The persistence of active fund underperformance in India

This is a thought leadership report issued by the S&P Global Institute. This report does not constitute a rating action, neither was it discussed by a rating committee.

The Indian capital market has grown considerably in size and depth over the past decade. Few major markets have combined strong economic growth, a deep and expanding listed equity universe, and a broad spectrum of companies ranging from emerging domestic champions to globally competitive firms. As of June 30, 2026, the Indian equity market, as represented by the S&P India BMI, stood at $2.03 trillion in investable market capitalization, with over 1,100 constituents. India’s local currency government market, as represented by the iBoxx ALBI India Index, had a market value of $1.26 trillion.

There is a common perception that emerging markets may favor active managers. Rapidly evolving markets are assumed to contain greater inefficiencies, while differences in company fundamentals may be expected to reward skilled stock selection. Index-based approaches are sometimes thought to be better suited to more mature markets characterized by greater pricing efficiency.

The evidence from the SPIVA India Scorecard presents a different perspective.

The SPIVA India Scorecard measures the performance of actively managed funds in India against their respective benchmarks over various time horizons, encompassing equity and bond funds domiciled in India (see SPIVA | S&P Dow Jones Indices for more information about SPIVA methodology and coverage).

Across multiple market cycles and economic environments, a majority of actively managed Indian funds have underperformed their respective benchmarks. Although some funds have generated excess returns and certain categories have experienced periods of relative success, long-term results suggest that such success has been less common than may be assumed. 

Active management is often evaluated over short periods, during which outcomes can be influenced by market rotations, factor cycles or style positioning. Over longer horizons, however, temporary advantages may become less important than persistent structural characteristics such as fees, market structure and portfolio implementation decisions.

The SPIVA results suggest that these factors have presented challenges for active managers in India over the past decade, as they have in other major markets covered by SPIVA Scorecards.

This does not imply that actively managed funds cannot outperform. Instead, it indicates that outperforming funds have historically been outnumbered by those that failed to exceed benchmark performance.

Is India a stock picker’s market?  

Persistent underperformance would be less surprising if India exhibited unusually low dispersion or limited differentiation among securities. The opposite appears to be true.

The first half of 2026 provides an example of substantial variation across sectors, industries and market capitalization segments. While the broad S&P India BMI declined 2.4%, performance varied considerably across different market segments. Small-cap equities gained nearly 8%, while large-cap equities declined by more than 5%. Sector performance was even more dispersed, with the spread between the best- and worst-performing sectors within the S&P India BMI exceeding 40 percentage points. Dispersion among individual stocks also increased sharply, reaching levels seen early in the COVID-19 pandemic.

In principle, such conditions might expand the opportunity set for active managers. When dispersion rises, the effect of security selection increases because the gap between stronger- and weaker-performing securities widens. Managers who identify stronger-performing securities may generate meaningful outperformance relative to benchmarks.

Dispersion itself does not guarantee outperformance; it expands the range of possible outcomes. It creates opportunities for success while increasing the risk of failure. The SPIVA results show that although India offered abundant opportunities for stock selection, most active funds did not convert those opportunities into outperformance over the long term.

The manager selection challenge

For fund selectors, the practical challenge is identifying in advance which funds will deliver excess returns, not just deciding whether active management can work. This distinction often receives less attention than broad underperformance statistics, yet it may be more important from an implementation perspective.

The active fund quartile analysis highlights the large dispersion in active fund outcomes. Some funds generated meaningful excess returns relative to benchmarks, while others significantly lagged. However, the distribution of outcomes has historically been asymmetric.

Across multiple categories, the analysis showed that the downside associated with selecting a weaker active fund exceeded the upside associated with selecting a stronger fund. At the quartile breakpoints, the shortfall of bottom-quartile funds was greater than the excess return of top-quartile funds. Selecting outperforming funds remains a distinct challenge for those considering active management. 

Survivorship adds another dimension

The quartile analysis includes only funds that survived through the end of the 10-year measurement period. This distinction is important because the funds available to investors at the beginning of a period include those that may subsequently be merged or liquidated.

Across the five categories, only 74.3% of the 354 funds that existed at the beginning of the 10-year period survived through June 30, 2026. Survivorship varied substantially by category. It was highest among Indian Equity Mid-/Small-Cap funds, at 90.0%, and lowest among Indian Government Bond funds, at 57.5%.

Because nonsurviving funds are excluded from the quartile analysis, the returns of surviving funds may present a more favorable picture than the experience of the original fund universe. The SPIVA underperformance calculations address this potential survivorship bias by including the entire starting opportunity set. 

India has developed a large and diverse capital market, with substantial variation across sectors, companies and market capitalization segments. These characteristics have created a broad opportunity set for active decision-making. Recent increases in sector and stock-level dispersion provide one example of the differences in performance seen across the Indian equity market.

Yet the long-term evidence from the SPIVA India Scorecard highlights an important distinction between opportunity and outcome. Although the market has offered substantial opportunities for active management, consistent outperformance has remained relatively uncommon.

The central question is not whether benchmark outperformance is possible, because the results show that some managers achieved it. The relevant challenge for fund selectors is identifying those funds in advance while accounting for the asymmetry of fund outcomes and the possibility that a selected fund may subsequently be merged or liquidated.

Despite the perception that India and emerging markets more broadly may provide fertile ground for active management, the SPIVA evidence shows that benchmark performance is a difficult standard for most Indian active funds to exceed over the long term.