The past month witnessed a complete turnaround in the fortunes of Indian equity markets and mutual funds. All mutual fund schemes except the safe haven liquid funds yielded negative returns as stock markets tanked. Excessive volatility and negative momentum in the markets spooked the investors and as a result, fresh inflows all but dried up.
Apart from the election-related uncertainty, huge FII outflows, surging oil prices and an expected revival in the US economy accentuated the fall in the Indian markets as the 30-share BSE Sensex tanked 15.83 per cent or 895 points in May, the steepest fall in a single month, in the last two-and-half years. During the month, the BSE market capitalisation nosedived by a massive Rs 2,13,568 crore or 17.90 per cent to Rs 9,79,408 crore. The monthly outflow of foreign institutional investors (FIIs) stood at Rs 3,255 crore, one of the biggest in a single month ever since FIIs forayed into the Indian equity markets 12 years ago.
The broad-based market maul in May took its toll on the mutual funds. Almost, all AMCs as well as individual schemes lost money and saw their assets under management (AUM) decline heavily. Equity oriented schemes yielded negative returns in the range of 14-23 per cent in just one month. Diversified equity and index funds lost 15 and 16.5 per cent respectively though their combined AUM declined by only 10 per cent indicating some fresh inflows.
Among the sectoral funds, Petroleum sector funds suffered the maximum drubbing recording negative returns of 23 per cent as oil stocks were hammered in the wake of the new government's decision to stall the privatization process of profit-making PSUs. FMCG and Pharma sector funds lost 8.27 and 8.65 per cent respectively. The combined AUM of petroleum, FMCG and Pharma funds fell by 16 per cent. Ironically, the notorious Technology sector funds were the top performers among the equity funds losing just 2.26 per cent in a sinking market. Their AUM also fell by only 2 per cent.
Hybrid funds didn't perform much better than their equity cousins, yielding negative returns in the range of 5-13 per cent on an average. Their AUM was also slashed by 7 per cent. MIPs were able to keep their promise of limiting the downside by falling just 2.28 per cent. This sparked fresh inflows and switch-over from other schemes. Their AUM swelled by 7 per cent.
Medium-term debt funds also faced the 'red' heat as large-scale redemptions put them under intense pressure. Their AUM declined by a hefty 13 per cent even though their average loss over the month was limited to 0.5 per cent.
The only mutual fund schemes which yielded positive returns were liquid funds which have a variety of schemes with short maturities. These schemes, which generated returns between 0.03-0.38 per cent, have very low portfolio duration and are safe bets in a volatile market. Consequently, these funds witnessed large inflows and switch-overs as their combined AUM soared by 11 per cent.
Among the fund houses, ING Vysya, Morgan Stanley and GIC were the worst-hit losing 21, 18 and 15 per cent of their AUMs respectively. The biggest gainer over the past month was Benchmark MF registering an increase of 13.86 per cent in its AUM, on the back of new fund launches.
Overall, the past month was like a nightmare for the Indian mutual fund industry, which had been on a high growth trajectory since the markets started booming in April last year.
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