* Diversified stx funds' cash levels at highest since July
* Higher cash, mid- & small-cap exposure acts as deterrent
* Banking funds shine, post 10.5 percent average return
By Aditya Kalra
NEW DELHI, April 4 Diversified Indian stock
funds lagged the benchmark Sensex in March due to
higher allocation to cash and exposure to mid- and small-sized
Such funds posted an average return of 7.67 percent in the
month, lower than the 9.1 percent gains the Sensex registered,
data from global fund tracker Lipper, a Thomson Reuters company
"Funds with higher cash exposure in the end of February
probably missed out partially on the rally in markets in March
and thus underperformed during the month," said Dhruva Raj
Chatterji, senior research analyst at Morningstar India.
Diversified equity funds had 7.82 percent of their assets
allocated to cash as of end-February, their highest level since
July 2009, according to Morningstar India data.
"Our data shows that the bottom ten performing diversified
equity funds in March had an average cash allocation of close to
15 percent," Chatterji added.
(For a category-wise table, click on [ID:nL3E7F40W7]).
Exposure to mid- and small-cap stocks, which accounted for
more than a third of such funds' assets as of end-February, also
acted as a deterrent as such companies underperformed their
larger peers in March.
The BSE Mid-cap index gained 7.8 percent, while the
index rose 4.6 percent during the month.
Exposure to the capital goods sector, one of managers' top
bets in India which accounts for nearly a quarter of such funds
assets, was unable to boost unit values as the sectoral index
gained 6.7 percent and lagged the broader market.
However, banking funds remained star performers of the
month, recording an average return of 10.5 percent, Lipper data
The BSE Banking index rose 12.3 percent in March,
on hopes that the Indian economy would continue to grow at a
fast pace, and in turn boost demand for loans.
"It's (the banking sector) the backbone of everything," said
T P Raman, Managing Director at Sundaram Mutual Fund. "With the
infrastructure story gaining pace, the banks will have an
increasing role to play."
Indian fixed income funds that invest in government debt
returned an average 0.62 percent, as the yield on benchmark
10-year bond fell three basis points in March.
(Editing by Rosemary Arackaparambil)