* Indian equity funds outperform benchmark index
* Gains in banking stocks help support unit values
* Good performance by FMCG, capital goods helps
* Gold ETFs fall sharply as metal prices slump
By Aditya Kalra
NEW DELHI, May 2 (Reuters) - India's diversified stock mutual funds outperformed the broader market marginally in April, with high exposure to financial services stocks supporting unit values, data from fund tracker Lipper showed.
Hopes that India's current account deficit would narrow after commodity prices eased in April boosted Indian shares, with the benchmark index rising 3.5 percent to its highest close in 1-1/2 months.
However, diversified stock funds returned almost 4 percent on an average during the same period, underpinned by high exposure to financial services sector as these stocks rose on increased hopes of an interest rate cut by the Reserve Bank of India (RBI).
A Reuters poll showed that the RBI is likely to cut its key policy rate for a third time this year on Friday, drawing comfort from easing inflation and commodity prices as the central bank seeks to rescue the sagging economy.
"I think 25 bps is already factored in and if by any stroke of luck RBI gives 50 bps, then the markets should rise another 3-5 percent from here," said Waqar Naqvi, CEO at Taurus Mutual Fund, adding that the chances of a rate cut have never been this bright.
(For a table of mutual fund returns, click )
The financial sector continued to be Indian money managers' favourite sectoral bet as it accounted for 25.7 percent of such funds' assets as of end-March, separate data from Morningstar India showed.
The BSE banking index rose 10.2 percent in April, with stocks such as ICICI Bank gaining 11.3 percent, while smaller players like Yes Bank surged 17 percent.
Fund managers' bets on sectors such as capital goods and fast moving consumer goods(FMCG) also paid off, as the BSE capital goods index rose 7.8 percent, while the FMCG index registered gains of 10.6 percent.
Among equity sectoral schemes, IT funds disappointed and ended with average losses of 11.8 percent as lower revenue forecast from companies such as Infosys and Wipro , and worries about higher U.S. visa costs dented sentiments.
Banking sector funds gained nearly 8.5 percent.
GOLD FUNDS STRUGGLE
India's gold exchange traded funds (ETFs) fell more than 8 percent on an average in April, pushing the category among the worst performers' list, as yellow metal prices nosedived during the month.
Investors around the world shunned the commodity, usually considered a safe-haven asset, after gold prices dropped to two-year lows on fears of central bank sales and less monetary stimulus.
Gold futures listed on India's Multi Commodity Exchange ended April with losses of 8.5 percent at 26,905 rupees/10 grams, after hitting a low of 25,270 rupees, a level last seen in September 2011.
Despite the recent fall, some experts believe that gold still makes for an attractive investment.
"Gold will definitely bounce back I will still allocate 10-15 percent of my personal money to gold," Naqvi of Taurus Mutual Fund said. (Reporting by Aditya Kalra; Editing by Jijo Jacob)