Equity mutual funds record best monthly performance since Jan 2012

November 5, 2013

India’s diversified equity funds posted their best monthly performance since Jan 2012 as the benchmark Sensex scaled record highs in October, with bets on sectors such as banking and capital goods boosting mutual fund returns.

Such schemes, which form the largest category of equity funds in India by number and assets, rose 9.2 percent on average, mirroring returns on the 30-share BSE Sensex, data from fund tracker Lipper, a Thomson Reuters company, showed.

The Sensex hit an all-time closing high in October — and went on to touch a life high on Nov. 1 ahead of the Diwali weekend — bolstered by foreign inflows of around $3.5 billion after the U.S. Fed decided to delay stimulus tapering.

“Liquidity has overtaken the economic scenarios, probably this is likely to continue for a couple of months,” said R.K. Gupta, managing director at Taurus Mutual Fund. “The outlook for mutual funds looks slightly better. Over a period of time, most of the mutual funds are taking care that profit booking is an ongoing exercise.”

Other than large-cap stocks, funds’ investment in smaller shares also paid off, as the BSE mid-cap index rose 9 percent while the small-cap index gained 7.9 percent. These stocks collectively accounted for more than a third of such funds’ assets by end-September, separate data from Morningstar India showed.

Sector-specific bets also helped. Money managers’ favourite sectors such as banking and industrials, making up around 30 percent of allocated assets, supported unit values as the BSE banking index surged 19.3 percent and the capital goods index climbed 18.8 percent.

The Reserve Bank of India’s decision to raise the repo rate by an expected 25 basis points on Oct. 29 coupled with a cut in a key overnight interest rate, and better-than-expected earnings from lenders, propelled bank shares in October.

India’s largest private lender ICICI Bank beat analyst expectations with a 20 percent rise in quarterly net profit, while results of smaller players such as Bank of Baroda (BoB) and Bank of India fuelled hopes of a recovery in the sector. ICICI shares surged 27 percent, while BoB gained 30.2 percent.

Funds that solely bet on the financial sector gained 17.6 percent, making it the best performing category. Reliance Banking Fund was the top performer in India with monthly gains of 19.5 percent, data showed.

However, Gupta said some correction is due in bank stocks after the surge in October, and investors should “wait and watch” before investing in the sector.

Among other schemes, India’s gold exchange-traded funds fell 2.1 percent on average, while funds that invest in government securities added 1.8 percent.

(Editing by Tony Tharakan; Follow Aditya on Twitter @adityayk and Tony @tonytharakan. This article is website-exclusive and cannot be reproduced without permission)

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