Indian equity markets have retreated nearly 8% from their peak of around 30,000 in the first week of March and, while equity schemes have mirrored this decline to a great extent, some of them have managed to restrict their losses better than others. In the first two months of this financial year, many equity schemes have fared better than the benchmark indices.
Though returns have dwindled into the negative territory, many large-cap and large and mid-cap schemes have given negative returns in the range of -4% to -6% in the last two months, faring better than broader markets that have seen losses intensify.
International funds are the only category of funds that has managed to given positive returns in the last two months, largely due to the strengthening of the US dollar against the rupee. Domestic funds, such as Quantum Long Term Equity Fund, Motilal Oswal MOSt Focused Multicap 35 Fund, HDFC Largecap Fund and Franklin India Bluechip Fund, are among those having restricted their negative returns to around -4% to -6% in the last two months.
Interestingly, large-cap-oriented funds gave positive returns in the last six months even as domestic equity markets remained flat. Market participants say outperformance of the last few months came as fund managers bet on good-quality companies in the segment.
On the other hand, Quantum Long Term Equity Fund, which has given negative returns of -4.13% and -2.14% in the last two and three months respectively, said losses were restricted due to their tactical call of sitting on cash. Jimmy Patel, CEO at the Quantum Asset Management Company, says: “Since the past few months, we were quite confident that valuations have turned too high. In the last few days, after the recent market correction, we have started buying incrementally wherever we are finding opportunities.”
Other large-cap funds like HDFC Large Cap Fund-regular plan and Franklin India Bluechip Fund have given returns of -5.70% and 5.75%, respectively, in the last two months. “Valuations turned expensive as the benchmarks were trading at their peaks early this year and India Inc’s earnings performance failed to match these expectations. The financial numbers of the last two quarters have pushed back hopes of an earnings recovery till the latter part of FY16. In this scenario, the investing interest has narrowed down to top blue-chip companies that have fared relatively better.”
Mutual fund industry players also believe that, in the next few months, markets are likely to remain volatile and it is wiser to look at funds that invest in quality large-cap companies.