NEW DELHI Sectoral funds investing in pharma and banks topped the performance charts among equity funds in March, while diversified stock plans lagged due to high exposure to cash and sectors like capital goods.
Pharma funds on an average returned 10.8 percent during the month while financial services funds earned 7.9 percent, data from fund tracker Lipper, a Thomson Reuters company, showed, higher than the 6.7 percent gain in the BSE Sensex.
"The passage of U.S. healthcare bill would benefit Indian drug companies - this helped pharmaceutical stocks and in turn funds," said Chintamani Dagade, senior research analyst at Morningstar India.
Financial firms, the most favoured sector of money managers in India, did well on improving credit outlook, analysts said.
The BSE Banking index gained 8.4 percent in the month with large private lenders like ICICI and HDFC Bank gaining 9.27 and 13.36 percent, respectively.
"The outlook for credit growth is definitely far better than what the actual growth has been for last year," said Vetri Subramaniam, head of equities at Religare Asset Management, whose Religare Banking Fund was the category's best performer in March.
"In an overall sense that should be positive for the banking sector," he added.
Actively managed equity diversified funds, the biggest category of stock funds in India by number and assets, recorded a 6.05 percent growth in unit values, mildly underperforming the benchmark index.
Higher allocation to sectors like technology and capital goods and a near 7 percent exposure to cash hampered the performance of these funds, experts said.
The BSE IT index rose 1.2 percent, while the capital goods index gained 4.5 percent in March.
These two sectors collectively accounted for nearly 20 percent of such funds' equity investments at the end of February, data from fund tracker ICRA Online showed.
BOND, GOLD FUNDS
Indian fixed income funds that invest in government securities, which lost 0.2 percent in February, made a comeback in March by gaining 0.65 percent.
The 10-year federal bond yield did not change much on a month-on-month basis, but fell to their lowest in seven weeks on March 30 after a lower-than-expected government borrowing schedule for the six months beginning April.
"Investors also used lower prices as an opportunity to invest in market," Dagade of Morningstar India said.
The Reserve Bank of India raised both its key short-term rates by 25 basis points each on March 19, citing intensifying inflationary pressures and a steady economic recovery.
India's gold exchange traded funds (ETFs) lost 2.46 percent during the month as a strong dollar overseas reduced the precious metal's appeal as an alternative investment.
On the continuous charts, gold futures ended March at 16,295 rupees per 10 grams, down nearly 3 percent during the month.
(Editing by Ramya Venugopal)