Stock funds record worst monthly fall since 2008

Stock funds record worst monthly fall since 2008

New Delhi: India’s diversified stock funds mirrored losses in the benchmark index in January with unit values recording their worst monthly performance since October 2008, data from global fund tracker Lipper showed.

Such funds, which form the largest category of equity schemes by number and assets, posted an average drop of 9.8% in the month, compared with a 10.6% fall in the 30-share benchmark Sensex.

“Mid & small cap funds and infrastructure themed funds were the biggest losers during the month, with these two segments losing investor appeal in January," said Dhruva Raj Chatterji, senior research analyst at Morningstar India.

High inflation and fears of further rate hikes dented investor sentiment and led to a sharp fall in key stock indices, as foreign funds pulled out $1.4 billion from Indian equities in January.

Higher exposure to small and mid-cap counters also affected unit values, as diversified equity funds had more than a third of their assets invested in such companies as of December-end, Morningstar India data showed.

Shares of such firms fell more than their larger peers in January, with the BSE mid-cap index losing 12%, and the small-cap index recording a drop of 12.3% during the month.

Exposure to sectors like financials and energy, which together accounted for more than 305 of diversified equity fund assets, also hurt funds performance, data showed.

The country’s top lenders SBI and ICICI beat estimates in third quarter results, but rising rates in India are likely to dampen the outlook for earnings growth in the near term. The BSE Banking index fell 9.8% in January, while the oil & gas index dropped 10.6%.

“It has been a broad-based fall in markets which has affected funds," said R.K. Gupta, managing director of Taurus Mutual Fund. “This is a catch-22 situation for the fund managers".

Bond, gold funds

Indian fixed income funds investing in government debt saw net values rise 0.16% in January, as yields eased after the central bank’s policy review in the last week of the month.

“Policy was not as hawkish as some people were expecting, so the bond yields fell ... that led to the positive return," said Mahendra Jajoo, head of fixed income, Primerica Asset management.

The central bank matched expectations with a 25 basis-point rise in rates on 25 January, rather than the 50 basis-point increase some investors had expected.

For the month, the yield on the actively traded 8.13%, 2022 bond rose 14 basis points in the month while the less liquid benchmark 10-year bond yield was up 23 basis points.

India’s gold exchange-traded funds (ETFs) fell 3% in the month as yellow metal prices fell on waning safe-haven appeal due to improvement in US data.

On the continuous charts, gold futures ended January at 19,922 per 10 grams, down 3.9% for the month.