MUMBAI: Actively-managed diversified stock funds in India posted their best monthly gain in 17 years with a majority beating the benchmark index in May, lifted by a sharper rally in their mid-cap and small-cap bets.

Large exposure to basic engineering and financials, among their top-3 preferred sectors, also helped these funds post an average 30.6 percent return in May, the best since March 1992 when net values had risen by an average 55.7 percent.

Almost six of every 10 such funds also outperformed the 28.3 percent gain in the main stock index after lagging in March and April as they cut cash holdings to participate in India’s post-poll stock market surge.

“There are a combination of factors that led to outperformance in May. Firstly, funds deployed cash into equities, which pushed up the performance,” said Chintamani Dagade, a senior research analyst with Morningstar India.

“Secondly, fund managers preferred mid-cap stocks relative to large-caps, which helped the funds’ performance,” he added.

Indian shares surged in May after the Congress-led coalition won an unexpectedly strong mandate in the polls, raising expectations of a revival in stalled reforms and helping the benchmark index report its best monthly performance in 17 years.

Diversified funds on an average held nearly 14 percent of their assets in cash at the end of April. But Chintamani said funds invested almost 23 billion rupees in stocks in May to take advantage of the rally.

Also, these funds on an average invested a third of their assets in shares of mid- and small-cap firms at the end of April, data from fund tracker ICRA showed, and benefitted after shares of Mid-cap and small-cap firms rose 43.9 percent and 51.9 percent respectively in May.

Shares of banking and capital goods firms also rose 45 percent and 51 percent respectively helping funds that invested nearly a third of their assets into them.

Indian fixed income funds investing in government securities saw their net values dip 0.8 percent in May as yields rose on worries about the government’s borrowing requirements.

The past two auctions of governments bonds in 15 days have been increased by 25 percent to 150 billion rupees each, raising market concerns that the government may be looking to increase its planned gross borrowings
of 3.62 trillion rupees in 2009/10.

The benchmark 2019 bond yield rose 47 basis points in May to end at 6.70 percent.
Gold exchange traded funds, which had seen their net values shrink in March and April, gained 3.3 percent in May as a weak dollar overseas supported the yellow metal.

Gold futures on the continuation chart ended May at 14,923 rupees per 10 grams, up 2.9 percent for the month.

source: Economictimes

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