With equity markets closing the month of December 2009 in positive terrain, the calendar year ended on a high for investors. However, the month wasn’t all smooth sailing as spiraling inflation (food prices in particular) threatened to play spoilsport. This in turn prompted speculation that the central bank would hike interest rates.
Conversely, markets drew from positive numbers for Index for Industrial Production, exports and advance tax payments. Towards the latter half of the month, comments attributed to the Finance Minister and the Prime Minister, on expectations of an accelerated economic growth cheered markets. Incidentally, Gross Domestic Product data for the September 2009 quarter revealed that the economy grew by 7.9% on a year-on-year basis, thereby comfortably beating the lower expected growth rates.
The BSE Sensex rose by 3.2% over the month. The BSE 100 and BSE Mid-Cap indices posted a monthly growth of 3.5% and 4.7% respectively. It was a particularly good month for investors in the small cap segment; the BSE Small-Cap Index appreciated by 11.1%. A similar picture emerges over the one-year time frame, with the BSE Small-Cap Index (up 126.9%) outperforming both the BSE-Mid Cap (up 107.7%) and the BSE 100 (up 85.0%).
Among sectoral indices, the BSE IT Index (up 9.0%) pitched in a noteworthy performance. Expectations of a global economic recovery had a positive impact on IT companies. The BSE Consumer Durables (up 8.5%) and the BSE TECK (up 8.3%) indices also fared well.
Foreign Institutional Investors (FIIs) continued to be net buyers in equity markets for the tenth month in a row. They bought equities to the tune of Rs 10,233 crores. Conversely, domestic mutual funds were net sellers in equity markets for the fourth month in a row. They sold equities of around Rs 1,762 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
The Large Cap category clocked an average return of 80.2% for the year ended December 2009. Out of 69 funds considered, 31 outperformed the category average. Principal Large Cap surfaced as the top-performer on the Morningstar risk-adjusted return front. The fund posted a growth of 110.1% over the 12-month period.
Small/Mid Cap
Funds from the Small/Mid Cap category posted an average return of 96.5% over the one-year period ended December 2009. Out of 49 funds, 28 bettered the category average. Principal Emerging Bluechip emerged as the best performer on the Morningstar risk-adjusted return parameter in this category. In terms of performance, the fund’s NAV grew by 147.3% over the one-year period.
ELSS
Investors in tax-saving mutual funds (also referred to as equity linked savings schemes – ELSS) can avail of tax benefits under Section 80C of the Income Tax Act. The 14 chosen funds posted an average showing of 85.6% on the return front over one-year ended December 2009. Six funds fared better than the category average. ICICI Prudential Tax Plan scored over its peers on the risk-adjusted return front. The fund’s NAV appreciated by 112.0% 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 the Moderate Allocation category. During the 12-month period ended December 2009, the 17 eligible funds registered a 60.1% average return. 11 funds outperformed the category’s average showing. In terms of the risk-adjusted return, HDFC Prudence surfaced the best performer. Its NAV rose by 84.8% 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 17.4% during one-year ended December 2009. Out of 26 funds under consideration, 14 scored better than the category average. HDFC MIP-Long Term topped the category on the risk-adjusted return front; the fund posted a growth of 30.7% 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 November 2009 have been considered.