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* Worst quarter for equity diversifed funds since Dec 08 quarter
* Exposure to capital goods, financials hurts
* Diversified equity schemes fall 1.45 pct in Sept
By Aditya Kalra
NEW DELHI, Oct 4 (Reuters) - India's diversified stock funds posted their worst quarterly performance in nearly three years, as rising interest rates, slowing economic growth and global debt worries led to a fall in key stock indices.
Such funds lost an average 9.84 percent in the September quarter, their weakest quarterly performance since the October-December 2008 period when they fell over 20 percent, data from fund tracker Lipper, a Thomson Reuters company, showed.
(For a table of mutual fund returns, click on )
The fall mirrored the drop in the benchmark index which declined 12.7 percent during the same period, the index's biggest fall since shedding 25 percent in the December 2008 quarter.
"Capital goods and industrials were the biggest contributors to the poor performance of equity funds," said Dhruva Raj Chatterji, senior research analyst, Morningstar India.
"Large-cap equity funds fell more than their mid-cap cousins during the quarter."
Losses in the capital goods sector , which fell 22.7 percent in the quarter, hammered unit values as equity diversified funds had an over 20 percent exposure to this sector as of end-August, data from Morningstar India showed.
Metal stocks also contributed to the fall, as reflected in the BSE metal index which fell 27 percent.
Mutual funds were also hit by investments in financial services stocks, another favourite theme of managers with an over 20 percent allocation, as the banking index fell 15.4 percent on worries about slowing credit growth amid a rising interest rate environment.
Data showed that fund managers slowly increased their combined exposure to small- and mid-cap stocks in recent months to 36.5 percent of assets by end-August, their highest level since January 2011.
The move, however, did not help funds, as the BSE mid-cap index fell 10.6 percent and the small-cap index slumped 15.6 percent in the September quarter.
Among sectoral equity schemes, funds that invest in the IT sector fell 13.3 percent, tracking the 13.5 percent fall in the BSE IT index , while banking funds lost an average 15.3 percent in the quarter.
Gold exchange traded funds (ETFs) staged an impressive performance in the quarter, rewarding investors with an over 17 percent average return as global debt woes boosted the yellow metal's appeal, sending prices higher.
Diversified equity funds fell 1.45 percent on average in September, nearly in line with the 30-share BSE index's fall of 1.34 percent in the month, data showed.
Funds' investments in capital goods and metals proved to be a drag on unit values, as the sectoral indices fell 10.82 percent and 9.1 percent, respectively, in September.
Gold exchange traded funds (ETFs), which were star performers in August, lost 3.4 percent in September as gold prices eased.
On the continuation charts, India's gold futures MAUc1 ended the month at 25,989 rupees per 10 grams, down 4.4 percent.
"Fundamentally, nothing has changed on gold ... prices could go much higher," said Chirag Mehta, fund manager - commodities at Quantum Asset Management.
Among debt schemes, funds that invest in government securities returned 0.26 percent in the month, Lipper data showed. (Editing by Sunil Nair)