The quarter ending March 2003 was a forgettable one for the mutual fund industry. During the period, while the equity markets dipped, the debt markets witnessed unprecedented volatility.
The S&P CNX Nifty lost around 10 per cent, while the Crisil CompBEX, the benchmark index for debt schemes, managed to finish in the positive territory with a return of 0.27 per cent for the quarter.
In the previous quarter to December 2002, the Nifty and Crisil CompBEX had witnessed returns of 12.90 per cent and 4.92 per cent, respectively.
The information technology (IT) sector, the best performer in the previous quarter, led the downfall in the equity market this time around.
The debt markets performed poorly in January and February, before they were revived by the rate cuts announced by the Union ministry of finance and the Reserve Bank of India (RBI) on the Budget day.
For the quarter, 113 schemes were ranked belonging to six categories from 23 fund houses. A new category for short-term debt schemes was introduced for the March 2003 quarter.
Equity diversified funds: The equity markets could not consolidate the gains of the previous quarter. The IT sector, the main performance driver in the last quarter, acted as a dampner this time.
The BSE IT index lost more than 20 per cent in the last three months. The losses were further compounded by the poor performance of the fast moving consumer goods sector, as indicated by BSE FMCG, which lost more than 12 per cent.
Other indices such as CNX MIDCAP 200, which performed well in the past, posted a 12 per cent dip in returns indicating that the losses have been widespread.
In the equity diversified category, 34 schemes were ranked compared with 35 in the previous quarter. Reliance Vision Fund and Zurich India Equity Fund have maintained their Crisil CPR~1 rank.
Alliance Basic Industries Fund has moved up by a notch to reach Crisil CPR~1.
An analysis of the portfolio indicates one common factor -- low exposure to the IT sector. While Alliance Basic Industries Fund does not invest in IT stocks, Reliance Vision Fund and Zurich India Equity Fund had an exposure of 3 per cent and 6 per cent, respectively, to the sector.
The Alliance Basic Industries Fund's bet on the banking sector has paid handsome returns. The fund has invested in stocks such as Punjab National Bank, Jammu & Kashmir Bank Ltd, Kotak Mahindra Finance Ltd, HDFC Bank Ltd, Bank of Baroda and Bank of India.
Reliance Vision Fund has maintained its high exposure in cash and call. Zurich India Equity Fund had nearly a 23 per cent exposure to the industrial and financial sectors.
Reliance Growth Fund has moved up a notch to reach Crisil CPR~2, which indicates good performance within the category. The fund was concentrated in sectors such as materials, financials and health care.
Birla Advantage Fund and GIC Growth Plus-II have moved up a notch to reach Crisil CPR~3 which indicates average performance.
Birla Advantage Fund's improved performance can be attributed to its stock selection. DSP Merrill Lynch Equity Fund also moved up by a notch to reach Crisil CPR~4.
Canexpo moved out of the ranking as it did not meet the asset size criteria.
Income funds: Volatility was the key feature of debt markets in the last three months.
The one-day return on the benchmark 9.81 per cent paper maturing in 2013 varied from 4 per cent to a negative 1.5 per cent.
In the first two months of the quarter to March 2003, war fears and liquidity strain negatively affected the markets.
However, a series of announcements on the Budget day put to rest the market apprehensions. Even in March, whenever the yields inched up, the RBI's infusion of liquidity by way of reverse repos kept the market buoyant.
One-day return of the 9.81 per cent 2013 paper between January 1, 2003, and March 2003: The high volatility in the underlying market meant funds, which were actively managed and made the right call, performed well.
HDFC Income Fund-Growth and K Bond Wholesale-Growth have moved up by a notch to reach Crisil CPR~1.
The K-Bond Wholesale had maintained an average maturity of 5.37 years (peer average of 5.7 years) during February.
However, in March the fund had increased its average maturity to 7.1 years (peer average of 6.2 years). Thus a defensive approach in February coupled with an aggressive stance in March helped the fund to move to Crisil CPR~1.
The HDFC Income Fund's performance can be attributed to its maturity management and a good portfolio construction. The fund is one of the four funds in the peer group that posted positive returns for the quarter. The fund, though a bit defensive in February, performed well on the Budget day.
The scheme did well in the portfolio parameters such as asset quality and liquidity which contributed to the fund
