Mutual Fund Roundup: May 2010

Market Overview

In the month of May 2010 too, the Indian equity markets (BSE Sensex) oscillated in a narrow range of 16,000 and 17,400 points, thus depicting a consolidation. However, when seen from its previous month’s (April 2010) close the equity markets ended in a negative terrain. This indecisive movement, with a negative bias was on account of escalating Euro zone crisis, real estate led price bubble in China and double digit inflation concerns in India. However, as economic turmoil increased, Gold shined and ended in green, up by 8.1%. Crude Oil prices moved downwards from its previous month’s close, on account of the dollar getting stronger and weakening demand from China. The 10-Yr G-Sec yield also did not gallop, since there are bleak chances of an intermediate policy rate hikes by the Reserve Bank of India (RBI), before its first quarter review of monetary policy 2010-11, scheduled for July 27, 2010.

Monthly Market Roundup
 

	Close	Change	% Change
BSE Sensex	16,944.6	(614.1)	-3.5%
S&P CNX Nifty	5,086.3	(191.7)	-3.6%
CNX Midcap	7,756.0	(305.2)	-3.8%
Gold (Rs/10 gram)	18,405.0	1,380.0	8.1%
Re/US $	46.4	(2.0)	-4.5%
Crude Oil ($/BBL)	73.8	(11.9)	-13.9%
10-Yr G-Sec (%)	7.52	(0.55)	55 bps
1-Yr FDs	5.00% - 6.50%

(Monthly change as on May 31, 2010)

 

The graph hereunder clearly depicts that as the Euro zone crisis escalated further, the Foreign Institutional Investors (FIIs) continued to press the panic button in the month of May 2010, and turned net sellers in equities to the tune of Rs 9,437 crore as compared to Rs 11,477 crore (net buyers in equity) in the month of April 2010.

 

BSE Sensex vs FII inflows

 

(Source: ACE MF)

 

The equity markets also showed less enthusiasm since, March 2010 IIP (Index of Industrial Production) numbers (declared in the month of May 2010), also reported some slow down, which eventually did not appeal the FIIs. The Index of Industrial Production (IIP) for March 2010 slowed to 13.5% (from 15.1% in February 2010) over the last year's figure in March 2009, on account of fading of overall base effect. However, according to the quick estimates released by the Central Statistical Organisation (CSO), the IIP numbers did reveal the following positives:

 

• Strong manufacturing growth - The manufacturing index, which is the principal component of the IIP, grew by 14.3% over the last year (March 2009).
   
• Growth in sectoral output   - Output of capital goods grew over the last year (March 2009) by 27.4%, followed by growth of 12.7% in the output of intermediate goods. Similarly, the output of consumer durables and consumer non-durables also grew by 32.0% and 3.30% respectively.

Mutual Fund Overview

The mutual fund industry's Average Asset Under Management (AAUM) grew by Rs 34,503 crore or 4.5% during May 2010 to breach the Rs 800,000 crore mark and reach its 6 month high. The combined average AAUM of the 38 fund houses stood at Rs 805,239 crore. The country's largest fund house, Reliance Mutual Fund, witnessed an increase of over Rs 7,000 crore in its AAUM in May as per the data available with the Association of Mutual Funds in India. Although there was lack of buying interest in equity schemes due to uncertainty in equity markets, fresh inflows were witnessed into short term and ultra short term income funds.

But overall domestic equity mutual funds turned net sellers to the tune of Rs 389 crore, on account of the indecisiveness of the equity markets. However, the magnitude of selling from domestic equity mutual funds was less when compared to its figure of Rs 1,324 crore in April 2010.

BSE Sensex vs MF inflows

(Source: ACE MF)

Monthly top gainers: Open-ended equity funds

Diversified Equity Funds	1-Mth	Balanced Funds	1-Mth	Banking Funds	1-Mth
Religare PSU Equity (G)	1.36%	HDFC Balanced (G)	0.30%	UTI Pharma & Healthcare (G)	3.21%
Edelweiss Absolute Returns Eq (G)	0.47%	HDFC Prudence (G)	0.13%	SBI Magnum Pharma (G)	2.85%
HDFC Growth (G)	0.05%	ING Balanced (G)	-0.80%	Franklin Pharma (G)	2.34%

(1-Mth returns as on May 31, 2010)
(Source: ACE MF)

 Monthly top gainers: Open-ended debt funds

Monthly Income Plans	1-Mth	Long-Term Floating Rate Funds	1-Mth	Short-Term Gilt funds	1-Mth
DSPBR Savings Mgr-Cons (G)	1.09%	Sundaram BNPP Flexible-FIP (G)	0.49%	IDFC Savings Advt-A (G)	0.50%
DWS Money Plus Advt-Reg (G)	0.87%	SBI Magnum FRF-LTP (G)	0.43%	Escorts Liquid Plan (G)	0.44%
Tata MIP Plus (G)	0.61%	HDFC FRF-LT (G)	0.35%	JP Morgan India Liquid (G)	0.41%

(1-Mth returns as on May 31, 2010)
(Source: ACE MF)

The domestic mutual funds, showed persistent, but diluted interest in debt instruments in May 2010, as they bought Rs 2,088 crore worth of debt instruments. Whereas, in April 2010 they bought much strongly i.e. Rs 65,559 crore.

In our opinion, this persistent, but diluted interest towards debt instruments in May 2010 is on account of decline in the 10-Yr G-Sec yield and also due to RBI refraining to do any intermediate policy rate hike. Moreover, a lower number of total net investments in Debt instruments also depict the cautiousness of debt fund managers from taking any aggressive bets.

Performance across various categories of mutual funds

(Source: ACE MF)
(1-Mth average returns of funds in various categories as on May 31, 2010)

As per the above graph, all equity oriented funds ended in the red, except for pharma sector funds and diversified equity funds following the flexi style of investing. However, as the turbulent times continued for the global economy, gold became bold and gold ETFs ended the month in a positive terrain. For debt funds too, as the 10 year benchmark yield softened, they too ended in the positive, across all categories of debt mutual funds.

Other News

• With Fidelity Equity Fund completing five years this month, Fidelity Asset Management Co. Ltd. has decided to distribute bonus units to those investors who had invested in the New Fund Offer (NFO) of Fidelity Equity Fund. Fidelity mutual fund has decided to give two units for every 500 units held by investors.
   
• Addressing his first national press conference after the United Progressive Alliance (UPA) returned to power in 2009, Prime Minister Dr. Manmohan Singh lobbed an unexpected ball in the court of his finance ministry by setting a target for inflation reduction. He said, rate of inflation would come down to 5.0% - 6.0 % by December 2010. He also added that the economy would grow at about 8.5% in the current fiscal.

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