Timing and selectivity performance of Indian mutual funds

Purpose The purpose of this article is to examine the performance of Indian equity mutual funds and to assess whether fund managers exhibit stock selection and market timing abilities under varying market conditions. Design/methodology/approach To evaluate the managerial ability of portfolio managers, this study employs the widely used Treynor–Mazuy (1966) model. The unconditional specification is used to assess stock selection and market timing ability, while the conditional model incorporates lagged macroeconomic information variables to capture time-varying investment opportunities. Both models test whether portfolio managers have stock selection and market timing ability. Findings In a comprehensive study of all funds, we find significant selection ability but limited market-timing ability. In terms of categories, we find strong evidence of positive selectivity for large-cap mutual funds, whereas small-cap mutual funds exhibit timing ability. The comparison of Unconditional Treynor–Mazuy Model (UTM) and Conditional Treynor–Mazuy Model (CTM) models reveals that incorporating economic data enhances the models' explanatory power, yielding a more accurate assessment of managerial abilities. Originality/value This study contributes to the mutual fund performance literature by providing comprehensive evidence from India using both unconditional and conditional market timing models. The results offer important insights for investors, fund managers and policymakers regarding the effectiveness of active fund management in emerging markets.