Three dozen PMS strategies deliver positive returns, and over 340 schemes fall less than the benchmarks

What a turn of events in October! After achieving the milestone of 26,000 in Sep’24, the Nifty50 corrected in Oct’24 due to the geopolitical tensions in the Middle East, weak quarterly performance for 2QFY25 and highest ever monthly selling by Foreign Portfolio Investors (FPIs). The index closed over 1,600 points (or 6.122% MoM) lower at 24,205. This was the steepest MoM decline since Mar’20, a period marked by the Covid-19 pandemic. 

All the major sectors of the domestic equity market ended in the red in October, with Automobiles, Oil & Gas, Consumer, Utilities and Realty emerging as the top laggards. Even in this gloomy environment, top-performing PMS strategies clocked up to a 6% positive return this month. In total, about three dozen PM schemes recorded positive returns even as benchmarks were extremely weak, and over 340 schemes (over 80%) beat the benchmarks (Nifty50: down 6.12%, BSE500: down 6.45%) out of 420-odd total tracked by PMS Bazaar. 

Based on category average returns, Smallcap, Small & Midcap, and Thematic PMS strategies notched up the best performer spots in October. Multi-asset PMS strategies also performed better than the broader equity market, followed by Midcap, Flexicap, and Multicap PMS offerings. PMS fund manager expertise influenced performance this month, a period when across the board equities were badly hit. 

Top 10 PMS strategies of October 2024

In a sea of red when it comes to category average returns this month, outliers did shine. The top performers in many categories showed that its possible for select PMS funds to clock positive returns and attractive alpha even in a month when markets tumble. While unlike previous months the top-10 don’t have too many big hitters, the list in October with 1-6% returns stands out because Nifty50 and BSE500 both lost ground. Let us take a look at the best performers.

At the number 1 spot is InCred Asset Management’s Healthcare Portfolio with a 6.12% return in October. The over 3-year old PMS strategy, thus delivered, over 1200 basis points alpha in one single month. The PMS strategy is run like a multicap offering, with a higher focus on midcap and smallcaps in the pharma, hospitals, diagnostics and insurance pockets.

Separated by just 1 basis point, Wallfort PMS’ Ameya Fund was a close number 2 with a 6.11% gain this month. Consistent performance by this 2-year old small & midcap PMS strategy has earned it a position among the best performers for the last 12-month period too. The offering is known to target absolute returns by investing in undervalued equities while retaining the option of moving into debt to shield the portfolio from shocks. 

Sunil Singhania’s Abakkus Emerging Opportunities was number 3 with a decent 3.18% gain in October. Also a small & midcap PMS approach, this 4-year-old strategy has an interesting game-plan of typically pursuing the 2nd or 3rd player within the sector but at a significant discount to the leader.   

The performance of the top 10 strategies and their comparison with Nifty50 TRI and BSE500 TRI for the month are given below.

Category-wise performance of PMS players

While September did see decent moves in the market, the market mood reversed in October. The corporate earnings scorecard for the second quarter of FY25 has been weak, with the spread deteriorating. A sharp drag from global commodities has been the factor to blame.

Make no mistake, category average returns of main buckets were all in the negative. From a category perspective, Smallcap PMSes were the best (down 2.36%), followed by Small & Midcap (down 2.53%), Thematic (down 3.19%), Multi Asset (3.43%), Midcap (down 3.86%),  Flexi Cap, and Multicap. Large & Midcap and Large Cap were two categories that fared worse than broader benchmarks. 

The performance of the categories is depicted below in the chart.

Smallcap category

The Smallcap PMS category with 20 tracked offerings generated an average return of -2.36% in October, much lower than the losses of Nifty50 TRI and S&P BSE 500 TRI. In a weak market, smallcap PMSes proved to be a wealth protector. In total, 100% of schemes beat Nifty 50 TRI and S&P BSE 500 TRI in October.  

