* Worst monthly fall since Oct '08 for diversified stx funds
* Fall in key stock indices hurts performance
* High exposure to financials, energy weighed
By Aditya Kalra
NEW DELHI, Feb 2 (Reuters) - India's diversified stock funds mirrored losses in the benchmark index in January with unit values recording their worst monthly performance since October 2008, data from global fund tracker Lipper showed.
Such funds, which form the largest category of equity schemes by number and assets, posted an average drop of 9.8 percent in the month, compared with a 10.6 percent fall in the 30-share benchmark Sensex .BSESN.
"Mid & small cap funds and infrastructure themed funds were the biggest losers during the month, with these two segments losing investor appeal in January," said Dhruva Raj Chatterji, senior research analyst at Morningstar India.
For a category-wise return of funds, click [ID:nSGE71103C].
High inflation and fears of further rate hikes dented investor sentiment and led to a sharp fall in key stock indices, as foreign funds pulled out $1.4 billion from Indian equities in January. [ID:nSGE70U09F]
Higher exposure to small and mid-cap counters also affected unit values, as diversified equity funds had more than a third of their assets invested in such companies as of December-end, Morningstar India data showed.
Shares of such firms fell more than their larger peers in January, with the BSE mid-cap index .BSEMC losing 12 percent, and the small-cap index .BSESC recording a drop of 12.3 percent during the month.
Exposure to sectors like financials and energy, which together accounted for more than 30 percent of diversified equity fund assets, also hurt funds performance, data showed.
The country's top lenders SBI and ICICI beat estimates in third quarter results, but rising rates in India are likely to dampen the outlook for earnings growth in the near term. [ID:nSGE70N05X]
"It has been a broad-based fall in markets which has affected funds," said R.K. Gupta, managing director of Taurus Mutual Fund. "This is a catch-22 situation for the fund managers".
Indian fixed income funds investing in government debt saw net values rise 0.16 percent in January, as yields eased after the central bank's policy review in the last week of the month.
"Policy was not as hawkish as some people were expecting, so the bond yields fell ... that led to the positive return," said Mahendra Jajoo, head of fixed income, Primerica Asset management.
The central bank matched expectations with a 25 basis-point rise in rates on Jan. 25, rather than the 50 basis-point increase some investors had expected. [ID:nSGE70O07R]
For the month, the yield on the actively traded 8.13 percent, 2022 bond IN081322G=CC rose 14 basis points in the month while the less liquid benchmark 10-year bond yield IN078020G=CC was up 23 basis points.
India's gold exchange-traded funds (ETFs) fell 3 percent in the month as yellow metal prices fell on waning safe-haven appeal due to improvement in U.S. data.
On the continuous charts, gold futures MAUc1 ended January at 19,922 rupees per 10 grams, down 3.9 percent for the month.
Aditional reporting by Neha D'Silva and Siddesh Mayenker, Editing by Ramya Venugopal