Equity funds outperform in November; smaller shares rise

December 3, 2013

India’s diversified equity funds bucked the trend in the broader markets to eke out gains in November, as a strong performance by mid- and small-cap shares and sectors such as capital goods supported unit values.

Data from fund tracker Lipper, a Thomson Reuters company, showed that such funds rose only 0.21 percent on average in the month, but outperformed the 30-share BSE Sensex that fell 1.8 percent.

Mahesh Patil of Birla Sun Life Asset Management cited the outperformance of mid- and small-cap stocks as the “main reason” for positive returns generated by diversified equity funds in November.

“Clearly over a medium-term, I think there is some value in small- and mid- cap,” said Patil, the co-chief investment officer at the Birla fund house that manages assets of more than $12 billion.

The Sensex fell as profit-booking and waning demand from foreign institutional investors (FIIs) hurt investor sentiment. FIIs bought shares worth about $1.3 billion in November as compared to around $2.5 billion the previous month, data from market regulator SEBI showed.

After falling for the first three quarters of 2013, smaller shares have recovered in the last two months and performed better than their larger peers. Their performance helped funds in November as the BSE mid-cap and small-cap indexes posted gains of around 3.5 percent.

More than a third of diversified equity funds’ assets were allocated to these shares by end-October, according to separate data provided by Morningstar India. Data for November was not yet available.

Sectorally, while money managers’ bets on financial services did not pay off with the BSE banking index falling 2.7 percent, allocations to industrial stocks helped. Diversified funds had 8.8 percent of their assets allocated to industrials, boosting performance as the BSE capital goods index gained more than 7 percent.

Reliance Small Cap Fund was India’s best performing equity diversified fund with gains of 8.47 percent, followed by SBI Magnum Midcap Fund, which climbed 8.25 percent, Lipper data showed.

Waqar Naqvi, chief executive of Taurus Mutual Fund, said they have been adding positions in the mid- and small-cap segment, and the fund house counts infrastructure and FMCG sectors among their favourites going ahead.

“Last Monday itself, we decided that we’ll increase weight in mid-caps,” Naqvi said.

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

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