Equity mutual funds fall most in 6 months in May

NEW DELHI Mon Jun 4, 2012 2:48pm IST

1 of 2. Investors watch the share index at a local share market in Chandigarh October 10, 2008.

Credit: Reuters/Ajay Verma/Files

Stocks

   

NEW DELHI (Reuters) - There is little respite seen for equity mutual funds in the near term, with government inaction to tackle a sharp slowdown in domestic growth and a shaky global economy driving investors away from risky assets.

India's diversified stock funds fell the most in six months in May, pulled down by banks and automobiles among others, and any chance for a rebound is unlikely after March-quarter gross domestic product growth fell to its slowest pace in nine years.

"It's going to be very, very tough," said T.P. Raman, managing director of Sundaram Mutual Fund. "Neither what the government is doing is right, nor what globally things are happening are right."

Diversified funds fell 5.65 percent in May, their worst monthly performance since November and the third consecutive month of decline, according to data from fund tracker Lipper, a Thomson Reuters company. In comparison, the BSE Sensex fell 6.4 percent.

India's economy grew an annual 5.3 percent in the three months to March, a far cry from the 9.2 percent rise in the year-earlier period. Manufacturing has contracted, fiscal and current account deficits have ballooned and the rupee has hit a series of record lows.

Many economists say the problems are self-inflicted such as the government's inability to cut subsidies, remove delays in decision-making and push reforms, rather than the external environment that the New Delhi has been blaming.

BANKS, AUTOS

The gloomy economic outlook could pile pressure on the financial services sector, which accounted for 22.6 percent of the assets of diversified equity funds in end-April, according to Morningstar India data.

"There will be no improvement in bank shares until there is improvement in GDP," said R.K. Gupta, managing director at Taurus Mutual Fund, warning that slowing growth could worsen bad loans and squeeze bank margins.

Banking-focused funds fell 7 percent in May, just off an 8 percent drop in the BSE banking index. ICICI Bank, India's No. 2 lender, fell 11.2 percent in the month, while bigger rival State Bank India shed 3.8 percent.

Automobiles were also a drag for diversified funds, which have a more than 5 percent exposure, as Tata Motors shares fell 26.4 percent in May due in part to lower-than-expected operating margins at its Jaguar and Land Rover unit.

Shares in Maruti Suzuki, the country's top car maker, also faced a bumpy ride with a steep increase in petrol prices and high borrowing costs denting sales in May.

An increase in exposure to mid-cap and small-cap companies to 37.4 percent by end-April, the highest level since November 2010 according to Morningstar data, also backfired on the diversified funds.

The BSE mid-cap index fell 6.46 percent in May and the small-cap index shed 7.3 percent.

"I don't see any better things happening in the next few weeks," Raman said.

Indicating a shift to safe-havens, fixed income funds that invest in government securities saw an average rise of 1.52 percent, while gold exchange-traded funds gained 1.2 percent.

(Editing by Ranjit Gangadharan)

FILED UNDER:

Surprise Rate Cut

Reuters Showcase

Insurance Bill

Insurance Bill

Opposition support bolsters prospects for insurance reforms  Full Article 

SBI Share Sale

SBI Share Sale

SBI's up to $2.4 billion share sale likely by end April - sources   Full Article 

Eicher Share Sale

Eicher Share Sale

Truck maker Volvo sells shares in Eicher Motors  Full Article 

Beef Ban

Beef Ban

After beef ban, Hindu groups force abattoirs to close   Full Article 

Monsoon Season

Monsoon Season

Exclusive - India expects better monsoon rains this year  Full Article 

Services Growth

Services Growth

Services growth at eight-month high in Feb - HSBC PMI  Full Article 

'India's Daughter'

'India's Daughter'

Documentary on 2012 Delhi gang rape banned in India  Full Article 

Capex Slashed

Capex Slashed

Cairn India slashes 2015-16 capex on falling crude   Full Article 

Strong Start

Strong Start

Airwaves auction off to strong start, bids near $10 billion.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage