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AS THE markets went through a roller coaster ride in the January - March quarter, it became a difficult journey for the mutual funds industry, especially equity funds, which had a great show in the previous two quarters. After an upward movement for a long time, the equity markets witnessed quite a bit of volatility and ended on a negative note on a quarter-on-quarter basis. The fund managers did well to post an average return of 0.85 per cent for the equity diversified schemes as compared with the benchmark indices Sensex and Nifty, which were down by 1.67 per cent and 2.16 per cent, respectively.

The assets under management (AUM) of the industry remained almost static over the quarter despite the fact that Fund Houses witnessed huge mobilisation in Equity IPOs. While in December 2004, the AUM was at Rs. 1,50,088 crore, the figure fell albeit marginally to Rs. 1,49,976 crore in March 2005. Although there has been a steady rise in equity assets, redemptions in income funds continue, dragging down the total AUM. Traditionally, fund houses witness redemption pressure in the month of March due to financial year closure. But the industry outlook is optimistic for the medium to long term.

Aggressive Equity Funds: In the one-year category, 39 schemes were analysed. Of the four funds in the top ranking grade, SBI Magnum Global Fund 94, SBI Magnum Sector Umbrella - Contra, and UTI Dynamic Equity retained their positions of the previous quarter, while Sundaram Select Midcap was the new entrant.

SBI Magnum Global Fund 94 continued its winning streak and performed well both on return ranks as well as on the risk measure scale. The fund managed to post 9.3 per cent absolute return for the quarter. It has invested a large part of its portfolio in the Electric and Electrical Equipment sector followed by the Textile sector and gained out of its exposure in Crompton Greaves, KEC International and Shree Cement. It has shown a remarkable growth in fund size, which has risen by about 45 per cent in the last quarter. Another scheme from the SBI stable— SBI Magnum Sector Umbrella-Contra— managed to grow by over 40 per cent in terms of AUM and generated a healthy 9.6 per cent return. The return compares quite favourably with the Sensex and Nifty, which were in negative territory, and with the average return of 1.35 per cent for all aggressive equity schemes.

UTI Dynamic Equity Fund could manage 5.52 per cent return over the quarter but had a phenomenal rise in its corpus. The fund moved its focus from Cement to the Pharma sector. Sundaram Select Midcap moved up a notch to get included in the top 10 per cent of the category. Bajaj Hindustan Ltd. and IVRCL Infrastructure Ltd. were the stocks, among others, that helped it improve its performance.

In the three-year category, 19 schemes were analysed. Alliance Basic Industries retained the top ranking slot, but SBI Magnum Sector Umbrella-Contra slipped to the number two slot, giving way to HDFC Capital Builder Fund. Alliance Basic kept its highest allocation sticking to Metals & Mining and Electric Equipment, with a fair exposure in Siemens Ltd. HDFC Capital Builder generated a return of 1.5 per cent during the quarter and witnessed a significant increase in its assets size by over 35 per cent. It kept its allocation in the Chemical sector, with the Banking sector following next.

Defensive Equity Funds: In the one-year category, 30 schemes were considered. Reliance Growth, Alliance Equity and Pru ICICI Dynamic Plan secured the top ranking. HSBC Equity made a surprise exit from the top 10 per cent. It is for the first time in the last five quarters that HSBC Equity could not get into the top ranking category. The fund got affectedin the Risk adjusted rank because of high negative deviations in its NAV. Reliance Growth Fund and Alliance Equity retained their ranks, with Reliance Growth posting a handsome 6.6 per cent return. The fund was well diversified in 58 stocks with the top 10 holding accounting for 31.7 per cent of the net assets as on March 31, 2005.

The sectors fancied by fund manager were Banks, Engineering & Industrial Machinery, and IT. The fund size increased by over 6 per cent during the quarter. Alliance Equity delivered negative return this quarter and had high exposures to companies in the Pharma, Banks and Electric Equipment industries. Prudential ICICI Dynamic Fund also had a well-diversified portfolio with maximum exposure to IT and Banking sector stocks. The highest exposure was to NDTV to the tune of 5.7 per cent of net assets. The fund posted a 2.5 per cent return in the quarter and increased its fund size by around. 22 per cent.

