Most of top equity schemes underperform in latest market correction

Most top equity schemes-with assets in excess of Rs 100 billion-have underperformed their respective benchmarks in the past month.

At a time when the benchmark Sensex and Nifty indices have fallen by 5 per cent, the average return for 14 such large schemes has been a negative 6 per cent. Most of these schemes have high exposure to the banking sector, under stress since the Punjab National Bank (PNB) came to light.

The sharp slide in stocks of public sector banks (PSBs) has put fund managers in a fix. The Nifty PSU Bank index has dropped by a little over 10 per cent in the past week and several of its components have fallen more than 15 per cent.

The drop in stock prices of State Bank of India (SBI), Bank of Baroda (BoB), Canara Bank, Union Bank of India and Bank of India have made a dent in the net asset value (NAV) of several top schemes. Fund managers had investments worth Rs 400 billion in these six stocks at the end of last month. The bulk of the exposure was in SBI, at Rs 273 billion; that in PNB and BoB were Rs 40 billion and Rs 47 billion, respectively.

Nor has the fall been restricted to PSBs. India has missed the rebound seen in the global markets over the past week due to the overhang of the PNB scam.
 

“As fund managers, we tend to put adequate safeguards in place to help protect the portfolio from an unusual fall in value. However, at times when the market corrects sharply, there is little we can do,” said the chief investment officer of one of the largest fund houses.

The benchmark indices have fallen a little by over 7 per cent from their peak in January. Both the Sensex and Nifty are trading flat on a year-to-date basis, while the broader market has slipped into negative territory.

The recent trend, however, comes after decent performance in the past few years. Experts say investors should focus on longer-term returns and not be too worried about intermittent corrections.

The top 14 equity mutual fund (MF) schemes have cumulative assets of Rs 2.23 trillion. Of these 14 schemes, nine have fared worse than their benchmarks in the past month. The rest did slightly better.

Equity MFs have invested about Rs 2.63 trillion in 10 stocks. These include HDFC Bank, ICICI Bank, Larsen & Toubro, SBI, Infosys and Kotak Mahindra Bank. Shares of most of these have fallen in recent weeks.