Centrum PMS Micro, Sundaram Alternate Assets’s Rising Stars and ithought Financial Consulting’s VRDDHI strategies took home the honours as the 3 best-performing smallcap PMS strategies this month. Aequitas Investment Consultancy’s India Opportunities, Ambit Investment Advisors’ Emerging Giants and Fort Capital Investment Advisory’s Value Fund also delivered decent performance in this category.

Small-cap PMSes seem to have outperformed in this falling market due to their focus on smaller companies with high growth potential. These stocks often react differently to broader market trends, potentially benefiting from factors like sector-specific tailwinds or unique business models. Additionally, skilled PMS managers seem to have identified undervalued stocks and timed their investments strategically, leading to outperformance even in challenging market conditions.

Following are the top performers in smallcap category:

Top 3 PMS approaches: Smallcap category

Small & Midcap category

Helped by smallcap investments, Small & Midcap PMS category came in overall 2nd in October. With an average return of -2.53%, this blended basket of PMS approaches performed creditably well in this bad month for equities in general. Out of the 42 PMS offerings in this category, over three dozen beat the benchmarks. About 8 approaches clocked positive returns.  

Wallfort PMS and Advisory Services Ameya Fund with 6.11% was a massive alpha-generator in October.  Abakkus Asset Manager’s Emerging Opportunities and Electrum Portfolio Managers’ Laureate posted positive returns. Other notable strategies in this category include Atlas Integrated Finance’s Midcap PMS, Badjate Stock Shares’ Aggressive and Composite Investments’ Emerging Star Fund.

While small & midcap PMSes carry higher risk, skilled PMS managers can identify undervalued stocks with strong fundamentals and growth prospects. These stocks can outperform in specific market conditions. Additionally, disciplined portfolio management and risk control appear to have mitigated the impact of market volatility, leading to better relative performance.   

Top 3 PMS approaches: Small & Midcap category

Thematic category 

October 2024 witnessed classical bearish sentiments. In such phases, historically, pharma and healthcare stocks perform well given their ‘defensive’ label. This was seen in the thematic PMS category this month. While the category average returns of -3.19% do show losses, Incred Asset Management’s Healthcare Portfolio (up 6.12%) and Valcreate Investment Managers’ Lifesciences and Specialty Opportunities (up 2.97%) are examples of defensive sectors/themes doing well in October. 

Out of 18 PMS schemes tracked in this category, 14 outperformed S&P BSE 500 TRI and Nifty 50 TRI. So, a majority of the approaches in the category protected investor wealth compared to the markets. Ambit Global Private Client’s Ambit Build India, Green Portfolio’s The Impact ESG Fund and Super 30 Dynamic, and PGIM India’s Equity Portfolio are examples of thematic PMSes that weathered the storm better than many.

The October performance of thematic PMS strategies goes to show that if the chosen theme aligns with long-term secular trends that are relatively insulated from short-term market fluctuations, it can provide a defensive hedge. 

Top 3 PMS approaches: Thematic category

Multiasset category 

Multi-asset PMSes invest across various asset classes like equities, fixed income, and commodities, with the aim to diversify risk and generate consistent returns over the long term. Skilled managers handling multiasset PMS funds in October helped the category arrest losses at 3.43%, almost half of the equity benchmarks.  

The multiasset category, which comprises 17 schemes, saw almost all of its constituents beat stock markets. Though none of the strategies eked out positive returns this month, it appears they capitalised on opportunities across different asset classes and diversification helped mitigate downside risk even in a volatile market environment. 

Notable performers from this category included Agreya Capital Advisors’ Multi-Asset Enhancer, Eklavya Capital Advisors’ Long Term Value, Pace Financial Investment Adviser’s Smart Alpha, ithought Financial Consulting’s SPHERE and NIO, and Asit C Mehta Investment Intermediates’ ACE - Regular Income.\

Top 3 PMS approaches: Multiasset category:

Midcap category

In October, the performance of 24 midcap PMS approaches was pedestrian, resulting in an average return of -3.86%. Midcap stocks, for some time now, have been trading at a significant valuation premium to largecaps and thus recent performance may reflect investor concerns and profit-taking. 

