Most of India’s diversified equity funds outperformed the benchmark index in April, as a significant exposure to small- and medium-sized firms and sectors like financials boosted unit values.
Such funds, which form the largest category of equity funds in India by number and assets, gained 2.72 per cent on average, outperforming the Sensex which inched up 0.18 per cent, data from global fund tracker Lipper showed.
"As the large-cap indices became fairly valued, fund managers shifted focus to select mid- and small-cap shares, given their attractive valuations," said Chintamani Dagade, senior research analyst at Morningstar India.
Diversified equity funds had 44.5 per cent of their assets in mid- and small-cap companies, according to data from ICRA Online, which helped funds as the BSE mid-cap index gained 5.56 per cent and the small-cap index rose 8.35 per cent.
Two such funds — HSBC Small Cap Fund and Escorts Growth — emerged as top return generators, gaining 12.2 per cent and 10.42 per cent respectively.
Also supporting these funds was their exposure to financial services, the most favoured sectoral space of fund managers in India, which accounted for 18.4 per cent of the diversified stock funds’ assets at the end of March. Among sector funds, those betting on financial services returned 6.4 per cent, as the BSE Banking Index gained 4.72 per cent in April, with better-than-expected earnings from two of the top three banks, boosting sentiments.
Experts said banks have benefited from the buoyancy on the economic growth front and a rising interest rate scenario with credit growth set to expand should help them post decent results for next year.
"Banking appears to be a good story for the next one year," said Sandeep Neema, fund manager at JM Financial Mutual Fund, whose offerings include JM Financial Services Sector Fund.
Funds betting on gold shone in April as debt crisis in Greece and certain other euro zone members increased the appeal of the yellow metal as a safe-haven investment.
AIG World Gold Fund, which bets on shares of international gold mining companies, gained 12.2 per cent, whereas the category average of such funds stood at 9.13 per cent.
India’s gold exchange-traded funds (ETFs) gained 4.09 per cent during the month on rising gold prices.
On the continuous charts, gold futures ended April at Rs 17,125 per 10 grams, up 5.09 per cent during the month.
The 10-year benchmark bond rose 19 basis points in April, mainly after the government auctioned a new 10-year bond, but fixed income funds betting on government securities gained 0.54 per cent, helped by higher allocation to cash, experts said.