In the month of November 2009, domestic equity markets exposed investors to the proverbial ‘sting in the tail’ phenomenon. Towards the end of the month, a leading corporation with linkage to the Dubai government asked its lenders to defer debt repayments by a period of six months.
This led to fears of a credit crisis and caused a sell-off in equity markets across the globe. Although domestic equity markets closed in positive territory, investors did face some anxious moments with volatility ruling the roost. Factors like positive Index for Industrial Production numbers and the Indian government’s push towards disinvestment helped the sentiment; conversely, rising food inflation continued to be a cause for concern.
The BSE Sensex rose by 6.5% over the month. Tata Steel (up 22.0%) and Tata Motors (up 16.9%) were among the biggest contributors. The BSE Sensex has risen by 75.5% on a year-to-date (YTD) basis. During the month, stocks from the large cap segment fared better than their mid and small cap peers. The BSE 100 Index posted a growth of 7.0%; the commensurate numbers for the BSE Mid-Cap Index and BSE Small-Cap Index were 6.7% and 6.6% respectively. On a YTD basis, the BSE 100 Index (up 78.7%) has failed to keep pace with the BSE Mid-Cap (98.3%) and BSE Small-Cap (104.3%) indices.
Now let's study how sectoral indices performed over the month. With an appreciation of 16.9%, the BSE Metal Index fared the best. Globally rising metal prices and a rise in demand for steel on the back of the economic recovery, were some of the factors that helped companies in the Metal sector. NMDC Limited (up 36.7%), a public sector unit, was the best performer on account of the government’s proposal to dilute its stake, as a part of the disinvestment process. JSW Steel Limited (up 31.3%) was helped by its proposed strategic alliance with a global steel company. Record sales clocked in the Automobiles sector were responsible for auto stocks appearing on investors’ radar. The BSE Auto Index (up 11.2%) pitched in an impressive showing. Tata Motors and Bajaj Auto featured among the prominent gainers. Incidentally, on a YTD basis too, both BSE Metal (212.4%) and BSE Auto (187.0%) rank among the better performing sectoral indices.
And finally, the players who have played a major role in the recent uptick in equity markets - Foreign Institutional Investors (FIIs). For the ninth month in a row, FIIs were net buyers in equity markets; they bought equities to the tune of Rs 5,497 crores. On the other hand, domestic mutual funds were net sellers of around Rs 695 crores.
In order to merit funds’ long-term performance, they have been ranked based on their one-year Morningstar risk-adjusted return for this review.
Equity Category Performance
Large Cap
Funds from the Large Cap category posted an average return of 86.4% for the year ended November 2009. Out of 71 funds considered, 34 outperformed the category average. Principal Large Cap emerged the top-performer on the Morningstar risk-adjusted return front. The fund posted a growth of 123.4% over the 12-month period.
Small/Mid Cap
The Small/Mid Cap category clocked an average return of 104.6% over the one-year period ended November 2009. Out of 48 funds, 24 bettered the category average. Another fund from Principal Mutual Fund i.e. Principal Emerging Bluechip surfaced as the best performer on the Morningstar risk-adjusted return parameter in this category. In terms of NAV performance, the fund’s NAV grew by 163.3% over the one-year period.
ELSS
Tax-saving mutual funds (popularly referred to as equity linked savings schemes – ELSS) offer investors tax benefits under Section 80C of the Income Tax Act. The 14 chosen funds posted an average showing of 91.8% on the return front over one-year ended November 2009. Six funds fared better than the category average. ICICI Prudential Tax Plan scored over all its peers in terms of the risk-adjusted return. The fund’s NAV appreciated by 123.5% over the one-year time frame.
Moderate Allocation
Funds investing upto 75% of their assets in equities, and the balance in debt and money market instruments constitute that the Moderate Allocation category. During the 12-month period ended November 2009, the 19 eligible funds registered a 67.2% average return. 11 funds outperformed the category’s average showing. In terms of the risk-adjusted return, HDFC Prudence surfaced the best performer. On the NAV appreciation front, the fund posted a growth of 95.7% over the one-year period.
Conservative Allocation
The Conservative Allocation category is constituted of funds which invest upto 30% of assets in stocks; the balance is invested in debt and money market instruments. The category delivered an average return of 23.1% during one-year ended November 2009. Out of 26 funds under consideration, 12 scored better than the category average. HDFC MIP-Long Term topped the category on the risk-adjusted return front; the fund’s NAV rose by 40.9% over the 12-month period.
Note: For the purpose of this analysis, funds have been ranked based on their one-year Morningstar risk-adjusted return; only growth options have been considered. Further, only funds with AUM of more than 20% of the average category AUM as on October 2009 have been considered.