Explained: How Indian fund managers are outperforming foreign rivals

Local fund managers in India have successfully managed to outperform global peers and retail investors for the past two years. Find out how they succeeded.

Local fund managers success story

Local fund managers have performed better than foreign and retail investors for the past two years. (Photo: Reuters)

Indian fund managers have been consistently beating the choices of foreign peers and retail investors for the past two years. The impressive track record signals that local fund managers have become proficient at using knowledge about various aspects to avoid making wrong moves.

But how have local fund managers honed their stock-picking skills to such an extent? The answer lies in years of corporate scandals that have taught domestic fund managers to stay out of harm’s way, according to a Bloomberg News report.

An equal-weighted basket of Indian stocks with high domestic mutual fund ownership and low foreign ownership has been performing well for the past two years, according to data compiled by Bloomberg.

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The report suggested that local fund managers have gained valuable experience from past corporate scandals, helping them avoid investing in failed stocks. Local funds have performed well as they have more exposure to mid-and-small-caps in comparison to foreign peers

Local fund managers have successfully picked better bets than the country’s retail investors as well. It may be noted that the number of retail investors surged sharply during the pandemic.

The data compiled in the Bloomberg report suggested that stocks with high Indian mutual-fund ownership rose at a compound annual growth rate of 16 per cent over the past 12 years, compared with 11 per cent for stocks with high foreign ownership and 13 per cent for these with high retail investor stakes.

Local fund managers have also performed better than overseas and retail investors as they have kept holdings small in companies that have reported governance issues. Simply put, better knowledge about the local market environment, governance issues and understanding of market dynamics have helped domestic fund managers.

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