Mumbai: Nearly nine of every 10 Indian diversified equity funds lagged the benchmark index’s best monthly gains in 10 years as double-digit cash levels diluted returns in April, data from global fund tracker Lipper shows.
These funds, making the largest stock funds category in terms of numbers and assets under management, posted a 13.7% jump in their net values in April, the best since December 2003.
However, nearly 90% of the 285 funds tracked by Lipper failed to beat the 17.45% surge in the 30-share Bombay Stock Exchange Sensex (BSE), which showed the best monthly performance in 10 years, as a wave of improved investor confidence swept across the world. “We think these funds lagged the broader indices, primarily due to their allocations to cash and non-benchmark holdings,” said Chintamani Dagade, a senior research analyst with Morningstar India Pvt. Ltd.
“Having said that, these funds reduced their cash allocations significantly in April to benefit from a surprise rally in March,” he added.
Indian funds had everything going well in April—their large sectoral bets such as financials, capital goods and energy rallied on growing optimism that the global economy was on the mend, driving billions of dollars back into emerging markets.
However, most of them failed to take advantage of the surge due to double-digit cash levels they had been maintaining since May 2008, a factor that has lead to underperformance this year. Although average cash levels in diversified stock fund portfolios declined in March, it remained above 15%, data from fund tracker ICRA Online Ltd showed.
Among other major stock funds categories, those investing in financials and information technology had considerable gains.
Banking funds saw their net values rise 19.84% as shares of Indian financial firms, considered to be largely shielded from a global financial crisis, surged 26.6% on robust liquidity in the market.
Funds investing in technology firms gained 18.75%, helped by a 16.5% rise in the BSE IT Index, data showed.
Net values of Indian fixed income funds rose sharply in April, as ample liquidity and a rate cut in the second half of the month hammered benchmark bond yields down.
The benchmark 2019 bond yield ended the month at 6.23%, down 78 basis points over the month, and helped funds investing in government securities to gain 2.9%.
Gold exchange traded funds saw their net values drop 2.45% as the yellow metal’s price fell on a stronger equity market and hopes of recovery in global economy.