Mumbai: India’s actively managed diversified equity funds turned in their best annual returns in four years, fired by a sustained multi-year bull run in the domestic stock market, in 2007.
These funds rose an average 55.97% with nearly three-fourths of the funds doing better than the 47.15% gain of India’s benchmark Bombay Stock Exchange (BSE) in 2007, data from global fund tracking firm Lipper, a Reuters Group Plc. company, showed.
“The year 2007 turned out to be a momentous year for equity funds in India, with the broader market faring well,” Dhruva Raj Chatterji, research analyst at Lipper, said.
Equity funds posted their last best annual performance in 2003, with an average return of 103.4%.
“Themes and sectors such as infrastructure, capital goods, banking and financial services, metals, mid-cap and small-cap were the flavour of the year and funds with higher exposure to these segments managed to outperform,” he added.
The BSE mid-cap and BSE small-cap indices rose 68.63% and 93.67%, respectively, in 2007 and helped funds, which kept 40-48% of their assets in such stocks, outperform.
“They always do well when the two segments outperform,” Suraj Saraf, senior analyst with fund tracking firm ICRA Online Ltd, said.
In 2006, when the two indices were up only 31.13% and 15.97%, respectively, compared with 46.7% rise in the benchmark index, nearly eight out of 10 Indian equity funds had underperformed.
Analysts also attributed the outperformance in 2007 to funds’ big exposure to performing sectors such as metals, construction, capital goods, energy and banking.
Equity funds invested nearly 62% of their assets in such sectors at November-end.
Timely exit from out-of-favour sectors such as technology and automobiles helped.
While the BSE information technology index lost 14.1%, the BSE auto index rose only 2.7% in 2007.
Funds nearly halved exposure to them between January and November.