In a year when Indian shares have hit record highs, the country's embattled fund managers are headed for a milestone of their own: their worst performance since the global financial crisis in 2008.
The poor showing comes at a bad time for an industry already under pressure from a market regulator angry about results and an ongoing exodus of retail investors from Indian stocks.
India's top 20 diversified equity funds, with $12.4 billion in assets, are up only 0.5 per cent this year, Thomson Reuters data shows, even as the BSE Sensex has risen 8 percent after hitting a record high early this month.
That is the worst relative performance since 2008, which also saw the BSE's Sensex benchmark hit a record high before the global market meltdown. Although each fund has its own benchmark measure, performance against the Sensex is the broad yardstick used by investors.
Their poor showing could make the Securities and Exchange Board of India (SEBI) scrutinise more harshly applications for new funds.
Chastened fund managers blame a volatile year that saw the rupee plunge to a record low, as well as a drop of as much as 10.2 percent in the BSE index through mid-August before it surged to a record high.
"If you followed the news flow at the beginning of the year, coupled with all the uncertainties about the Fed taper and rupee correction, our mandate was to be very, very conservative," said Prashant Jain of HDFC Asset Management, one of India's most famous stock pickers. "Clearly that played to our disadvantage."
HDFC Asset Management's Top 200 Fund is flat this year, while its Equity Fund is down 2.2 percent. India's two largest equity funds, both managed by Jain, each manage more than $1.5 billion.
In addition to being overly cautious at the beginning of the year, Jain was hurt by bigger exposure to state lenders such as State Bank of India, which have struggled.
Meanwhile, Reliance Capital Asset Management, India's second-largest fund house, was heavily weighted towards riskier midcaps, which went on to struggle, whereas blue chips outperformed on strong foreign inflows.
"Foreign investors have been more active than domestic investors, and as a result of that, the money has been largely concentrated in very few large companies," said Sunil Singhania, head of equities at Reliance Asset Management.
"You have had this temporary aberration where nothing except the top companies have done well," he added.
Singhania's two funds, with a combined