Mumbai: Net values of Indian equity funds fell more than half in 2008, giving up the entire gain made in the previous two calendar years, as the main stock index plunged 52.4% to record its worst annual performance ever.
“The fall was stunning and one of the major losses that we would have suffered in any calendar year,” said Aditya Agarwal, managing director and head of Indian markets for fund research firm Morningstar.
Indian shares recorded their first annual drop since 2001, surpassing the previous worst fall of 20.8% in 1995, slammed by foreign fund outflows and a sagging domestic economy.
Seventeen stocks in the BSE index lost more than half their value during the year as foreign funds withdrew more than $13 billion after record inflows of $17.4 billion in 2007.
Net asset values of all stock funds fell in 2008, recording their worst annual fall of 54.7% during the year, according to data from global fund tracker Lipper.
Nearly half of the actively managed diversified stock funds also underperformed the benchmark index despite maintaining a double-digit cash levels almost through the year as their large mid and small-cap holdings plunged even more than the main index.
The funds’ monthly allocation to mid-cap and small-cap shares ranged between 33.6% to 43.8% during the year, delivering a blow to their portfolios as the BSE Mid Cap and BSE Small Cap indices slumped close to 70%.
Their top bets in capital goods and financials were also hit by high interest rates and a slowing economy.
Funds had parked more than a fourth of their equity assets in the two sectors through 2008 on an average, data from fund tracker ICRA showed.
Year of debt, gold funds
India’s gold exchange traded funds rose 25% in 2008, the highest by any category of funds, as the dollar weakened against the euro and crude oil rose to record high, improving the yellow metal’s appeal as a hedge against inflation.
Gold prices on the Multi Commodity Exchange soared to a record Rs14,320 per 10 grams on 10 October, up 35.1% from the close in 2007 and ended 2008 up about 29%.
Fixed income funds improved performance over previous year with those investing in government securities recording a stunning 19.77% rise in net values as yields saw their biggest yearly fall in seven years in 2008.
The 10-year benchmark bond yield ended the year down 254 basis points at 5.25%, plummeting from a seven-year peak of 9.55% hit in July as expectations for monetary easing continued to prompt investors to buy debt.