Diversified equity funds post best month since January
India's diversified stock funds posted their strongest gains in five months in June, reversing a bleak performance in May on improving global sentiment and domestic reform hopes, scoring big gains in the capital goods and financial sectors.
Fresh measures to ease the euro zone crisis, signs the government may revisit economic reforms and efforts to provide clarity on a tax proposal that had panicked foreign investors helped push the Sensex up 7.5 per cent in June to a near two-month closing high.
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Diversified equity funds, which form the largest category of mutual funds in india by number and assets, returned an average 6.01 per cent in June, data from fund tracker Lipper, a Thomson Reuters company, showed. In May, these funds fell 5.65 per cent.
“The worst appears to be over and probably July will be a month of consolidation," said R K Gupta, managing director at Taurus Mutual Fund, adding that the outlook has improved from previous months.
'There is limited downside risk now'.
After taking charge of India's finance ministry, Prime Minister Manmohan Singh managed to restore some market confidence, saying he wanted to revive the economy’s ‘animal spirit’ and would make investor sentiment a top priority.
Even though rating agencies Standard & Poor’s and Fitch have threatened to downgrade India's rating to junk on worries about slowing growth and policy inaction, lower stock valuations prompted brokerages like JP Morgan and Deutsche Bank to upgrade Indian stocks during the month.
Banks, capital goods boost
Sectoral bets by some Indian money managers also helped mutual funds in June.
Gains in the capital goods sector, which according to Morningstar India data accounted for over 10 per cent of mutual funds' assets by end-May, supported net asset values as hopes for new spending on infrastructure helped the sectoral index jump 13.7 per cent.
Shares in Larsen & Toubro, the country's biggest engineering conglomerate, surged 19 per cent for the month, while Bharat Heavy Electricals Ltd gained 9.6 per cent.
Exposure to the financial services sector, fund managers' top sectoral bet in the country with an allocation of nearly 22 per cent, also aided performance, with the BSE banking index rising 9.4 per cent.
Sector funds that bet solely on the financial services sector generated a return of nine per cent for the month.
June's rally was mainly driven by large-cap stocks, but the BSE mid-cap and small-cap indexes still posted solid gains to rise more than four per cent. Morningstar India data showed funds held 41 per cent of their assets in mid- and small-cap stocks by end-May.
The top performing funds in June were UTI Banking Sector Fund and Goldman Sachs Infrastructure Exchange Traded Scheme, both returning more than 10 per cent.
Among other schemes, fixed income funds that invest in government securities generated a 0.69 per cent return on an average, while the country's gold ETFs ended almost flat.
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