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Wednesday, September 02, 2009

Small, mid-caps help equity funds beat benchmark in Aug

Most Indian equity funds gave a positive return in August, beating a small decline in the Sensex, helped by a jump in their small and mid-cap holdings and bets on software and capital goods firms.

Of 292 actively managed diversified equity funds, the biggest category of stock funds by number and assets, 279 or 95 percent recorded a positive return, beating the 0.02 percent fall in the benchmark index, data from fund tracker Lipper showed.

"Higher allocations to technology, capital goods and energy sectors contributed to the funds' out-performance, relative to the benchmark index, during the month," said Chintamani Dagade, a senior research analyst with Morningstar.

Shares of Indian software exporters benefited from improving signs of recovery in the U.S. economy and hopes for better order flows, while capital goods companies did well on increasing signs that the global economy was on the mend.

Second-quarter growth in major Asian economies such as China, Hong Kong and Singapore has been better than expected, while Germany and France have made a surprise return to economic growth, ending their recessions earlier than many expected.

Shares from technology, capital goods and energy sectors, controlling about a third of equity funds' assets, also performed better than the benchmark index, helping fund returns.

"Additionally, exposure to mid- and small-cap stocks, which gained, owing to their attractive valuations, benefited the funds' returns," he added. The winners in August were mainly lead by funds betting on small and mid-cap shares such as Sundaram BNP Paribas Select Small-Cap, DSP BlackRock Micro Cap and JM Emerging Leaders Fund, all of which returned more than 10 percent.

Equity funds invested nearly 37 percent of their assets in shares of small and mid-cap firms at the end of July, gaining from 12.75 percent and 5.6 percent jump in the BSE Small Cap and BSE Mid Cap indices respectively in August.

Relatively illiquid and riskier small and mid-cap shares have benefited from a broader rally in Indian stocks on hopes of economic revival and easing credit environment.

BOND, GOLD FUNDS

The fixed income funds saw their net values drop 0.95 percent as bond yields rose 44 basis points in August to their highest level in 2009 on Monday on supply concerns.

The 10-year benchmark bond yield ended the month at 7.44 percent, up 219 basis points in 2009, reflecting market worries about record planned government borrowing of 4.51 trillion rupees.

Gold exchange traded funds gained 2.85 percent in August, majorly supported by rising crude-oil that enhanced the yellow metals appeal as a hedge against oil-led inflation.

Gold futures on the continuation chart ended August at 15,125 rupees per 10 grams, up 2.2 percent during the month.

source: Reuters

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