Mutual funds give up 2 yrs of gains in 2008 crash

By Nishant Kumar

MUMBAI (Reuters) - Net values of Indian equity funds fell more than half in 2008, giving up the entire gain made in the previous two calendar years, as the main stock index plunged 52.4 percent to record its worst annual performance ever.

"The fall was stunning and one of the major losses that we would have suffered in any calendar year," said Aditya Agarwal, managing director and head of Indian markets for fund research firm Morningstar.

Indian shares recorded their first annual drop since 2001, surpassing the previous worst fall of 20.8 percent in 1995, slammed by foreign fund outflows and a sagging domestic economy.

Seventeen stocks in the BSE index lost more than half their value during the year as foreign funds withdrew more than $13 billion after record inflows of $17.4 billion in 2007.

Net asset values of all stock funds fell in 2008, recording their worst annual fall of 54.7 percent during the year, according to data from global fund tracker Lipper.

Nearly half of the actively managed diversified stock funds also underperformed the benchmark index despite maintaining a double-digit cash levels almost through the year as their large mid and small-cap holdings plunged even more than the main index.

The funds' monthly allocation to mid-cap and small-cap shares ranged between 33.6 percent to 43.8 percent during the year, delivering a blow to their portfolios as the BSE Mid Cap and BSE Small Cap indices slumped close to 70 percent.

Their top bets in capital goods and financials were also hitby high interest rates and a slowing economy.