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August 4, 2000
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Money > Mutual Funds > Performance Review August 4, 2000 |
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Best and worst funds of JulyIf the Indian markets were hit by a gale in June, it was a tornado that swept both debt and equities off their feet in July. In one of the rare occurrences, both the equity and debt markets were on a downward trail in July and not surprisingly, the net asset values of most of the schemes, across categories, stood eroded. Despite sizzling first quarter results from a large segment of the corporate sector, the markets came under a renewed bout of selling pressure in the second fortnight of July. The BSE Sensex tumbled by 565 points or nearly 12 per cent whereas the broader, dividend adjusted S&P CNX Nifty Total Return Index lost nearly 13 per cent. The sudden slump in equity prices is largely attributed to selling by foreign institutional investors, who have re-allocated a part of their portfolio to some of the South East Asian markets. The sudden hike in interest rates on July 21 to defend the weakening rupee only added to the selling pressure from FIIs, with fears that the nascent economic recovery will receive a setback, as capital gets expensive. During the month, FIIs were net sellers to the tune of $ 312.9 million, which is also the highest for the current calendar. Starting this month, Value Research has further broad-based the category breakup for the convenience of our readers. The number of Value Research fund categories has gone up to 12 against 7 in June. For instance, we have split sectoral funds into IT/technology, FMCG, pharma and Speciality categories. Similarly, we have split government security funds into long-term and short-term since there is a marked difference in their portfolio and performance. Equity Diversified During the month, the category of diversified equity funds lost an average 9.86 per cent after posting a positive return of 9 per cent in June 2000. This kind of volatile return reflects the topsy-turvy movement in the equity markets, which has only accentuated in the recent past. No wonder, the top losers for July are those who had registered gains in June on the back of a concentrated portfolio in technology stocks. The top and the lone gainer for the month has been Tata Pure Equity, with its NAV inching up by 1.93 per cent in July. Interestingly, the fund was also among the top five for June, with a one-month return of 15.29 per cent. The fund has a well spread out portfolio though it had around 50 per cent of its assets in IT stocks as on June 30. While the fund's investment strategy is not discernible, it seems to have benefited from a high cash position since it declared a 20 per cent dividend in July. Ironically, it is Tata AMC's Tax Saving Fund which figures at the bottom of the table with a 20.81 per cent erosion in NAV. The fall is not alarming, since the fund had a 28 per cent exposure to VisualSoft Technologies as on June 30, which lost a whopping 33% in July.
Sectoral - IT/Technology It is back to square one for this volatile basket of funds. There are no gainers among the 13 IT/technology funds with the average fall in the category at 16.76 per cent. That IT funds have failed to rake in positive returns despite an excellent performance by IT companies is attributed to a lack of buying interest on these counters. The lacklustre trend in IT counters is largely due to several institutional investors being adequately over-weight on the sector, which has led to a slowdown in incremental buying. The worst hit during the month is IL&FS e-COM Fund, which has seen its NAV plummet by 24.17 per cent. The top three holdings of the fund - SSI, VisualSoft and NIIT, which account for 30 per cent of the portfolio, have lost substantially in July.
Sectoral - FMCG Kothari Pioneer FMCG Fund is the lone gainer in this category, with its NAV gaining a marginal 3.28 per cent. However, the other two FMCG Funds from SBI and Prudential ICICI AMCs have lost 1.02 and 0.2 per cent, respectively. The gain by Kothari Pioneer FMCG is largely attributed to its holdings in Zee Telefilms and a reasonable exposure to Nestle, which galloped by 36 per cent in July.
Sectoral - Pharma The pharma sector continues to suffer from investor apathy in the absence of any concrete policy decision by the government on the issue of price decontrol. Pharma funds, on an average posted a loss of 3.20 per cent with Kothari Pioneer Pharma leading the pack with a loss of 3.8 per cent. However, the silver lining has been the better than expected first quarter results by some pharma majors, leading to a pick-up in buying interest towards the fag end of the month.
Equity - Speciality This category encompasses funds, which have more than one sectoral focus (like pharma cum technology) or focus on key earning areas of a company (like exports). There are again no gainers in this category while losers again have a technology focus. The worst hit has been Tata Life Sciences and Technology, with its NAV dropping by 18.54 per cent. The fund has a 66 per cent exposure to technology stocks as on June 30, 2000.
Balanced funds This blend of equity and debt instruments was battered from both ends to post a net loss of 6.76 per cent. Not surprisingly, there are no gainers in this category. Four out of the five losers have an aggressive exposure to the technology sector. The worst hit during the debt-equity carnage was Magnum Balanced with a net fall of 11.29 per cent for July. The fall is attributed to the aggressive equity component, with technology stocks accounting for more than 50 per cent of the total equity component.
Debt markets Call it the contagion effect as bears descended in hordes on the relatively placid debt markets in July. Already smarting under government's huge borrowing and a gradual increase of interest rates, the Reserve Bank of India emerged as the biggest bear for debt markets as it hiked interest rates on July 21 to defend the gullible rupee. Whether it was a knee-jerk reaction will continue to be debated but the tightness by way of a higher cash reserve ratio and bank rates had a devastating impact as bonds and government securities crashed. This is because when interest rates move up, bond prices go down. This lead to a sharp drop in NAVs of debt schemes as fund managers were caught off-guard and the underlying bonds in the portfolios suffered erosion in prices. The uncertainty on interest rates will continue as rupee has again come under pressure. Add to it, the government is still to complete a large part of its borrowing programme coupled with a pick-up in demand for credit from the corporate sector. Medium-term debt funds Despite the RBI's shockwaves, NAVs of some debt funds have been able to withstand the impact of a sudden rise in interest rates. While the category of medium-term debt funds has lost 0.25 per cent, as many as nine debt funds have gained, partly attributed to the lack of a standard valuation model for non-traded debt instruments. Escorts Income Plan has been the top gainer in the category while Jardine Fleming India Bond has lost the maximum.
Short-term debt funds The short maturity profile of these funds helped them guard their NAVs in the volatile markets. The sector posted the maximum gain of 0.59 per cent in the debt category. While Zurich India Liquidity Investment emerged the topper with a gain of 0.89 per cent, the sector had a surprise loser in Tata Liquid, which posted a loss of 0.21 per cent.
Long and medium term gilt funds Given the longer-term maturity of these funds, they faced the brunt of the interest rate hike in July and posted an average loss of 0.76 per cent. The surprising gainer in this category has been JM Government Securities Fund, which posted a gain of 0.38 per cent. Dundee Sovereign Trust, has been the top loser, posting a negative return of 3.03 per cent.
Short-term gilt funds Short-term gilt funds have on an average logged a negligible gain of 0.08 per cent. While Zurich India Sovereign Gilt saving saw a gain of 0.71 per cent, Alliance GSF (short-term) has seen its NAV fall by 0.58 per cent. This is attributed to the fund being invested towards the medium-end of the gilts market.
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