Again, the top performers were able to generate fresh inflows against an overall negative growth of 8 per cent in the average fund size of the schemes in the category.

In the three-year category, 31 schemes were considered. Of the top three, two schemes were from the Reliance stable— Reliance Growth and Reliance Vision— while the third was Franklin India Prima Fund. Reliance Growth also figures in the top ranked funds in the one-year category, clearly establishing its superiority among peers. Reliance Vision generated a return of 5.6 per cent return for the quarter, with maximum holdings in the Electrical Equipment sector and maximum exposure to the Siemens stock. Another stock doing well for Reliance Vision was Automotive Axles Ltd., which constituted 5.7 per cent of its net assets as on March 31, 2005.

While Franklin India Prima Fund managed a 3.4 per cent return, it posted a 29 per cent rise in fund size. The fund again has a very well diversified portfolio, with exposure to 55 stocks, the highest being to LIC Housing Finance. Eicher Motors Ltd. and Goodlass Nerolac Paints Ltd. contributed well to the profits in the portfolio as well.

Balanced Schemes: In the one-year category, there was no shuffling at the top slot among the 19 schemes considered. SBI Magnum Balanced and HDFC Prudence were again at the top position. The sector allocation of SBI Magnum Balanced Fund has remained almost the same as compared with the previous quarter with a little increase in the equity component from 64 per cent to 68 per cent and a fall in debt exposure from 25 per cent to 23 per cent. The fund saw a growth of 6 per cent in its corpus and posted an absolute return of 4.3 per cent for the quarter. It maintained the highest exposure in the Banking sector, which was a shift from the previous quarter's focus on the Textile sector. HDFC Prudence Fund has been a very consistent performer, maintaining strict adherence to its mandate. Its exposure to equities in the last one-year has always remained between 62 per cent and 65 per cent, reflecting its disciplined approach to fund management. The fund had maximum exposure to the SBI stock followed by Satyam Computers and BHEL. It posted a 2.61 per cent return for the quarter as against the average of 0.77 per cent by all funds in the category.

In the three-year category, of the 14 schemes considered, HDFC Prudence retained its position at the top.

Index Funds: Among index funds, UTI Nifty retained its top position in the one-year category, among the nine index schemes considered, because of its low tracking error. The three-year ranking was done for the first time for Index funds, as there were five schemes available this time. Again UTI Nifty obtained the numero uno position.

Sector Funds: Among sector funds, FMCG funds were the best performers, posting 3.15 per cent returns on an average as the BSE CG index generated a healthy return of 6.38 per cent in the quarter. Banking funds and IT funds also reigned in positive territory with average returns at 2.33 per cent and 2.13 per cent, respectively. However, Pharma & Petro funds reported poor performance.

For the ICRA Online Mutual Fund Rankings, only technology funds were considered, as the number of funds in the other sectors was not adequate. Among the seven schemes in the one-year category, SBI Magnum Sector Umbrella was at the top, replacing DSP ML Technology.com Fund. SBI Magnum Sector Umbrella scheme posted a 2.2 per cent return for the quarter. It had the highest exposure in Infosys in this quarter. In the three-year category, Birla India Opportunities Fund maintained its top spot. This scheme had the highest exposure in the United Phosphorus stock.

Tax Saving Funds: There were 14 such schemes in the one-year category, and SBI Magnum Tax Gain 93 maintained its top spot. It witnessed a rise of 17 per cent in its corpus and posted a high 15.5 per cent return for the quarter. The fund's highest exposure was in the Electrical and Electronic Equipment sector in both the quarters. In the three-year category too, SBI Magnum Tax Gain 93 made it to the top, replacing HDFC Long Term Advantage Fund. A total of 15 schemes were considered for the three-year period.

Source: ICRA Online.

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