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| HOME | MONEY | MUTUAL FUNDS | PERFORMANCE REVIEW | |||
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June 7, 2000
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Best and worst funds of MayDhirendra Kumar After the bloodbath in April, May ended on a calmer and more optimistic note. Of course, the month started on a bad sentiment, with the Morgan Stanley Capital International (MSCI) marginally lowering allocation to Indian markets and the ambiguity around the results posted by Zee Telefilms. With the markets firmly in a bear grip, the Sensex went below the psychological barrier of 4000 points. The much-fancied infotech, communication and entertainment (ICE) stocks were further mauled by the selling spree and heightened the volatility in the Sensex. But with the Met Department forecasting a good monsoon, the sentiment took a complete U-turn. The old economy stocks, particularly, cyclical and fast moving consumer goods (FMCG) stocks, were back in the reckoning and led the charge on the bourses. The Nasdaq also continued to influence the scrips back home - for good. With the Nasdaq rebounding - it gained about 8 per cent on May 30, the Indian bourses followed suit. Technology stocks, with their attractive valuations, joined the rally and the Sensex gained close to 500 points in the last 7 trading sessions. However, over the last two months, the Sensex has still posted a net loss of 12 per cent. Despite the recent gains, these are truly discomforting times as you see a large part of your gains drown in the ICE meltdown. The tech wreck has not only crippled those lofty returns from your favourite technology fund, but has also substantially eroded the net asset values (NAV) of all equity funds. Even as the Sensex has lost just 12 per cent in the last couple of months, the sharp fall in ICE stocks has pulled down most equity funds by a far greater margin. In these times of high volatility, the less you lose, the more you gain! Let us see how. Suppose, your fund was ruling at an NAV of Rs 20 a month ago. With the recent downslide, it lost 50 per cent and now trades at Rs 10. Now, to go back to Rs 20, it is faced with a Herculean task of posting a 100 per cent return. So, if your fund has lost less in recent times, the fund manager's job becomes relatively easy. Equity Diversified Diversified equity funds on an average lost about 4.95 per cent last month. What emerges from the table is a clear case for diversification. Most of the gainers in this league were the funds, which stuck to a diversified portfolio. Zurich India Capital Builder was the topper with a maximum gain of 4.77 per cent. Two funds, Taurus Starshare and Taurus Discovery Stock, have gained despite a highly concentrated portfolio. Their gains can be traced to the sharp spurt in their top holding - Himachal Futuristic. The losers in the group have paid a price for their concentration in ICE stocks. ING Growth Portfolio lost close to 21 per cent in the last month, with a near 80 per cent allocation to ICE stocks. Three of the SBI Magnum funds feature in the losers group.
Equity - Tax Planning Tax-planning schemes were the biggest losers in the equity group with an average loss of 5.83 per cent last month. The new entrant in the league, Escorts Tax Plan stood out as a contrarian and gained 0.56 per cent, thanks to its predominantly large cash position. Prudential ICICI Tax Plan, Tata Tax Saving and Canpep '93 were the biggest losers in their family. Canpep '93 and Tata Tax Plan have been particularly hit thanks to the concentration towards ICE stocks.
Equity - Balanced The balanced funds on an average lost 4.3 per cent last month. However, Unit Scheme '95 defied the group's trend and posted close to 1 per cent gain last month. Dhanasahajog heads the loser's pack posting a negative return of 8.26 per cent. The other four top losers' lost out largely because of the relatively aggressive equity exposure, with a predominance of ICE stocks.
Debt After the rally in bond prices in April, the debt market was dominated by the uncertainty over the interest rate outlook. With the government in the market with a huge borrowing programme and a drought-like situation in several parts of the country, bond prices plummeted. It's not Nasdaq alone - the hike in US interest rates also cast its shadow on the Indian debt markets and added to the hardening of interest rates. The jitters in the forex market and the rupee's near 2 per cent fall against the greenback contributed to the bearish sentiment. Clearly, the scales are tilted in favour of a gradual tightening of interest rates. The interest rate outlook largely governs bond prices. When interest rates move down, bond prices move up and vice versa. The longer the maturity of an instrument, the more pronounced the impact. In the last month, with the markets expecting a hike in interest rates, bond prices have been on the decline, particularly at the long end. And the players tend to hedge their positions by investing at the lower end of the maturity profile. Hence, with the market interest shifting to the shorter end of the market, short and medium term instruments stood to gain contrary to their long-term peers. Debt - Medium Term With the market interest shifting in favour of the medium term instruments, most of the funds in this category gained and the sector posted an average gain of 0.54 per cent. Chola Freedom Income posted the highest gain in the category of 1.09 with an average maturity of 3.15 years. Tata Income, which was one of the top losers in the last month, made a good comeback, after it actively pruned its marginal equity exposure. It ranks third in its league with a gain of 0.97 per cent in May. Alliance Monthly Income Plan is the only loser in its category, thanks to its equity exposure at 6.2 per cent. Its monthly option posted a negative 0.57 per cent return.
Debt - Short-term With the market shifting focus towards the short-term debt segment, these funds have gained smartly, with the sector recording an average gain of 0.71 per cent. Magnum Instacash (Automatic Reinvestment) topped list with a gain of 1.01 per cent.
Equity - Sectoral Among sector funds, FMCG and Pharma emerge as toppers due to the turnaround in the sentiment. KP FMCG and Prudential ICICI FMCG among FMCG and KP Pharma and Magnum Pharma emerge as toppers in their category. Surprisingly, UTI Brandvalue, Magnum FMCG and Alliance Buy India have bucked the resurgent trend. Magnum FMCG has been particularly hit with its top three holdings - Vikas WSP, Indian Shaving Products and Dabur India - being battered by the market. Software sector on the whole has been the biggest loser in the sectoral pack, losing on an average 12 per cent in the last month. While the software sector is rising again, it will still need a major upswing to cover up for the substantial erosion witnessed in the recent past. Magnum Software was the top loser in the group and saw its NAV drop 18 per cent on the back of a highly concentrated portfolio.
Gilts - Medium and Long-term Impact of the interest rate changes, or rather the expected changes are more in the longer end of the market. The medium and long-term funds saw an average loss of 0.22 per cent. Zurich India Sovereign Gilt - Investment option bucked the trend with a positive return of 0.42 per cent. The group's top loser, Birla Gilt Plus lost 1.05 per cent.
Gilts - Short-term Short term gilt funds with maturity of less than three years come under this category. Given that they were invested in line with the market sentiment, funds in this basket posted an average gain of 0.49 per cent. K Gilt Savings option (Growth) topped the charts with a positive return of 0.68 per cent. Not surprisingly, there are no losers in this category.
For those of us who have survived these turbulent times at the bourses, what comes naturally is the impulse to sell off now that the markets have rebounded. If you got carried away with the astronomical returns at the bourses in the last year and think that this turbulence, is the beginning of the end, you are mistaken. Equities do deliver - but in the long run. Over time, what really matters is the underlying fundamental of your holding and of course, your patience. So if you are allowing these short run market dynamics to dictate your preference, you are not being fair to yourself. By pressing the sell button today, you would only be converting your notional losses into a reality. |
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