Mumbai: All of India’s diversified equity funds pulled off positive returns in November but half of them lagged the benchmark index as fund managers raised cash levels, while holdings in consumers and capital goods underperformed.
These funds, the largest category of stock funds by number and assets under management, saw their net values rise by an average 6.4% in November.
By comparison, the benchmark BSE stock index rose 6.5% - higher than gain in 159 of India’s 324 diversified stock funds - data from global fund tracker Lipper showed.
“Redemptions from investors pushed up cash levels in equity funds, which led to underperformance,” said Chintamani Dagade, senior research analyst at Morningstar India.
Cash held by the diversified equity funds rose to 7.4% of their assets in October, from 5.99% a month earlier, as fund managers booked profits and raised cash levels to honour redemptions, data from fund tracker ICRA showed.
Indian shares have surged nearly 80% in 2009, tracking a rebound in global stock markets, and led to higher redemptions. Investors, for example, pulled out 66 billion rupees from stock funds in October, the highest monthly outflow in two years.
Lower returns from shares in consumers, capital goods and engineering sectors, where the funds had invested nearly a fifth of their assets at the end of October, also cut gains.
The BSE FMCG and BSE Capital Goods indices rose 2.3% and 3.5%, respectively, lower than the benchmark on concerns over their stretched valuations.
“Look at the valuation. They are already quoting much at premium to the market,” Sanjay Dongre, a fund manager at UTI Asset Management, said.
Indian cigarette maker ITC, for example, trades at 24.45 times its 12 months forward earnings as compared to 18.7 times for the benchmark index, according to Thomson Reuters data.
The stock, part of top 10 holdings of Indian funds by value of investment, rose just one percent in November.
In capital goods space, Bharat Heavy Electricals gained 1.3%. The stock is part of the funds’ top 10 hondings and trades 24.44 times its 12 months forward earnings.
Among other major equity categories, funds buying technology firms and healthcare stocks rose over 7% on an average.
Indian fixed income funds investing in government securities saw net values jump 0.9% in November as volatile federal bond yields offered trading opportunities.
The benchmark ten-year bond yield dropped four basis points to end the month at 7.24%. It had fallen to a two-month low of 7.14% on 27 November as risk aversion set in after Dubai’s debt problems revived concerns about the health of the global financial system.
Gold exchange traded funds and those investing in shares of gold mining firms rose more than 10 percent on an average as the yellow metal rose.
Gold futures continued their record breaking spree triggered by the Reserve Bank of India’s gold purchase and a weak dollar overseas spurred buying in the alternative asset.
On the continuous charts, gold futures closed at Rs17,614 per 10 grams, up 10.4% in November.