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Equities On A High

The equity markets & fund categories ended March positively, but the debt categories failed to impress

After a couple of dismal months that kicked off 2009, March, the month of the festival of colours, added colours to the Indian capital markets as well. And the colour that dominated towards the end of the month was green. The markets finished the month on a high: Sensex up by 9.19 per cent and Nifty by 9.31 per cent.

The market rally in March was largely propelled by Metal, Oil & Gas and Auto stocks. Consumer Durables, Power and Banking gained as well, albeit in small percentages. On the other hand, FMCG turned out to one of the major losers.

In the equity diversified funds category, which reported an average gain of 7.04 per cent, the biggest gainer was Templeton India Equity Income, buy a very impressive 14.18 per cent. However, while the category reported gains, only 32 of the 219 equity diversified funds were able to beat the Sensex and only 30 were able to beat Nifty. 23 funds in the category reported gains of over 10 per cent. The high amount of cash in the fund portfolios was one of the reasons why most funds underperformed their benchmarks. In February-end, equity funds had a total Rs 18,800 crore in cash, which was 19.15 per cent of their total assets.

It was after two months that the equity diversified category gave positive returns. In the past 12 months, the category has managed to end five months with positive returns, despite the overall pessimistic market scenario. In March, the category had only three losers: JM HI FI (-2.45 per cent), Escorts Leading Sectors (-1.39 per cent) and Escorts Growth (-0.34 per cent).

Coming to the fixed income funds, the debt medium-term category saw a fall of (-)0.68 per cent. The returns of 38 of the 59 funds in this category were in the negative territory, with 25 of them falling by more than one per cent. The best funds of the category in March were Kotak Twin Advantage Series II (+1.93 per cent) and ING Dynamic Duration (+1.40 per cent). The worst fund was DBS Chola Triple Ace, which fell by a whopping 3.56 per cent.

The category's quarter-end returns were (-)3.20 per cent. Only twice before in the history of this category have the quarter-end returns been negative, but never falling by more than one per cent. The returns at the end of this quarter are even more disappointing because in the previous quarter, the category was up by 9.72 per cent.

As far as the gilt funds were concerned, they suffered at the hands of rising GOI yields. The GOI yields for 10-years have been on a rise for the past one month and consequently, the gilt medium- and long-term category continued its fall for the third straight month, going down by (-)1.73 per cent. The quarter-end fall for the category was even harder, down by 9.42 per cent, after a spectacular 20.68 per cent in the previous quarter. The gilt short-term category was down as well, by (-)0.25 per cent.

The liquid funds category ended March with negative returns of 0.49 per cent. This was the effect of SEBI ruling in January this year, which required liquid funds to limit the maturity of their investments to 182 days with effect from February 2009, and 90 days with effect from May 2009.

Overall, while the month saw the resurgence of equities, the fixed income funds were left languishing in the red.