Equity markets in September 2023
After four months of FPI inflows, September 2023 saw FPI outflows. FPIs had infused $5.3 billion in May, $5.4 billion in June, $5.7 billion in July 2023, and $1.49 billion in August. After more than $18 billion was infused into Indian equities in 4 months, FPIs turned net sellers in September 2023 to the tune of $1.78 billion. What really impacted the market sentiments was that FPIs were net sellers on most days during the month of September. However, that did not lead to deep cuts in the Nifty since the month of August had already seen a sharp correction in the Nifty.
During the month, Nifty bounced sharply to recoup the 20,000 mark, but lost substantial ground in the last 10 days. Despite the late correction, Nifty closed +2.00% higher, while the Nifty Next-50 closed +1.40% up. Like in August, smaller companies continued to attract buying interest with the Mid-Cap 100 closing +3.63% higher for the month while the Small Cap 100 index closed with +1.92% gains. The key challenges for the markets continue to be; domestic inflation, Fed hawkishness, valuation concerns and likely shutdown in the US government. These factors led to Nifty giving up most of its gains in the second half of the month. Here is the India equity story through equity funds across time frames.
Table of Content
Equity large-cap funds
The equity large cap funds have been seeing mixed performance as kurtosis has hit the performance of these funds. The table below the top performing Direct Plans (Growth Option) across time frames, but ranked on 5-year returns as of September 2023.
Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Canara Robeco Blue-Chip (G) | 18.637% | 21.287% | 16.407% |
| Nippon India Large Cap (G) | 28.214% | 31.381% | 16.133% |
| Baroda BNP Paribas Large (G) | 20.813% | 21.917% | 16.065% |
| BSE 100 (TR) Index | 16.089% | 22.529% | 14.046% |
While the top 3 funds have been consistent in this space, the returns on large cap funds continued to lag multi-cap funds, mid-cap funds and small cap funds. There is an increasing shift of large cap flows from large cap funds into passive index funds.
Equity multi-cap funds
The equity multi-cap funds have seen some smart performance, thanks to the alpha capabilities of small and mid-cap stocks. The table captures the top performing Direct Plans (Growth Option) across time frames, but ranked on 5-year returns as of September 2023.
Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Quant Active Fund (G) | 20.434% | 33.873% | 25.190% |
| Mahindra Manulife Multi (G) | 27.978% | 33.005% | 22.169% |
| Nippon India Multi Cap (G) | 32.295% | 39.304% | 19.507% |
| BSE 500 (TR) Index | 17.476% | 24.259% | 15.123% |
The multi-cap funds have been consistently outperforming the large cap funds by a margin and are increasingly being used even from a financial asset allocation perspective.
Equity mid-cap funds
The equity mid-cap indices are at all-time highs and that is reflecting in the performance of these funds too. They normally give the best returns amidst low oil prices and a stable rupee. Here are the top mid-cap funds by 5-year return performance.
Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Quant Mid-Cap Fund (G) | 31.708% | 40.553% | 26.312% |
| PGIM India Mid-Cap Fund (G) | 11.858% | 31.217% | 24.682% |
| Nippon India Growth Fund (G) | 32.207% | 34.492% | 23.020% |
| BSE Midcap (TR) Index | 31.630% | 31.572% | 18.294% |
The equity mid-cap funds have produced some long term winners in sectors like IT, pharma, healthcare, logistics, chemicals, defence etc. That is where most of the alpha is coming from.
Equity small-cap funds
The equity small cap funds have been the big find of the last 2 years, if you look in terms of the flows and AUM. In 2023 alone, they have risen more than 30% and are close to their highs. Here are the top small cap funds by 5-year return performance.
Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Quant Small Cap Fund (G) | 42.068% | 47.732% | 30.939% |
| Nippon Small Cap Fund (G) | 38.980% | 44.172% | 26.644% |
| Axis Small Cap Fund (G) | 25.332% | 34.727% | 26.453% |
| BSE Midcap (TR) Index | 33.169% | 37.353% | 22.212% |
The equity small cap funds have been one of the top alpha creators even in tough market conditions. One challenge is that availability of small stocks is not in sync with the demand from small cap funds, so many of these funds have been forced to restrict inflows.
Equity linked savings schemes (tax saving)
The ELSS Funds are essentially multi-cap funds that offer tax savings but with a 3-year lock-in period. The lock-in ensures that the liquidity pressures on the fund are reduced. Here are the top ELSS funds by 5-year return performance.
Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Quant Tax Plan (G) | 18.441% | 36.581% | 26.820% |
| BOI Tax Advantage (G) | 26.308% | 26.975% | 21.517% |
| Mirae Asset Tax Saver (G) | 22.526% | 25.249% | 18.799% |
| BSE 200 (TR) Index | 16.070% | 23.302% | 14.689% |
The ELSS funds have been losing sheen for two reasons. Firstly, the Section 80C limits are still too low and without that benefit, investors don’t see incremental value in ELSS funds. Secondly, the new tax regime is likely to be a dampener for ELSS demand.
Index funds (equity)
Index funds are passive and the focus is not on beating the index, but on reducing tracking error. However, this segment has grown substantially in the last few years. Here are the top index funds by 5-year return performance.
Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| DSP Nifty-50 Equal Weight (G) | 21.660% | 28.183% | 14.604% |
| Nippon India Sensex Fund (G) | 18.036% | 21.291% | 13.734% |
| ICICI Pru Sensex Fund (G) | 17.876% | 21.142% | 13.704% |
Equity funds overall have had a good month as the Nifty is up 2% for the month.
Key takeaways from the equity fund story
While equity funds continue to outperform the market, it is the category of mid-caps, small caps and multi-caps that have done genuinely better. But the real takeaway from these rankings is more important. Mutual fund rankings across equity categories have been consistent; which means the winners are repeating month after month. So, investors looking at past returns to select funds for the long term, should be a happy lot, since past returns are a fairly reliable indicator of future performance. The focus can now shift to asset allocation.
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