Fundwire

Equity Fund Performance 'July 01

July was another tough month for equities -- the UTI fiasco, Rolling Settlement, uninspiring Q1 Results, dragged the BSE Sensex further by 3.68%. Read more about the struggle of the equity funds.

09-Aug-2001

It was a tough setting for the Indian bourses in July with a barrage of negative developments but the markets emerged largely unscathed from the imbroglio. The month also marked the shift to rolling settlement, which has changed the way stocks are traded in Indian markets. The sentiment was dampened by the UTI suspending transactions in US-64 units. The damning revelation of UTI's dubious investments caused further discomfiture, as the mutual fund behemoth came under CBI scrutiny. In an unprecedented move, the entire UTI top brass landed in jail on charges of causing "wrongful" loss to the institution. The net spread to other public sector institutions with RBI initiating inquiry into banks' doubtful equity investments. Clearly, the losses from the tech meltdown are now erupting like fissures.

While UTI decided to offer limited repurchase in US-64, players were gripped by fears of a UTI selling wave to generate cash. With volumes already hitting a low with rolling settlement, any offloading would have spelled a doom for the markets. However, much to the relief of the markets, the fund behemoth received a line of credit from banks to take care of redemption pressure.

Apart from the UTI saga, the month also saw the declaration of not-too-inspiring first quarter results. In the technology sector, the results separated the men from the boys. While top-tier technology companies survived the slowdown to beat market expectations, smaller companies saw a sharp dip in profits. On the other hand, the impact of the slowdown was clearly evident on the old economy sector with a flat growth in sales except for cement. Yet, belt tightening by way of restructuring and cost cutting have helped perk up the bottomline.

July was a watershed month in the history of Indian capital markets. The age-old badla system was replaced by rolling settlement and trading in derivatives. The new dispensation has brought about a clear segregation between cash & futures markets and is a critical step towards integration with global trading practices. Yet, no transition is smooth but ushers in with its set of casualties and glitches. With the removal of circuit filters, the market saw stray quotes in some key stocks but a stern warning from SEBI served as a corrective pill. Further, with speculative trades put to rest under rolling settlement, there was a sharp drop in volumes. The domestic broking community was also up in arms since a number of traders have gone out of business. However, with the market regulator persisting with the new setup, the protests have gradually ebbed. Instead, players have are now focussing on learning the tricks of the "new" trade. Towards the end of the month, there was a pick up in volumes as participants adapted to trading under rolling settlement.

Despite a string of negatives, a resilient 30-stock BSE Sensex lost only 127 points or 3.68% for the month. The events also failed to shake the faith of FIIs, who continued to pump investments in Indian equities. For the month, they bought stocks worth Rs 722 crore. However, even as FIIs continue to invest, there has been a perceptible slowdown in net inflows. For instance, the net investment was at staggering Rs 4,000 crore in January 2001.

Diversified Equity Funds
The Value Research category of diversified equity funds lost 4.78% for the month and thus, under performed the broad market indices of 30-stock Sensex and 50-stock S&P CNX Nifty. There are no gainers among 54 funds. It has been a seesaw ride for the diversified family, which slumps one month but bounces back the next with some positive gains. That a rudderless market has been groping for direction is amply reflected in performance numbers.

The best performer for the month is Dhansamriddhi from LIC Mutual Fund, which has outperformed the category with a loss of only 0.50%. Yet, this "spark" is unlikely to bring any cheer to its investors. The fund has been a disaster with a return of (-) 20.7% since launch in 1994. Worse, the fund's NAV is in an abyss at just under Rs 2. Another offbeat topper is Boinanza Exclusive Growth from BoI Mutual Fund. The fund's NAV is also way below par.

Among top losers are the two diversified equity funds from the Credit Capital Fund house – Taurus Discovery Stock and Libra Leap. Both the funds have lost in excess of 10% with their mid-cap heavy portfolios. Apart from a general apathy for mid-cap stocks with introduction of rolling settlement, the smaller IT companies were hammered during the month for poor results. Libra Leap recently introduced a safety net, where an investor will at least get the NAV at which he invested at the time of exit. If the performance does not turnaround, investors will surely use this facility to good effect.