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July finally turned out to be a good month for mutual funds in India, mirroring the trend in the broader markets. The Sensex rose from 12,961 to 14,355 during July after a very poor June. When you compare mutual fund categories, equity mutual funds have performed well, especially banking-oriented funds on the back of the good performance of the banking index on BSE. And in the banking fund space, PSU-focused funds outperformed their peers.
During July, Kotak PSU Bank ETF gave returns of over 30 per cent, outperforming all equity funds. PSU bank stocks are up on anticipation of pending banking reforms. It is noteworthy that interest-sensitive stocks are facing headwinds from rising inflation and higher interest rates. Already there is hope in the air. After winning the trust vote, the UPA government initiated the reform agenda by approving the merger of State Bank of India and State Bank of Saurashtra.
Banking was such a prominent theme in July that the top five funds were dominated by banking-focused funds. Kotak ETF is followed by Reliance Banking ETF, Bank BeEs, Reliance Banking Fund and PSU Bank BeES, all of which are giving more than 20 per cent returns.
In equity diversified category of Mutual Funds in India, ING Dividend Yield Fund, DBS Chola Growth Fund (G), DBS Chola Hedged Equity Fund (G) DBS Chola Multi-Cap Fund (G) led from the top with higher returns. more than 15 per cent each. Among tax savers, JM Tax Gain Fund (G), Sahara Tax Gain Fund (G) Birla Sun Life Tax Relief ’96 (G) led the pack with returns of over 13 per cent.
The pharma story was still intact with Reliance Pharma Fund (G) and Franklin Pharma Fund (G) returning 5-8 per cent.
Mirroring the performance of the Sensex, index funds also gave an average return of 13 per cent.
Balanced Funds also gave returns of around 10 per cent with BOB Balanced (G), Canara Robeco Balanced (G) and UTI-Balanced Fund (G).
Among sectoral funds, the infrastructure theme also performed well in July, with leading sectoral funds such as JM HI FI Fund (G), ICICI Pru Infrastructure Fund and UTI-Energy Fund (G) giving returns of over 16 per cent each. ,
Among ETFs, banking theme dominated the top league. Debt funds also ended in the green, with shorter duration funds outperforming their peers. If you are a debt fund investor, here is an important pointer: Do not expose yourself to long duration funds when the interest rate regime is about to tighten.
Despite a good July, assets under management of mutual funds in India fell 6 per cent in the month. According to the Association of Mutual Funds in India, total assets under management declined from Rs 5,64,752.76 crore in June to Rs 5,29,629.46 crore in July. With the RBI gradually taking out liquidity from the system, even the deployment by corporates and banks into income funds has declined.
Will Banking Funds Maintain The Momentum In August? While it is difficult to predict, it can be safely said that the ride will not be as spectacular as the one seen in July, given that the euphoria of the UPA victory is waning.
And the government also needs to keep the talk of reform alive. Positively, the central bank is not going to hike rates in August anytime soon.
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