit after tax (PAT) grew just 5% YoY, marking the third straight quarter of single-digit growth.
Foreign portfolio investors (FPIs) remained net sellers in Indian equities, exacerbating the downturn. The broader market, as represented by the BSE 500 TRI (-3.43%) and Nifty 50 TRI (-0.45%), saw declines, impacting AIF returns. Long-only AIFs bore the brunt of the downturn, averaging -6.52% in January, while long-short AIFs navigated the volatility better, averaging -1.45%.
This report, based on data from PMS Bazaar, evaluates the monthly performance of 110 Category III AIFs, segmented into long-only and long-short strategies. It highlights key outperformers and provides insights into the outlook for alternative investment strategies.
Category III Long-Only AIFs
Category III long-only AIFs in India focus on public equity investments, aiming for capital appreciation over the long term. These funds enjoy greater flexibility in stock selection and portfolio concentration.
Unlike long-short AIFs, they do not hedge positions and remain fully invested in equities. They are favoured by sophisticated investors seeking higher alpha than traditional investment funds. SEBI regulations require a minimum AIF investment of ₹1 crore, making them exclusive to high-net-worth and institutional investors.
Long-only AIFs had a tough month in January, delivering an average return of -6.52%, significantly underperforming the BSE 500 TRI (-3.43%) and Nifty 50 TRI (-0.45%). Only 13 out of 78 schemes managed to beat the BSE 500 TRI, and just 3 schemes outperformed the Nifty 50 TRI. The underperformance stemmed from a combination of global risk factors and weak domestic earnings.
Key takeaways from long-only AIF performance in January 2025 indicate a higher correlation with market downturns, as these funds, relying heavily on directional equity bets, experienced steeper drawdowns than market indices. Performance varied across AMCs, with some schemes effectively containing losses while the majority struggled to manage volatility.
In terms of performance, at number 1 is StepTrade Share Services Revolution Fund with 0.82% return this month, comfortably outsmarting Nifty50 TRI and BSE500 TRI. The long-only AIF, with a portfolio age of just 8 months, is structured to leverage opportunities within the SME and Microcap sector, offering investors access to a diversified portfolio of high-growth potential companies. The fund, managed by Kresha Gupta, strategically anchors investments in SME and Microcap IPOs, providing early-stage capital to promising enterprises entering the public market.
The 2nd best performing long-only AIF this month is Senorta Asset Management Stag Series 1 with -0.02% return. Despite a falling market, the AIF did not lose much. Senora Asset Management focusses on a concentrated, India-centric, long-only large-cap investment strategy managed by Mridul Jain. This approach aligns with the management team's emphasis on leveraging their deep market expertise and historical insights to deliver growth while managing risk effectively.
At number 3 is Aequitas Investment Consultancy’s Equity Scheme I shielded investors from the market downturn with -0.13%. Siddhartha Bhaiya-led Aequitas’s long-only Category III AIF follows a disciplined investment strategy, focussing exclusively on listed Indian equities with strong fundamentals and high-growth potential. The fund maintains a concentrated portfolio of ~25 stocks, prioritizing valuation, risk management, and sustainable long-term growth.
The 4th best performing only-only AIF this month is Shepherd’s Hill’s Private Investment Fund with -0.63% return in a falling market. Launched in April 2019, this is a flexicap, sector-agnostic fund. The AIF, managed by Rishi Gupta, focusses on long-term, active value investing in Indian public equities. The fund’s market-cap agnostic approach allows it to identify both large blue-chip companies and hidden gems in smaller firms. Maintaining 15-20 portfolio positions, it seeks to balance diversification with focus on minimising permanent capital loss while maximizing long-term returns.
Completing the top-5 club this month is the nearly 3-year old InCred Asset Management Emerging Business Fund (-1.66%). The Aditya Sood-managed fund focusses on companies that have started the capex cycle and focus on sectors like Chemicals, Engineering, Pharma, Textile, and Electronics, etc. The fund aims for a very low benchmark overlap which can help in alpha generation over the long term. The AIF seeks to deliver superior returns by betting on companies that can benefit from strong growth in earnings and re-rating of businesses.
Here are the top-10 long-only AIF performers of this month.
Source: PMS Bazaar
*** Post Exp & Tax , ** Post Exp, Pre Tax. ## Gross returns, ### Post Exp & Pre Perf.Fees & Tax,^^ Post Exp & Tax and Pre Perf.Fees , # Below 1 Year returns are Simple Annualized
All Performance above are as on 31 January 2025
Category III Long-Short AIFs
Category III long-short AIFs in India use hedging and directional strategies to generate returns, offering downside protection. This makes them best suitable to navigate difficult months such as January 2025, and they proved their utility once again.
Category III long-short AIFs demonstrated resilience in January 2025, delivering an average return of -1.45%, significantly outperforming the BSE 500 TRI (-3.43%) and Nifty 50 TRI (-0.45%). A majority of these funds successfully mitigated downside risks, with 27 out of 32 schemes outperforming the BSE 500 TRI and 14 schemes surpassing the Nifty 50 TRI.
The defensive nature of long-short strategies helped them navigate market turbulence better than their long-only counterparts. Notably, 9 long-short AIFs delivered positive returns this month compared to just one in the long-only category.
Fund managers in long-short vehicles effectively used hedging techniques to limit losses, ensuring that despite the broader equity market downturn, these Category III AIFs provided better capital protection. Performance dispersion among schemes was evident, with some managers delivering flat-to-moderate losses, while others struggled with challenging market conditions.
