FY22 was a roller coaster ride for  Indian equity markets. Each quarter saw significant events impacting the markets, including some occurring out of the blue. It started out with the second wave of Covid-19 in Q1FY22, which was more severe than the first wave. We saw a repeat of lockdowns and restrictions bringing economic activity lower. The following quarters saw different sectors face challenges, like semiconductor shortages in the auto industry and rising freight costs for exports due to the limited availability of shipping containers. Commodity prices also saw sharp increases leading to margin pressure across industries on account of raw material inflation. 

In Q4FY22, the impact of geopolitics played out with the Russia-Ukraine war. As we step into FY23, let us look at the mutual fund managers who generated superior returns for investors as well as those who underperformed their respective categories in FY22.

Data for actively managed equity funds considered for analysis encompasses all the AMCs (asset management companies) and schemes with a closing AUM (assets under management) of more than Rs 100 crore in FY22. The benchmarks considered are the benchmark indices for the respective category.

Quick Take

• In the Large Cap category, only five funds outperformed the benchmark Nifty 100 TRI (total returns index) return of 20.6% in FY22
• The top-performing schemes in the Mid Cap, Multi Cap, Small Cap, and ELSS categories outperformed their respective benchmarks by more than 20%, and all are managed by fund managers from one AMC, i.e Quantum AMC
• Multi Cap was the best performing category with most schemes delivering higher than benchmark returns
• In the Flexi Cap category, Parag Parekh Flexi Cap Fund scheme was the best performing scheme with returns of 30.2% in FY22
• In the Value category, IDFC Sterling Value Fund scheme was the best performing in its category for the second consecutive year, with returns of 36.6% in FY22

Large Cap Funds - Nifty heavyweights deliver outperformance

By its very definition, the large-cap category invests in stocks that form part of the Nifty 50 index. Some of the companies with the highest market capitalisation which contributed alpha to outperforming funds include State Bank of India, Coal India, Reliance Industries , Infosys and Tata Consultancy Services.

Nippon India Large Cap Fund Growth scheme managed by Sailesh Raj Bhan and Kinjal Desai was the top performer in its category. The category beating returns came from heavyweights like Reliance Industries, banking stocks like ICICI Bank and State Bank of India, and IT services majors Infosys and HCL Technologies. 

Other outperformers include Invesco India Large Cap Fund Growth managed by Nitin Gosar and Amit Nigam, and IDBI India Top 100 Equity Fund Growth managed by Alok Ranjan. 

Laggards in this category include PGIM India Large Cap Fund Growth managed by Alok Agarwal and Ankur Murarka, DSP Top 100 Equity Fund Reg Growth managed by Jay Kothari and Vinit Sambre and ITI Large Cap Fund Reg Growth managed by George Joseph and Pradeep Gokhale

Mid Cap Funds - Power and IT services companies contribute to outperformance 

In the mid cap category, stocks like Trident, JSW Energy and Tata Elxsi delivered more than 200% returns in FY22. Some of the IT services companies that delivered returns in excess of 100% include Mindtree and Persistent Systems. Funds which included these as part of their portfolio were outperformers.

The top performer in this category was Quant Mid Cap Fund Growth scheme managed by  Sanjeev Sharma and Vasav Sahgal. This scheme delivered 48.9% returns in FY22, beating the benchmark Nifty Midcap 100 by 23.6% points. Some of the stocks in their portfolio that delivered more than 100% returns in FY22 include Linde India, Indian Hotels, and Tata Power.

Outperformers also include Motilal Oswal Midcap 30 Fund Reg Growth managed by Abhiroop Mukherjee and Niket Shah with 38.2% returns, and PGIM India Midcap Opportunities Fund Reg Growth, managed by Aniruddha Naha and Vivek Sharma with 35.3% returns in FY22.

Some of the schemes underperformed due to the sheer number of stocks in the portfolio. With a large number of stocks, some schemes were able to allot only 3.5% as maximum exposure to a single stock. This led to lower allocation to some high return stocks, ultimately lower overall portfolio return. Laggards in this category include IDBI Midcap Fund - Reg Growth managed by Alok Ranjan, Franklin India Prima Fund Growth managed by R. Janakiraman and Sandeep Manam and DSP Midcap Fund Growth managed by Vinit Sambre, Resham Jain and Jay Kothari. 

Multi Cap Funds - Except for one, all other schemes outperformed the benchmark

Multi cap funds have a wider platform for fund managers to choose from. This category also had the advantage of many new stocks entering portfolios of various schemes, with new IPOs being listed in FY22. Funds that were judicious in the selection of such stocks outperformed. Only one fund in this category underperformed the benchmark Nifty 200 TRI returns of 21.4% in FY22.

The best performing Multi Cap scheme was Quant Active Fund Growth scheme managed by Sanjeev Sharma and Vasav Sahgal. Stocks delivering more than 100% return in FY22 that were part of its portfolio include Gokaldas Exports (392%), HFCL (207%) and TV18 Broadcast (157%).

Other notable schemes that outperformed their benchmark indices include Nippon India Multi Cap Fund - Growth, managed by Sailesh Raj Bhan and Kinjal Desai Baroda, and BNP Paribas Multi Cap Fund Regular Growth managed by Sanjay Chawla and Sandeep Jain, ICICI Prudential Multicap Fund Growth, managed by Priyanka Khandelwal and Prakash Goel, Invesco India Multicap Fund Growth managed by Pranav Gokhale and Amit Nigam.

