Average net asset values of Indian equity funds broadly outpaced their benchmarks in February, buoyed by pre-Budget hopes, but overall gains were muted by jitters over a possible Gulf conflict, analysts said.

Average NAVs of 172 funds investing in a host of sectors from oil to software notched returns ranging from a fall of 2.3 per cent to a jump of 6.1 per cent, data from fund tracking firm Value Research showed on Monday.

The returns contrasted with a 1.02 per cent rise in the widely tracked benchmark Bombay Stock Exchange index.

"Shares got some help from hopes about the budget and some better diversified funds with banking stocks in their portfolios had superior returns," Dhirendra Kumar, Value Research managing director, said. "But this Iraq situation weighed on the market."

The 2003-04 Budget presented on February 28 raised the foreign direct investment cap in private banks to 74 per cent from 49 per cent, cut import duties and scrapped capital gains tax on shares. But analysts say markets are likely to remain lacklustre, mainly due to worries about a US-led war against Iraq.

Fears of a Gulf conflict have pushed global crude oil prices to 12-year highs and raised concerns about damage to the economy as India imports 70 per cent of its oil needs.

"Clearly the Gulf issue is the main dampener," said Jamshed Desai, head of research at Taib Securities.

But he said if war erupts, markets would steady after an initial knee-jerk drop. "Such instances offer longer-term investors an ideal opportunity to buy into the market," he said.

The two oil sector schemes with assets of 557 million rupees rose by 6.1 per cent on average.

A dozen funds which make investments in the fast-growing software industry saw average NAVs rise by 2.6 per cent compared with a 2.7 per cent rise in the sector index.

Average NAVs of 69 equity diversified funds with assets of close to 59 billion rupees rose 2.2 per cent, outpacing the 1.7 per cent gain in the wider 500 stock S&P CNX 500 index.

Index funds gave average returns of 1.6 per cent in contrast with a 2.1 per cent rise by the 50-issue index.

Funds investing in the fast-moving consumer goods sector rose by an average one per cent compared with a 0.2 per cent drop in the sector index.