By Aditya Kalra
NEW DELHI, June 4 (Reuters) - There is little respite seen
for Indian equity funds in the near term, with government
inaction to tackle a sharp slowdown in domestic growth and a
shaky global economy driving investors away from risky assets.
India's diversified stock funds fell the most in six months
in May, pulled down by banks and automobiles among others, and
any chance for a rebound is unlikely after March-quarter gross
domestic product growth fell to its slowest pace in nine years.
"It's going to be very, very tough," said T.P. Raman,
managing director of Sundaram Mutual Fund. "Neither what the
government is doing is right, nor what globally things are
happening are right."
Diversified funds fell 5.65 percent in May, their worst
monthly performance since November and the third consecutive
month of decline, according to data from fund tracker Lipper, a
Thomson Reuters company. In comparison, the main BSE index
fell 6.4 percent.
(For a table of mutual fund returns, double-click
India's economy grew an annual 5.3 percent in the three
months to March, a far cry from the 9.2 percent rise in the
year-earlier period. Manufacturing has contracted, fiscal and
current account deficits have ballooned and the rupee has hit a
series of record lows.
Many economists say the problems are self-inflicted such as
the government's inability to cut subsidies, remove delays in
decision-making and push reforms, rather than the external
environment that the New Delhi has been blaming.
The gloomy economic outlook could pile pressure on the
financial services sector, which accounted for 22.6 percent of
the assets of diversified equity funds in end-April, according
to Morningstar India data.
"There will be no improvement in bank shares until there is
improvement in GDP," said R.K. Gupta, managing director at
Taurus Mutual Fund, warning that slowing growth could worsen bad
loans and squeeze bank margins.
Banking-focused funds fell 7 percent in May, just off an 8
percent drop in the BSE banking index. ICICI Bank
, India's No. 2 lender, fell 11.2 percent in the month,
while bigger rival State Bank India shed 3.8 percent.
Automobiles were also a drag for diversified funds, which
have a more than 5 percent exposure, as Tata Motors
shares fell 26.4 percent in May due in part to
lower-than-expected operating margins at its Jaguar and Land
Shares in Maruti Suzuki, the country's top car
maker, also faced a bumpy ride with a steep increase in petrol
prices and high borrowing costs denting sales in May.
An increase in exposure to mid-cap and small-cap companies
to 37.4 percent by end-April, the highest level since November
2010 according to Morningstar data, also backfired on the
The BSE mid-cap index fell 6.46 percent in May and
the small-cap index shed 7.3 percent.
"I don't see any better things happening in the next few
weeks," Raman said.
Indicating a shift to safe-havens, fixed income funds that
invest in government securities saw an average rise of 1.52
percent, while gold exchange-traded funds gained 1.2 percent.
(Editing by Ranjit Gangadharan)