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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.

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.

Leader and Laggards in the category

Tax-Planning
While pursuing a diversified strategy, tax- planning funds also offer tax rebate under section 88 with a 3-year lock-in. This category of 18 funds lost an average 4.77% with no individual gainers. While Dundee Taxsaver tops the chart on the back of FMCG-pharma heavy portfolio, Magnum Taxgain from SBI Mutual Fund has shed a whopping 10.67%.

Leader and Laggards in the category

Technology
There seems to be no respite for the harried tech fund investors. Despite technology majors' first quarter results beating market expectation, the sentiment continues to be wary due to an uncertain outlook. Technology funds, which are already trading at abysmal levels, plummeted another 10.4% while the BSE IT index shed only half at 5.2%. Further, while the guidance in the past for tech counters has come from the west, the current calendar's sharp drop in valuations has largely been on account of domestic woes. Thus, while Nasdaq has lost only 11.5% for the first half of 2001, the BSE IT index has shed a whopping 44 per cent!

With a 43% holding in cash on June 30, Chola Freedom Technology was the least hit with a loss of only 4.14%. The fund has been holding on to its cash position for some time now. On the other hand, the top loser was UTI Software that slipped by a little over 15%. Despite the fund being below par with a one-year loss at 64%, it has attracted fresh inflows with a sharp jump in unit capital for the year ended June 30, 2001.

Leader and Laggards in the category

Pharma
The pharma funds continue to be a bitter pill for their investors. With all the three funds below par, the category posted an average loss of 0.79 with UTI Pharma the top loser at 1.07%. The first quarter results for the sector has been a mixed bag with strong show by domestic majors while MNC companies have put up a lacklustre performance. The Indian pharma companies have been riding high on the back of strong exports while breaking fresh ground in research and development. Interestingly, the three-pharma funds are overweight on domestic majors. Hope, these funds soon see a turnaround.

Leader and Laggards in the category

FMCG
The troika of FMCG funds has been an aberration with 2 gainers for July with sector heavyweights like HLL, ITC and Nestle attaining decent growth numbers. The sentiment was also buoyed by a good monsoon, which is expected to spur demand for FMCG products. Yet, the sector average is a (-) 0.40% due to a 4.5% loss for Magnum FMCG. On the other hand, the top gainer is Pioneer ITI FMCG with most of its top holdings ending with a net gain for the month.

Leader and Laggards in the category

Specialty
This heterogeneous category of thematic funds posted an average loss of 3.65%. Birla MNC, with a mix of pharma, FMCG and old economy stocks, provided a prefect shield to NAV and lost a negligible 0.45%. The top loser in the heterogeneous category was UTI Services, with a tech-heavy portfolio.

Leader and Laggards in the category

Balanced
With the rally in bond markets is providing a cushion against fall in equities, it is simply not enough. No wonder then, the family of 36 balanced funds lost an average 1.45%. JM Balanced was the top gainer with a return of 3.95% while Magnum Balanced ended with a loss of 6.23%.

Leader and Laggards in the category