New Delhi: India’s diversified equity funds (DEFs) rose an average 33% between 1 May and 1 June, with at least half of the 227 funds doing better than the 30% gain made by the Bombay Stock Exchange’s benchmark index, the Sensex, data from mutual fund tracker Value Research shows.
This is for the first time since January 2008—when the stock markets started falling—equity funds have outperformed the Sensex.
The data is based on the net asset value (NAV) of funds on Monday. NAV is the current market value of a fund’s net assets divided by the number of outstanding shares.
The thumping win of the Congress party-led United Progressive Alliance without depending on the Left parties cheered the market. The Sensex has gained 20% since 18 May, the first day of trading after the general election results were declared.
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“(Diversified) equity funds have performed well because of the momentum in small- and mid-cap stocks,” said Dhirendra Kumar, chief executive officer, Value Research. “While the Sensex is made of large-cap stocks, equity funds are reasonably into small- and mid-cap stocks.”
Valuations of many small- and mid-cap stocks had plummeted to near-lifetime lows by the first week of March, when the Sensex dropped to 8,427.29 points, a three-year low.
In the beginning of a rally on 9 March, the price-earnings (P-E) multiple for Sensex constituents was 11.6. In comparison, the same valuation measure for the mid-cap index was 8.69 and the small-cap index 5.94.
The P-E multiple is calculated by dividing the price of a stock by its earnings per share. The higher the multiple, the costlier is the stock. Currently, P-E multiples of mid-cap and small-cap indices are 16.3 and 13.41, respectively.
The performance of DEFs, however, lagged the benchmark index in the year to 1 May. While the Sensex declined by 9.5% in the period, DEFs slipped by 11%.
The top DEF gainers in the past one month were Taurus Infrastructure Fund, JM Basic Fund and Sundaram BNP Paribas Capex Opportunities Fund, which gained 67%, 65% and 60%, respectively.
The worst performers are Religare AGILE Fund and IDFC India GDP Growth Fund, with returns of 10% and 14%, respectively.
“This rally, after the initial spurt in large-caps, it’s been mid-caps and small-caps all the way,” said Hemant Rastogi, chief executive officer of Wise Invest Advisors. “Sensex and Nifty (the S&P CNX Nifty index on the National Stock Exchange) are only 30 and 50 stocks...but small-caps and mid-caps have done well.”
“All mutual funds deployed (their funds) in small- and mid-cap stocks and they have done significantly better,” said Gopal Agrawal, head of equity at Mirae Asset Global Investment Management (India) Pvt. Ltd.
“Mid-caps and small-caps rose sharply because they were at a significant discount to large-caps. A lot of fund managers avoided them due to risk aversion and they fell sharply. Now there is activity in these stocks,” he added.
Graphics by Ahmed Raza Khan / Mint