Free fall: Volatile week erodes one-year gains for large-cap schemes

Large-cap schemes that were holding fort among the actively-managed plans have started giving in amid the rise in market volatility.

These schemes have seen most of their one-year returns getting wiped off in the last seven trading sessions. As of September 27, the average returns for these schemes stood at 10.3 per cent. Following last week’s sell-off, the one-year returns have fallen to just about 1.5 per cent, shows the data from Value Research. Experts say selling by foreign institutional investors (FIIs) is hurting large-caps as FIIs investments are largely parked in them.

“Investor sentiment in non-banking financial companies (NBFCs) — several of which are large-cap companies — has got hit as a result of the IL&FS crisis. Even big names like HDFC have not managed to escape the selling pressure seen in the NBFC space. The global headwinds have also hit investor sentiment,” said a fund manager, who wished not to be identified. 

In the last three months, FIIs have net sold Rs 223 billion worth of equities. Other fund managers say large-cap schemes have underperformed as only few index stocks drove the markets in the last one year. “The reason large-cap schemes and multi-cap schemes have underperformed is due to few stocks and sectors driving markets. 

Also, fund managers missed out on the turnaround the IT stocks have seen in the last one year. Most money managers were underweight in IT space,” said Gautam Sinha Roy, fund manager at Motilal Oswal AMC. 

Against the meager one-year returns of the large-cap schemes, the BSE Sensex’s one-year returns stand at 7.7 per cent. Sinha added that as narrow market rallies are rare phenomena, this underperformance is unlikely to continue. 

Fund managers add while the recent correction has made valuations quite attractive in prominent names, it is still prudent to remain cautious. “The Nifty is currently trading at 16-times, which is quite reasonable. Several frontline stocks have corrected more than 30 per cent in the last month. These are leading players in auto space and even consumer durable names. The valuations in these names are looking quite comfortable,” said S Krishna Kumar, chief investment officer of Sundaram MF. 

“The strategy going ahead should be to play the markets event by event. There are several uncertainties such as crude, current account deficit, elections. These issues are likely to linger for a while,” Kumar added.