Domestic equity markets remained in a narrow downward trading channel in August as bearish news on the international economy, especially the US economy, continued to put pressure on stocks. Perhaps the only positive outcome in the previous month was the strong growth expectations of generic pharmaceuticals exports from domestic drug companies. That was reflected in the 5 percent monthly gain in pharma funds.
Elsewhere, equities languished as investors could not find any reason to purchase shares. The downgrade on the currency by two leading international credit agencies too contributed to the longer-term bearishness in India. Foreign funds, which have poured in money in Indian equities so far in the year, put in less in August compared to July.
The other silver lining in equities was that the Unit Trust of India did not become an overt seller of shares in the market, which prompted other players to hold back sales.
Overall volumes remained on low ebb; down substantially from their March-April highs, as retail investors licking their losses remained on the sidelines.
Diversified Equity Funds:
The net asset values of this 49-member fund category posted an average monthly loss of 0.79 percent much lower than the decline in their sector benchmark index, the Bombay Stock Exchange Sensex that ended with a monthly loss of 2.53 percent. Pioneer ITI Prima, which has an emphasis on mid-cap growth stocks, came first on the hustings with a 4.46 percent gain in August. A big relief for unit holders in the scheme as the fund was the second worst performer in the sector the previous month.
ING Growth portfolio came second, but with an alarmingly high 73 percent exposure to technology stocks, the fund has paid no attention to the much-needed maxim of diversification, especially in bearish times such as these.
The worst performers in this category were GIC Growth Plus II and Tata Pure Equity, which posted losses of 4.68 percent and 4.07 percent.
The sector has lost 23.99 percent so far in the year versus the 15.70 percent decline in the National Stock Exchange index.
Equity Tax Planning:
The main attraction for investors in tax saving schemes is the rebate that the get under section 88 of the Income Tax Act. This 18-fund category, having assets of Rs 337.51 crore rupees, has been the second best performer amongst the Value Research classified five equity fund categories. The sector posted an average return of 0.54 percent in August. The biggest gainer in the category was Libra Taxshield' 96 with a 3.95 percent gain while the UTI Equity Tax Saving Plan-2000, from the stable of Unit Trust of India, was the biggest loser with a 4.26 percent loss.
The erosion in tech fund NAVs was towards the lower side. The shaved of a quarter of a percent as against the 10 percent loss last month. Seven out of the 12 funds in the category gave a positive return this month. Among them was Prudential ICICI Technology that gained the maximum 2.51 percent, but that came on the back of a 13.33 percent portfolio allocation to pharmaceutical shares!. Technology funds have been the worst equity fund performers so far in the year, down 44.31 percent so far in the year, as against the 47.53 percent decline in the BSE IT index.
They were the best performers in the equity side in the last month. These three funds gained on average 5 percent, even ahead of the 4.15 percent gain on their main index on the BSE. The performance was enhanced by a string of positive news on the sector, especially on domestic pharma companies. Most investors have preferred the defensive safety of pharma shares against the backdrop of a cloudy earnings environment elsewhere.
The three funds in the category posted an average 1.43 percent decline in their NAVs in August, but the losses were lower than the 3.10 percent slide in the BSE FMCG index. Losses so far in the year have amounted to 19.78 percent, against the 9.91 percent fall on the sector index. FMCG companies have been unable to show a strong topline and bottomline growth for the past several quarters. Better performance has been a result of increasing the system's efficiencies rather than a robust rise in sales, hence the indifference from the market.
Losses were a minor 0.16 percent in August for this 14 fund category which has a diverse mix of funds investing in the petroleum sector, services sector and in the basic industries to name a few.
The 36 funds in the category inched up by an average 0.55 percent during the month. The growth option of JM Balanced Fund topped the category with a gain of 4.84 percent, while the dividend option of the fund was at the another end of the spectrum with a 2.12 percent loss.