The only scheme that underperformed the benchmark was ITI Multi Cap Fund Regular Growth managed by George Joseph and Pradeep Gokhale. A reported annual turnover ratio of 843% suggests that too much churning of the portfolio resulted in underperformance.

Small Cap Fund - High-risk category also delivers the highest return 

Considered amongst the highest risk categories, the highest returns among all categories were delivered by two schemes returning more than 50%. The top-performing scheme was Quant Small Cap Fund Growth scheme managed by Sanjeev Sharma and Vasav Sahgal delivering 57.8% returns in FY22. Alpha was generated by textile stocks, Nahar Spinning Mills (402%), and Nitin Spinners (186%) along with Praj Industries (105%) and VRL Logistics (110%).

Other outperforming schemes in the Small Cap category were Canara Robeco Small Cap Fund Reg Growth  managed by Shridatta Bhandwaldar and Ajay Khandelwal and L&T Emerging Businesses Fund Reg Growth  managed by Venugopal Manghat and Vihang Naik

Laggards in the Small Cap category were SBI Small Cap Fund Growth managed by R. Shrinivasan, Aditya Birla Sun Life Small Cap Fund Growth managed by Kunal Sangoi, and Dhaval Gala, and ITI Small Cap Fund - Reg – Growth managed by George Joseph and Pradeep Gokhale.

Flexi Cap Fund - Some outperformers clearly stand out in this category

This relatively new category was defined by the regulator in November 2020. In a Flexi Cap scheme, minimum investment in equity and equity-related instruments should be 65% of total assets, irrespective of market capitalisation. 

This category found favour in FY22, with AMCs launching new schemes in this category or aligning other Multi Cap schemes to fit this category. Delivering the highest returns in this category was the Parag Parikh Flexi Cap Fund Regular Growth managed by Rajeev Thakkar and Raunak Onkar. This was earlier a Multi Cap Fund but got recategorised as a Flexi Cap scheme to comply with SEBI guidelines. Before recategorisation, it was the best performing Multi Cap scheme for three consecutive years and is the best performer in the Flexi Cap category in the last two years.

One of the biggest advantages of this scheme was that it generated alpha from international equity investments. Even after running into a rough patch with regulatory issues in Q4FY22 which restricts it from further investment in international equities, it continues to be a consistent top ranking fund.

Other standout schemes from this category include IDBI Flexi Cap Fund Regular Growth managed by Alok Ranjan and HDFC Flexi Cap Fund Growth managed by Prashant Jain and Sankalp Baid.

Laggards in this category were DSP Flexi Cap Fund Growth managed by  Atul Bhole and Abhishek Ghosh, LIC MF Flexi Cap Fund Growth managed by  Yogesh Patil and Motilal Oswal Flexi Cap Fund Reg Growth managed by Abhiroop Mukherjee and Siddharth Bothra.

ELSS - Superior returns by some schemes add to the tax advantage of this category

ELSS (equity-linked savings scheme) is popular among investors as it offers tax benefits. Its three-year lock-in period also gives fund managers more flexibility as compared to other categories. There is less pressure on the scheme for redemptions due to the lock-in period and fund managers can deploy funds for longer time periods.

In this category as well, the highest returns were delivered by a scheme from Quant AMC, Quant Tax Plan Growth scheme managed by Vasav Sahgal and Ankit Pande. Data points out that this scheme is generated alpha by exiting some of the stocks which have delivered high returns, like Century Textiles (90.5%) and Nureca (135%) along with adding higher weightage to stocks like Vedanta (98%) and Adani Enterprises (86.6%).

Other notable outperformers include IDFC Tax Advantage (ELSS) Fund Regular Plan Growth scheme managed by Daylynn Pinto and PGIM India ELSS Tax Saver Fund Regular Growth scheme managed by Srinivas Rao Ravuri and Utkarsh Katkoria

Underperformers in this category were Aditya Birla Sun Life Tax Relief 96 Growth scheme managed by Ajay Garg, Aditya Birla Sun Life Tax Plan Growth scheme managed by Ajay Garg and ITI Long Term Equity Fund Regular Growth scheme managed by George Joseph and Pradeep Gokhale

Value Fund - Some schemes continue to deliver value to investors

Value fund is a category that follows the value investing philosophy. During FY22, many IT services stocks and energy companies turned out to be profitable value picks by fund managers.

The best performing scheme in this category in FY22 was IDFC Sterling Value Fund Regular Plan Growth scheme managed by Anoop Bhaskar and Daylynn Pinto. Alpha was generated by stocks like Persistent Systems (146%), Butterfly Gandhimathi (153%), and KPR Mills (210%).

Other schemes that outperformed were ICICI Prudential Value Discovery Fund Growth scheme managed by Priyanka Khandelwal and Sankaran Naren and Nippon India Value Fund Growth scheme managed by Meenakshi Dawar and Kinjal Desai.

Underperformers included Aditya Birla Sun Life Pure Value Fund Growth scheme managed by Milind Bafna, Tata Equity P/E Fund Regular Growth scheme managed by Sonam Udasi and Amey Sathe, Quantum Long Term Equity Value Regular Growth scheme managed by Nilesh Shetty.

Though this analysis is a point-to-point one-year return on schemes, it gives a broad sense of which funds generated wealth for investors. Some schemes have worked well and some may need to be reviewed by investors. The challenge for outperforming schemes is to continue beating benchmark returns in FY23.