If April was a special month, May could just as well be considered super-special for the mutual fund (MF) industry. Investors have got more than they could have asked for.
After choosing to take back their money in 2008, Foreign Institutional Investors (FIIs) have ramped-up their investments in India, convinced fully in May by the stunning poll victory handed to the Congress party that the equity markets will most probably gain exceptionally. The stock markets have been on an unstoppable roll now for more than two months, a period that has seen sustained inflow of foreign funds. On the other hand, MF managers have still opted not to invest their money in equity by reducing the large piles of cash they are sitting on. They are still holding cash to the extent of 16 per cent in May, a figure almost unchanged from April, signifying they were not investing in equities to any noticeable extent.
However, MFs have been beneficiaries due to their earlier holdings in equities. The effect of FII funds' flow into stocks, which then skyrocketed, has been phenomenal on equity diversified funds. These have logged the best gains in 17 years, with most funds beating the benchmark index in May. Of the 226 diversified equity funds, 126 beat the Sensex, while 127 stayed ahead of the CNX Nifty.
Apart from the rally in the large caps, the great performance by the mid- and small-cap indices helped register gains across all segments of equity investments. Equity funds (EF) posted an average of 30.65 per cent returns for the month, the best gain since March 1992, when EFs gained a phenomenal 48.73 per cent.
The rally was fueled by small- and mid-cap stocks, while the top gains among market indices were clocked by BSE Realty, a mammoth 79.3 per cent. BSE Metal gained 57.98 per cent and BSE Consumer Durables by 56.92 per cent.
FMCG stocks, which provided the a most crucial and much-needed support to markets last year, gained the least this time, by a mere 0.08 per cent during this rally. BSE FMCG had fallen just 14.33 in 2008, as compared to 52.45per cent lost by BSE Sensex.
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As far as MFs go, the May rally rub-off also translated into some magnificent gains. Among the equity funds, banking funds were top gainers, with 38.7 per cent returns. BSE Bankex gained 45.3 per cent during the period. The diversified equity funds gained 30.65 per cent, while the tax planning funds clocked 30.1per cent.
The signal by the government to increase spending on infrastructure development has led to a rally in realty, capital goods, construction, steel, energy and metals' stocks, among others.
This was reflected in the performance of equity funds, where the top gainers were Taurus Infrastructure (61.86 per cent), JM Basic (60.15 per cent) and Sundaram BNP Paribas CAPEX Opp-D (54.46 per cent).
As the mood improved in the markets, companies have also started their fund raising efforts, qualified institutional placements (QIPs) being the popular one. Similar money-seeking activity was also recorded in the MF sector, as fund houses have again got back to equity new fund offers (NFOs). A lot of such draft offer documents are awaiting approval from the Securities and Exchange Board of India (Sebi), before launching to capitalise on equity gains.
There were losers, too, among MFs. Amid all the gains captured by equity funds, debt funds were at the losing end for the month. Their performance in April had been one of the best in their history. But in May, the 10-year GOI yields went up from 6.23 per cent to 6.70 per cent on increased government borrowings, which translate into losses for income and gilt funds. While the medium-term gilt funds lost 1.25 per cent, the worst-performing of all categories in the month, the debt funds lost 0.66 per cent.
Liquid funds gained 0.37 per cent, while the monthly income funds gained a handsome 3.61per cent, driven by the market rally. The short-term gilt funds lost 0.1 per cent, while short-term debt funds gained 0.15per cent.
The Gold ETF category also turned into a gainer after losing for the past two months. The category gained 2.16 per cent in May, after a loss of 4.05 per cent in April.