The mutual funds in India finally had a good month, in July, mirroring the trend in the broader markets. During July, the Sensex rose to 14,355 from 12,961 after a very bad June. When you compare mutual different fund categories, the equity mutual funds had a good run, particularly the banking-focused funds on the back of a good run by the banking index on the BSE. And in the banking fund space, the PSU-focused funds outshone their peers.
During July, Kotak PSU Bank ETF gave a return in excess of 30 per cent, beating all the equity funds. The sentiment in PSU bank stocks has been bullish in anticipation of pending banking reforms. This is noteworthy given that interest-sensitive stocks have been facing headwinds from soaring inflation and high interest rate. Already, there is hope in the air. After winning the trust vote, the UPA government started the reforms agenda by giving the nod for State Bank of India and State Bank of Saurastra merger.
Banking was so dominant theme in July that the top five funds were dominated by banking-focused funds. The Kotak ETF was followed by Reliance Banking ETF, Bank BeEs, Reliance Banking Fund and PSU Bank BeES, all giving returns in excess of 20 per cent each.
In the equity diversified category of mutual funds in India, ING Dividend Yield fund, DBS Chola Growth Fund (G), DBS Chola Hedged Equity Fund (G) DBS Chola Multi-Cap Fund (G) led from the top, with returns of more than 15 per cent each. Among the tax savers, JM Tax Gain Fund (G), Sahara Tax Gain Fund (G) Birla Sun Life Tax Relief ’96 (G) led the group with returns in excess of 13 per cent.
The pharma story was still intact, with Reliance Pharma Fund (G) and Franklin Pharma Fund (G) posting 5-8 per cent returns.
Reflecting the performance of the Sensex, index funds also returned in average of 13 per cent.
The balanced fund too enjoyed an upswing with BOB Balance (G), Canara Robeco Balance (G) and UTI-Balanced Fund (G) posting returns about 10 per cent.
Among the sectoral funds, the infrastructure theme too played well in July, with the leading sectoral funds like JM HI FI Fund (G), ICICI Pru Infrastructure Fund, and UTI-Energy Fund (G) giving returns in excess of 16 per cent each.
In the ETFs, the banking theme dominated the top league. The debt funds too ended in the green, with shorter term funds outshining its peers. If you are a debt fund investor, this is an important indicator: don’t expose yourself to longer duration funds when interest rate regime is going to harden.
Despite a good July, the assets under management for mutual funds in India fell 6 per cent in the month. According to Association of Mutual Funds in India, total assets under management dropped to Rs 5,29,629.46 crore in July, from 5,64,752.76 crore in June. With the RBI progressively sucking out liquidity from the system, even deployment in income funds by corporate and banks have declined.
Will the banking funds sustain the momentum in August? Though difficult to predict, it can be safely said that the ride would not so spectacular as seen in July, given that the euphoria of UPA win is wearing off.
And the government also needs to keep the reform buzz alive. On the positive, the central bank is not going to hike rates anytime soon in August.