As global uncertainties and domestic earnings pressures persist, long-short AIFs remain an attractive option for sophisticated investors seeking lower volatility and capital preservation in turbulent markets. Let us take a look at the top performers in January 2025.
At number 1 this month is ICICI Prudential AMC’s Long Short Fund-I with 2.77% return, comprehensively beating the benchmarks. The long-short AIF adapts to market conditions. In a bullish market, it maintains positive correlation but may lag due to lower net exposure, aiming for long positions to outperform shorts. In a bearish market, it seeks inverse correlation, limiting drawdowns through hedging. In sideways markets, it focuses on absolute returns, leveraging stock return divergences within sectors to generate alpha.
The 2nd best performing long-short offering this month is Inquant Systematic Investment Managers Debt Plus strategy with 1.24% gain. Since January 2024, it has focussed entirely on arbitrage strategies, ensuring low market risk and minimal volatility. The fund consistently delivers superior risk-adjusted returns in the long-short category, outperforming similar-risk strategies. With no credit or interest rate risk, it offers investors a stable, debt-plus return profile.
Ranked 3rd in Jan-2025 is Dolat Capital Market Absolute Return with 1.18%, closely behind Inquant Debt Plus. The 4-year old AIF employs adaptive investment strategies that evolve with market cycles, focussing on risk mitigation and absolute returns. Its proprietary risk management mechanism adjusts portfolio positions dynamically to ensure resilience across volatility phases. The fund prioritises capital protection through derivatives while leveraging technology for precision-driven execution. With a low beta, low-volatility approach, the AIF targets uncorrelated, positive returns using market-agnostic, option, and index strategies.
At number 4 and 5 positions are Altacura AI Absolute Return Fund and YES Securities Alpha Plus Fund with identical 1.15% return, barely 3 basis points away from the Dolat offering. The Altacura AIF is a Artificial Intelligence-backed multi-strategy hedge fund that aims to deliver strong absolute returns with very low drawdowns on a monthly basis. The long-short fund uses multiple strategies such as low-risk volatility dispersion trade, long-short portfolio, and option strategies linked to market outlook to generate superior risk-adjusted returns. On the other hand, YES Securities Alpha Plus aims to generate consistent, risk-adjusted returns through diverse derivative strategies. It capitalises on both rising and falling markets, ensuring stable absolute returns. The fund focuses on equity-related financial derivatives, leveraging statistical and quantitative research for risk management. With moderate volatility, it seeks superior risk-adjusted returns over the long term.
Here are the top-10 long-short AIF performers of this month.
Source: PMS Bazaar
*** Post Exp & Tax , ** Post Exp, Pre Tax. ## Gross returns, ### Post Exp & Pre Perf.Fees & Tax,^^ Post Exp & Tax and Pre Perf.Fees , # Below 1 Year returns are Simple Annualized
All Performance above are as on 31 January 2025
Outlook
Despite near-term volatility, the outlook for alternative investments remains positive. The FY25 Union Budget, with its focus on fiscal consolidation and capital expenditure, has laid a strong foundation for long-term economic growth, which in turn supports equity markets and alternative investment strategies.
A key positive takeaway is macroeconomic stability, with the government targeting a fiscal deficit of 5.1% of GDP, down from 5.8% in FY24. This reflects a disciplined approach to fiscal management while continuing to support growth-oriented spending. Additionally, the budget reinforces an infrastructure and capex-driven economic expansion, with a 24% CAGR in capex outlay over the past five years. This focus on roads, railways, and large-scale infrastructure projects creates a strong investment case for AIFs, particularly those positioned to capitalise on long-term economic tailwinds.
On the liquidity front, foreign portfolio investor (FPI) outflows have weighed on Indian equities, but this trend could reverse as global uncertainties settle. Historically, markets have seen FPI inflows return once macro conditions stabilise, which could provide a much-needed boost to sentiment and valuations. Furthermore, India remains well-placed in the equity cycle, with a structural growth story that continues to attract capital, reinforcing the case for alternative investment strategies.
While January 2025 was a challenging month, AIF investors should not be swayed by short-term market fluctuations. Alternative investments are built for long-term wealth creation, and history has shown that periods of volatility often create the best opportunities for superior returns. The structural advantages of AIFs—flexible investment strategies, risk mitigation through hedging, and access to sophisticated fund management—allow them to navigate uncertainty better than traditional equity investments.
As India moves into a phase of stable fiscal policy and continued economic expansion, investors should stay focussed on long-term objectives rather than reacting to short-term market noise. Alternative investments remain a strategic allocation for those seeking consistent, risk-adjusted returns over market cycles.
Disclaimer: This Blog is made for informational purposes only and does not constitute an offer, solicitation, or an invitation to the public in general to invest in any of the Funds mentioned. All the Returns mentioned in this blog are provided by the respective asset management companies and may vary based on their reporting structure (Pre-tax, Post-tax, Post-expenses, etc.). PMS Bazaar has taken due care and caution in the compilation of data and information. However, PMS Bazaar doesn’t guarantee the accuracy, adequacy, or completeness of any information. Investors must read the detailed Private Placement Memorandum (PPM), including the risk factors, and consult your Financial Advisor before making any investment decision/contribution to AIF. This Blog has been prepared for general guidance, and no person should act upon any information contained in the document. PMS Bazaar, its affiliates, and their office, directors, and employees shall not be responsible or liable for any investment action initiated. This Blog is intended only for the personal use to which it is addressed and not for distribution.
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