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Diversified stock funds decline 5.65% in six months

Fixed income funds saw an average rise of 1.52% in six months in May, while gold ETFs gained 1.2%, according to Lipper data

June 04, 2012 4:16 IST | India Infoline News Service
According to data from fund tracker Lipper, a Thomson Reuters company, India's diversified stock funds declined 5.65% in six months in May, pulled down by banks and automobiles among others. During the same period, the BSE (Bombay Stock Exchange) Sensex fell 6.4%.
India’s GDP growth has declined from 8%-9% in the last 15 months and stands between 6.5%-7% today. The reasons for the low GDP are inordinate delays in projects, various issues related to foreign investments and rising deficits. India’s current account deficit is at 4% of the GDP, while fiscal deficit stands at 8.4%-8.8%. The S&P said, India’s high fiscal deficits and a heavy debt burden remain the most significant constraints to its sovereign rating. The weak macro fundamentals are exacerbated by lack of policy decisiveness.
Fixed income funds that invest in government securities saw an average rise of 1.52% in six months in May, while gold exchange-traded funds gained 1.2%, according to Lipper data.
The gloomy economic outlook could pile pressure on the financial services sector, which contributed 22.6% of the assets of diversified equity funds in end-April, according to Morningstar India data.
Banking-focused funds fell 7% in May, while the BSE banking index declined 8%. ICICI Bank decreased 11.2% in May, while State Bank of India shed 3.8%. Automobiles also pulled down diversified funds, which have a more than 5% exposure, as Tata Motors shares plunged 26.4% in May due in part to lower-than-expected operating margins at its Jaguar and Land Rover unit.
An increase in exposure to mid-cap and small-cap companies to 37.4% by end-April, the highest level since November 2010 according to Morningstar data, also backfired on the diversified funds. The BSE mid-cap index fell 6.46% in May and the small-cap index shed 7.3%.
Rohini Malkani, chief economist, Citigroup, India, said that India’s deficit is no longer smaller, given the rise in its current account, governance, liquidity and fiscal deficits. The country trust deficit and liquidity deficit are also poor. India is increasingly dependent on foreign capital inflows to fund its current account deficit. But capital flows are no longer abundant these days.
The companies are interested in investing in projects but due to various land acquisition and environment issues, delay in fuel supply agreements and lack of coal & gas supply issues have de-motivated them. Grow in investments in projects in FY2012-13 is expected to be flat.
 

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