Equity funds take a beating

A downtrend in equity markets has led to weak performances by equity funds last week. Compared to the previous week when all equity categories, save petroleum funds ended in positive territory, four categories ended up in the negative territory in the week ended December 23.

Auto sector funds moved to the top of the table in equity category, while liquid funds displaced monthly income plans (MIPs) at the top in the debt category.

The below par performance of equity funds was in line with the general trend in overall markets. Though the Sensex crossed the 9,400 mark in intraday trades on Friday (December 23), the index closed the day 115 points down.

The index also closed lower for the week after a long time, down 137 points at 9257. The week was marked by volatility in equity markets.

Auto sector funds were the best performers in equity category last week. The category returns for the week amounted to 1.07 per cent, up from 0.52 per cent in the previous week. FMCG funds were the second best performer, posting a weekly return of 0.75 per cent.

Meanwhile, diversified funds managed a return of 0.21 per cent. Banking funds were the least impressive category during the week. The average category returns amounted to -1.44 per cent, while pharma (-0.38 per cent) and technology (-0.08 per cent) fund categories were also in the red.

Fund managers aren't too worried about short-term volatility though. According to Anup Maheshwari, chief investment officer of HSBC Mutual Fund, even though the indices are at all-time high levels, there is still a lot of steam left in the markets. "As long as earnings growth continue to be robust, markets should continue to witness growth," he said.

"The risks to India's growth story are more external than internal. Though political uncertainty can have a negative impact on the markets, it will be the global factors such as high oil prices and currency factors that pose a threat to the markets," he adds.

Over the longer term, equity fund performances continue to be impressive. FMCG funds continued to top the table with an annual return of 66.43 per cent.

Tax planning funds were next in line with a return of 52.12 per cent, while technology funds managed a yearly return of 50.80 per cent. Petroleum funds continued to be the least impressive among equity categories with an annual return of 19.26 per cent.

MIPs lost their pre-eminent position among debt funds. The funds were also a victim to the downturn in equity markets, due to their higher equity exposure. The average weekly return of MIPs amounted to -0.11 per cent, much below the liquid fund category which were the best performers for the week with 0.10 per cent.

Only medium-term funds were worse off than MIPs and posted a negative return of 0.14 per cent. However, MIPs continued to be at the top of the pile as far as annual returns were concerned.

The category returns amounted to 9.78 per cent, while short-term gilt funds were the worst performers on an annual basis with a return of 4.32 per cent.