The year gone by clearly did not belong to equities. And equity mutual funds are heading into the year-end, looking like jilted lovers.
With the benchmark indices looking on course to end the year with below 5 per cent return, this asset class suffered a severe blow during the year, especially over the past three months, as it reeled from a weak rupee, crude price volatility, liquidity woes and political concerns.
Returns from most of the top stocks held by mutual funds do not paint a pretty picture either. Out of the 20 top MF holdings, most of which are largecap stocks, 16 fell over 30 per cent between August 29, the day Sensex hit its all-time high level, and December 11, and 40 per cent on a year-to-date basis.
Sun Pharma topped the list, with a 30 per cent fall during this period. The scrip has declined more over the past three weeks following allegations of insider trading.
SUV and tractor maker M&M, comes next, falling some 21.48 per cent, while Maruti Suzuki and Bharti Airtel trailed with a loss of 17.15 per cent and 15.39 per cent, respectively.
On a year-to-date basis, Airtel is down 40.09 per cent and Maruti 20.28 per cent. While Airtel continues to nurse the wounds inflicted by Jios disruptive entry, Maruti has taken a hard knock due to weak operational outlook in recent months led by rising fuel prices, increase in financing rates, a weakening rupee, and high input costs.
Even among other, last years high-flier Bajaj Finserv is down 11.76 per cent, NTPC 10.96 per cent, Tata Steel 11.29 per cent, Reliance Industries 12.21 per cent and Vedanta 8.34 per cent. Bajaj Finserv and Reliance Industries are, however, up 17.40 per cent and 23.39 per cent, respectively, on a year-to-date
basis. ITC, GAIL, SBI, Axis Bank and Kotak Mahindra Bank have lost 11-3 per cent since Sensexs August high point.
HDFC gained 0.15 per cent, and its twin HDFC Bank 2.79 per cent.
The only other stocks besides the HDFC twins that managed to gain marginally were L&T and ICICI Bank; the latter mainly due to the steady bounce ever since the private lender named new CEO.
Everyone elses pain due to a weak rupee resulted in gains for IT stocks.
No wonder then, equity largecap funds have gained just 2.68 per cent for the year. Pharma, multi-cap, ELSS, value-oriented and infrastructure funds have delivered negative returns on an average, dipping 1 per cent to 17 per cent. Schemes focused on overseas stocks gained 1.66 per cent. Technology stood out as the only oasis for mutual fund investors this calendar, as tech funds delivered double-digit returns over last one year.
But among specific IT stocks, Infosys and TCS, which figured among top 20 holdings of top mutual funds, are down 4.40 per cent and 3.30 per cent, respectively, since August end.
Vidya Bala, Head of Mutual Fund Research, FundsIndia, said largecap funds — except for 2017 — have underperformed benchmark indices for the second time in a row. Largecaps and multicaps together have struggled while funds in the midcap space have arrested the decline much better.
"Funds that took a cautious view in 2017 have managed to contain the decline much better in 2018," Bala said, adding that the lacklustre show in the largecap space is attributable to sluggishness in a majority of stocks.
Thankfully, SIP investor sentiment appears unperturbed by this depression and continued market volatility. Monthly SIP inflows remained strong at Rs 7,985 crore as of last available dfata and the industry added over 1.5 lakh new investors in November, alone.
"Retail investors showing remarkable maturity by staying invested in markets, in spite of the volatility
over the last few months," said NS Venkatesh, Chief Executive, Amfi. He is confident of more inflows to mutual funds over the next year.
“We are hopeful many more investors will choose mutual funds as their preferred option to grow wealth next year too," Venkatesh added.
Outlook for domestic equity for the next calendar is mixed, thanks to worries of a possible growth slowdown, political tension in the runup to the general elections and many global headwinds seen on the horizon.
JM Financial says earnings expectations from India Inc remain elevated for the midcap and smallcap indices, and thus, it continues to prefer largecap stocks.