Fund Languish in a Turbulent Market | Value Research Funds takes refuge in quality stocks as BSE Sensex loses 12.97% in the current calendar

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Fund Languish in a Turbulent Market

Funds takes refuge in quality stocks as BSE Sensex loses 12.97% in the current calendar

With BSE Sensex in the red with a net loss of 12.97% in the current calendar, it has been a grim year by any standards. That the broader market indicators - BSE 200 and S&P CNX 500 have registered steeper losses than the bellwether reveals that havoc has been wrecked across-the- board.

Amid the continued bear spell, the last quarter was eventful in its own way. As the market was caught in the grip of systemic risk, the Friday jinx continued with gnawing bears and spate of broker defaults. The marked regulator stepped in with its corrective pill and ushered in sweeping changes. Starting July 2, 2001, dealing in the markets is permitted only through delivery-based trades. Further, rolling settlement has been introduced in a fresh lot of 251 stocks, taking the total to 414. Also, the regulator has replaced Badla with derivative instruments, including options in select stocks for hedging and speculation. These measures will certainly improve the health of the financial markets, check price manipulation and usher in global standards. Thus, foreign institutional investors and mutual funds will be the main beneficiaries, while retail interest might take a while to come by.

While all this bodes well for the health of the market in the long run, the short has been mired in volatility. Yet, the bellwether has stayed relatively resilient this quarter despite an endless stream of negatives. The loss this quarter at 4.10% has been only the half of what was witnessed in the previous one. Further, while this quarter too has an overwhelming number of losers, there are some isolated gainers too. For instance, a couple of diversified equity funds have been net gainers while a technology fund has posted a marginal gain after countless quarters of sharp losses.

How are mutual funds coping?

Amid the endless battering of equity funds, the family is not only re-discovering the virtues of diversification. In a bear market, only quality stocks with their liquidity come in handy. The introduction of rolling settlement is only going to further squeeze liquidity. Thus, the recent turmoil has seen several funds bring in a sharp focus on quality, besides broad basing their portfolio. Prudential ICICI Growth Fund is a case in point since it has exited its momentum plays in favour of large-cap, liquid stocks. Fund managers opine that volumes will certainly take a dip for 3-6 months since investors are not familiar with trading in rolling settlement. This underscores the need to stay invested in a liquid portfolio, which provide good volumes post July 2.

Diversified Funds

The Value Research category of 53 diversified equity funds lost 3.67% against a broad market loss of 4.10%. Zurich India Equity focuses on companies, which offer proven management along with liquidity. Spreading its small corpus of Rs 35 crore across select industry leaders, the fund has outperformed its category with a gain of 2.55%.

Templeton India Growth Fund has evolved over time, adapting its value investing philosophy to the Indian market. While taking a healthy exposure to the growth sector of technology, the fund still holds a well- diversified flavour. While the long-term performance is showing up, the fund outperformed its category for the category with a gain of 1.32%.

All the three diversified equity funds from Credit Capital Fund house are deep in the red, logging the steepest losses in their category. With all the three funds holding a mid-cap heavy portfolio, the trio has tumbled in excess of 14% in the last quarter.

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Tax Planning

Besides pursuing a diversified equity flavour, tax-planning schemes offer a rebate under Section 88 with a three-year lock in. With some funds still continuing with their long-term investment focus and holding on to their technology bets, this 18 fund category shed an average 3.27 % in the last quarter.

Canequity Taxsaver , with close to half of the portfolio apportioned to technology stocks, has shed the most at 9.55%.

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The flavour of 2000 has left a sour taste. Hordes of investors, who chased the technology bubble while turning a blind eye to their investment priorities, have been left high and dry. While the bunch of tech funds launched last year are steeply below par, they have logged an average loss of 7.01% in the last quarter.

With its focus on companies enabled by the Internet, KP Internet Opportunities has been able to build a mixed portfolio of technology and old economy stocks. With this relative diversity offering a cushion against the sharp fall in tech counters, the fund has remained in positive territory with a gain of 0.20%.

On the other hand, Alliance New Millennium Fund continues to be a fully invested, concentrated and aggressively managed fund. Thus, the fund has logged the sharpest loss in the last quarter at 13.41%.

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Nearly two years since their launch, this three-fund category is still mired in the red with their NAVs hovering below par. This category lost an average 6.15%, with UTI Pharma and Healthcare the top loser at 6.53%.

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With the economy in a limbo, it has been no different for the FMCG fund category, which has been reeling under the pressure of a slowing demand. This three-fund category lost 4.64% with Magnum FMCG leading the pack at (-)7.31%.

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This heterogeneous category of non-comparable funds posted an average gain of 3.96% in the quarter. Alliance Basic Industries , which focuses on economy and restructuring plays, has woven a concentrated portfolio around the leaders in the old economy counters. With old economy stocks in demand, this fund gained an impressive 4.6% in the last quarter.

UTI Services Sector , with a heavy technology tilt is in the red with a steep loss of 9.75%. However, along with UTI Petro , it is the only fund in the UTI Growth Sector Series, which has offered impressive returns since launch.

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The pack of balanced funds launched in 1999 is quoting below par after being hammered in pursuit of the technology bubble. Re-balancing in the face turbulence in the equity markets, these funds have sought refuge in the rather placid debt instruments. With an average 49% of the assets parked in debt, the 33 fund category of balanced funds have thrown up stark differences in performance.

Pru ICICI Balanced , while striking a balance between debt and equity instruments, holds quality picks in its equity basket. With this, the fund has emerged in the top of it category with a gain of 3.61%.

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