SENSEX NIFTY
Dec 11, 2012, 07.03 PM IST | Source: Personalfn.com

MFs posted lower selling as compared to previous month

The Foreign Institutional Investors (FIIs) seemed to be cautious while exuding confidence in the Indian equity markets, as they net bought to the tune of Rs 9,577 crore, as compared to net buying to the tune of Rs 11,365 crore in the month of October 2012.

The Foreign Institutional Investors (FIIs) seemed to be cautious while exuding confidence in the Indian equity markets, as they net bought to the tune of Rs 9,577 crore, as compared to net buying to the tune of Rs 11,365 crore in the month of October 2012. While throughout the month FIIs were net buyers, they were watchful over how the reform measure would take course with approvals awaiting in the winter session of the Parliament. Persistent political uncertainty also made them cautious while buying into Indian equities.

BSE Sensex vs. FII inflows

 

 

 

 

 

 

(Source: ACE MF, Personal FN Research)

Having said the above, the easy money policy adopted by the central bankers in the developed economies aided money flows into attractive investment destinations in the Emerging Market Economies (EMEs), and India was one of them.

However contrary to cautious buying from FIIs, domestic mutual funds continued to be net sellers in the Indian equity markets. They net sold to the tune of Rs 1,273 crore; but a noteworthy point is that their selling streak reduced as compared to October 2012 where they net sold to the tune of Rs 2,520 crore. Also for the mutual fund industry the impulse shown by the Indian equity markets, left request for redemptions in equity funds unabated, as investors preferred to book profits. Thus mutual fund managers experienced redemption pressures, while they were watchful about how the reform measure would take course with approvals awaiting in the winter session of the Parliament. They were also concerned about the political scenario in India which appeared tainted with graft charges emerging against every political party. 

BSE Sensex vs. MF inflows

 

 

 

 

 

 


 (Source: ACE MF, Personal
FN Research)

As far as the performance of various categories of mutual funds is concerned, gains were seen across styles and market capitalisations. However mid and small cap funds, those betting on emerging businesses and the one's following a growth style of investing were front runners due to better momentum in the mid and small cap space and growth stocks.

Among the sector funds, media & entertainment funds and certain funds enabled by their investment mandate investing in strategic sectors, generated double-digit return in the month gone by. Funds following investment themes such as banking & financial services and consumption also did well, while infrastructure funds and technology funds which eroded investors' wealth in October 2012 merely gained aided by the ascending move of the Indian equity markets in November 2012. The slowdown in capex cycle due to a high interest rates regime showed its detrimental impact on certain funds trying to tap capex opportunities. As far as ELSS funds are concerned, they ended the month in green, with support of the up-move in the market.

In the Fund of Fund (FoF) category, all of them - those focusing domestic equity and global assets, delivered positive returns except a few world energy funds and mining funds, including the ones in gold mining.

Speaking about the hybrid funds; amongst the balanced funds all of them managed to deliver positive returns, treading with upward movement of the Indian equity markets. However the debt portion of their portfolio remained under pressure due to yields remaining stiff. Likewise for Monthly Income Plans (MIPs) the gains were accounted for with the ascending movement of the equity market, but stiff yields had a limited scope for debt portfolio of their portfolio to perform.

Stiffening in yields had a mix reaction on performance of debt funds. As depicted by the table above, a few short-term income funds did slighting better as compared to in the month of October 2012, while long-term income funds did well since interest rates have peaked-out and are now expected to ease from the new calendar year onwards. Gilt funds (both short-term and long-term) also did well due to this seeping expectation (that interest rates may gradually start moving downwards from January 2012 onwards), and now the focus of debt fund manager seem to be on durations.

It is noteworthy that both FIIs and domestic mutual funds continued to be net buyers in the Indian debt market; but this time the FIIs were not at all aggressive in participating in the Indian debt markets as they net bought to the tune of mere Rs 292 crore, as against Rs 7,852 crore net buying witnessed in October 2012. But contrary to the FII participation, domestic mutual funds net bought aggressively in the Indian debt market to the tune of Rs 26,014 crore, thereby accelerating from October 2012 net buying of Rs 16,998 crore.

Performance across various categories of mutual funds

 

 

 

 

(1-Mth average returns of funds in various categories as on November 30, 2012)

(Source: ACE MF, Personal FN Research)

(1-Mth average returns of funds in various categories as on November 30, 2012)
(Source: ACE MF, Personal FN Research)

The graph above depicts how various categories of mutual funds performed in the previous month. Amongst the sector and thematic funds, banking & financial services funds and FMCG funds delivered stellar returns, while infrastructure funds and tech funds revived after eroding wealth in the month of October 2012.  In the diversified equity fund category, gains were seen across styles and market capitalisations. From fund management style perspective, growth styled funds did slightly better than value styled funds, well supported by momentum in growth stocks.
 
Tracing with the upward movement in the precious yellow metal - gold, Gold ETFs too exhibited positive returns for investors (on average +1.3%). In the debt mutual funds, long-term income funds and gilt funds did well taking a view on the interest rate scenario.

PersonalFN is a Mumbai based Financial Planning and Mutual Fund Research Firm

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