While none of the midcap PMSes clocked positive returns in October, the good news is that 21 of 24 strategies fell less than S&P BSE500 TRI and Nifty50 TRI benchmarks. Top performers of this PMS category this month include 3 schemes from Unifi Capital (Insider Shadow, BCAD2 Breakout20 and BCAD), 2 schemes from Marcellus Investment Managers (Little Champs and Rising Giants) and one from Emkay Investment Managers (Pearls).

A shift in investor preference towards defensive sectors or value stocks could have negatively impact the performance of growth-oriented mid-cap stocks, but risk management by individual PMSes may have helped navigate challenging markets in an efficient way. 

Top 3 PMS approaches: Mid cap category

The performance of the category in October with respect to the S&P BSE 500 TRI and Nifty 50 TRI is depicted in the graph below.

Flexicap category 

With as many as 57 PMSes in flexicap category, this is one of the biggest buckets in the portfolio management services landscape. The flexicap structure allows funds to dynamically adjust their allocation between large-cap, mid-cap, and small-cap stocks based on market conditions and investment opportunities. And, October 2024 provided a good practice pitch to be agile.

While the flexicap category average return of -3.87% in October takes them very close to midcap, the truth is flexicap PMSes performed reasonably well as 50 strategies fell lower than markets. Two strategies also managed to clock positive returns, something midcap PMS category couldn’t!

Dynamic tweaks to the portfolio, active management strategies and a move towards safer stocks could have helped flexicap PMSes shield investor wealth better this month.

Multicap category

Multicap strategies’ count currently stands at 180 and thereby accounts for close to half of the tracked offerings in the PMS universe. Undoubtedly, this category is the biggest among all and a lot of investor wealth resides in this basket. This crucial segment posted an average loss of 4.26% return in October, lower than S&P BSE500 TRI and Nifty50 TRI. 

In essence, 148 of 180 schemes i.e. 82% beat Nifty50 TRI (down 6.12%) this month. Compared with S&P BSE 500 TRI (down 6.45%), the outperformance hit-rate went up to 86%! 

The diversified nature of portfolio construction of multicap PMSes means that during volatile times, such strategies have room to eke out better performance.

With numerous schemes vying for the top spots, the top three positions in October went to Prithvi Finmart’s Balanced Portfolio, Ambit Global Private Client’s Alpha Growth and Samvitti Capital’s PMS Active Alpha Multicap. Other notable performers from this category include Bonanza Portfolio Multicap and Value, Stallion Asset Core Fund, Anand Rathi Advisors’ Impress PMS, Fractal Capital Investments’ Wealth Builder, Agreya Capital Advisors’ Total Return and Arthya Wealth and Investments’ All Star Opportunities.

Top 3 PMS approaches: Multicap category

The performance of the category in October with respect to the S&P BSE 500 TRI and Nifty 50 TRI is depicted in the graph below.

Bottom line 

Despite a steady course through recent events like elections and budget announcements, Indian equities now face potential headwinds. The Israel-Iran conflict has intensified an already tense backdrop, with geopolitical strains from the Russia-Ukraine and Israel-Palestine situations persisting. Adding to the uncertainty around US President-elect Donald Trump’s India policies. Meanwhile, China's economic stimulus efforts have triggered a tactical retreat of foreign investments from India. Corporate earnings, after four years of solid double-digit growth, are now beginning to feel the squeeze, pressured by rising commodity costs. In such a scenario, it is easy to lose sight of the long-term prospects of the Indian economy. Investors must remember that India’s long-term prospects remain strong, fuelled by a young population, digital transformation, and economic reforms. Despite near-term challenges, growth potential in sectors like technology, renewable energy, and infrastructure positions India as a promising hub for sustained global investment and innovation.