The Foreign Institutional Investors (FIIs) participation in the Indian equity market was quite heartening to see the ascending trend continuing. However while exuding confidence they were cautious as they net bought to the tune of Rs 11,365 crore, thereby decelerating from their September 2012's buying activity (where they net bought to the tune of Rs 19,262 crore).
It seems that although the political uncertainty persists, they evinced interest in the Indian economy backing the reform measures adopted by the Government and believed that Indian could post good economic growth rate in the long-term.
BSE Sensex vs. FII inflows
(Source: ACE MF, Personal FN Research)
Also, the easy money policy adopted by the central bankers in the developed economies pushed money flows into attractive investment destinations in the Emerging Market Economies (EMEs), and India was one of them.
However contrary to the participation of FIIs, domestic mutual funds continued to be net sellers in the Indian equity markets. They net sold to the tune of Rs 2,520 crore; but a noteworthy point is that their selling streak reduced as compared to September 2012 where they net sold to the tune of Rs 3,008 crore.
Fund managers seemed worried about the political uncertainty and graft charges emerging against every political party, which has tainted the political canvas. They also seemed to be cautious ahead of the U.S. Presidential and their impact on the Indian equity markets.
BSE Sensex vs. MF inflows
(Source: ACE MF, Personal FN Research)
As far as the performance of various categories of mutual funds is concerned,
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 momentum in the mid and small cap space and growth stocks, despite an exhaustion seen in the markets.
Among the sector funds, media & entertainment funds and those investing in the banking & financial services theme managed to deliver positive returns, while those betting on infrastructure, energy, and technology theme, eroded investors wealth. As far as
ELSS funds are concerned, only a handful of them managed to deliver positive returns.
In the
Fund of Fund (FoF) category, the offshore ones manifesting interest in the Chinese economy and other EMEs in South Asia and Latin America took the lead, as emerging market seemed to an attractive investment destination for investors in the developed economies.
Speaking about the hybrid funds; amongst the
balanced funds only a few of them managed to deliver positive returns as the exhaustion in the Indian equity markets and yields remaining stiff with a slight upward bias had a detrimental impact for their portfolio. Likewise gains in
Monthly Income Plans (MIPs) category too were restricted on account of yields of debt papers across maturity tilting slightly upward due to contraction in liquidity and worries of stiff WPI inflation (it being over the comfort zone of RBI), fiscal deficit and weakening Indian rupee.
However debt mutual funds, across categories and tenure showed a decent performance in the month gone by, although the aforementioned concerns did prevail for the bond market. But
longer duration funds seemed to look more attractive as interest rates have peaked-out and is now expected to ease from the new calendar year onwards.
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 aggressive in participating as they net bought to the tune of Rs 7,852 crore (as against Rs 623 crore in September 2012) taking a view on the interest scenario. But contrary to the FII participation, domestic mutual funds net bought only to the tune of Rs 16,998 crore as against their roaring participation in the month of September 2012, where they net bought to the tune of Rs 48,693 crore.
Performance across various categories of mutual funds
(1-Mth average returns of funds in various categories as on October 31, 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, infrastructure funds and tech funds took a beating due to detrimental undercurrents for both the sectors, while defensive themes such as consumption and healthcare delivered positive returns. In the diversified equity fund category, the ones betting on the mid and small cap space did well with favourable momentum in the mid and small cap segment.
However the large cap funds ended the month in red, led by exhaustion in the market. From fund management style perspective barring the one following growth style, all others such value and flexi faltered on performance.
Tracing with corrective phase of prices of precious yellow metal - gold,
Gold ETFs too exhibited negative returns for investors (losing -1.0%). But debt mutual funds across categories had a decent performance to exhibit.
PersonalFN is a Mumbai based Financial Planning and Mutual Fund Research Firm 
