PMS performance outlook: What investors should expect in 2026

As returns moderated, leadership shifted, and markets offered fewer “easy” opportunities, 2025 felt like a reset after two strong years for Indian equities. For PMS portfolios, this translated into a year where outperformance became harder to generate and more dependent on specific decisions rather than broad market tailwinds. That said, the year also offered useful signals: which styles held up better in a choppier environment, how legacy franchises started narrowing the gap, and what may drive outcomes in 2026.   

A pause after two strong years 

There was a clear slowdown in market momentum in 2025. Broad market returns were relatively muted (Nifty 500 up 6.7%), and—more importantly—market leadership changed. 

After two years of significant small- and mid-cap outperformance, 2025 saw small and mid-caps underperform large caps (BSE Midcap up 5.4%, BSE Smallcap -6%). This mattered because many PMS strategies had benefitted meaningfully from the breadth and momentum in smaller companies during 2023–24. 

In other words, 2025 didn’t remove opportunity—it simply made opportunity more selective. Investors had to work harder for returns, and the dispersion between different approaches became more visible.   

Why most PMS firms struggled 

A key theme of 2025 was that alpha generation moderated across the PMS industry. In the strong bull phase of 2023 and 2024, especially in mid and small caps, many PMS strategies (particularly newer and more aggressive ones) could outperform meaningfully. Smaller AUM and nimble portfolios helped, and the market’s risk appetite was supportive. 

With returns cooling and leadership rotating in 2025, that broad-based outperformance became harder to sustain. This was visible across portfolios that were positioned for a continuation of the previous cycle, especially where allocations were concentrated in pockets that had already seen sharp valuation expansion. 

For investors, this is a normal part of how cycles work. PMS returns tend to look strongest when a manager’s style is aligned with the market’s leadership. When leadership rotates, results converge—and the role of portfolio construction and risk management becomes more important.   

A meaningful 2025 shift: The gap vs ‘franchise’ names narrowed 

One of the more interesting developments in 2025 was the relative improvement in several high-franchise, long-standing PMS firms, such as ASK, ENAM, Motilal, Alchemy, and other established platforms. 

Many of these managers struggled in 2023–24 as market performance was driven by parts of the market that were not always “quality-first.” As markets became more subdued in 2025, these managers began to stabilise and, in several cases, improve relative performance. This is still early and not necessarily a full rebound, but the trend that stood out was a narrowing of the performance gap between legacy franchises and the newer entrants that had shone in the earlier phase. 

This matters because it reinforces a useful allocation insight: different PMS styles come in and out of favour, and investors are better served by understanding a manager’s repeatable process than by extrapolating the last 12–18 months.   

Who stood out in 2025: Differentiated calls and strong thematics 

In a year where many PMS firms found it challenging to deliver meaningful outperformance, a few strategies did stand out, largely driven by differentiated positioning. 

One example was Aequitas, where an aggressive allocation towards gold contributed meaningfully to performance. In years like 2025, such asset-allocation and hedging decisions can have an outsized impact, particularly when equity leadership is narrow. 

More established firms that featured in the outperformers’ conversation were Carnelian and Buoyant, along with select thematic strategies that benefited from clearer sector tailwinds. In particular, themes like healthcare (Incred Healthcare) and new age digital-oriented portfolios (IME Digital Disruption) were among the areas that held up relatively better, especially where managers backed the theme with companies having credible earnings visibility rather than purely narrative-driven exposure. 

The takeaway from the outperformers is straightforward: 2025 rewarded specificity—getting a few important calls right mattered more than simply being broadly exposed to the strongest part of the market.   

The 2025 takeaways 

If 2025 taught investors anything, it’s that PMS selection should not be a “last year’s winners” exercise. A better approach is to evaluate: 

● the repeatability of the investment process 

● how portfolios behave in drawdowns 

● whether the strategy’s edge is clear (and not overly dependent on one market regime), and 

● whether concentration and liquidity risks are being managed intentionally.   

2026 outlook 

This year, markets are building expectations around a gradual growth revival, but the backdrop is still mixed. On the positive side, you have potential tailwinds from policy support and a meaningful reduction in interest rates—both supportive for consumption and capex over time. On the cautious side, corporate earnings have been subdued, nominal growth has looked soft, and geopolitical uncertainty remains. 

Within this context, our base case is that the market may remain more balanced, with less extreme outperformance gaps between large, mid, and small caps—unless India sees a very strong growth rebound that creates a 2023–24-like environment. 

If that balanced setup plays out, PMS outcomes are likely to be driven by: 

1. Managers who get key sector/theme calls right and implement them with discipline. 

2. Consistency of process and portfolio construction, rather than momentum-led style tailwinds. 

3. A more selective set of outperformers—fewer “everyone wins” years, but still meaningful opportunities for skilled managers.    

Overall, 2025 was not a verdict on PMS as a category; it was a reminder that PMS performance is cyclical and skill becomes more visible when markets are less one-directional. As 2026 unfolds, investors should expect outcomes to be more differentiated—driven by the quality of decisions, not just the direction of the market. 

(Anand is founder & CEO, IME Capital. Views are personal.)