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India’s top performing mutual fund schemes in July 2024

2 Aug 2024 , 10:23 AM

EQUITIES SCEPTICAL, BUT OPTIMISTIC ABOUT BUDGET IMPACT

If June marked the end of election uncertainty, the budget posed some new questions on July 23, 2024. On the positive side, the government kept its reforms promise on track and even cut FY25 fiscal deficit (RE) from 5.1% to 4.9% of GDP. However, there were a number of factors that worked against the markets. Substantial allocation to the states of Bihar and Andhra Pradesh, as well as higher food subsidy bill are seen as fiscal dampeners. Secondly, the securities transaction tax (STT) on options was increased 16-fold, while the STT on futures was increased 60%. This was intended to curb retail speculation, but markets fear that this could impact liquidity as well as arbitrage and hedging costs. The one change in the full budget that really spooked investors was the hike in the capital gains tax on equities.

The budget raised the long term capital gains tax on equities from 10% to 12.5%. That would be partially offset by raising the LTCG exemption from ₹1 Lakh to ₹1.25 Lakhs. Long term investors would still be hit. In addition, short term capital gains tax on equities was raised by 500 bps from 15% to 20%. FPIs still infused $3.87 Billion into Indian equities in July 2024; which included $3.12 Billion in secondary markets and $0.75 Billion into IPOs. The change in FPI sentiments was evident as FPIs turned net sellers in the last week of July. However, key indices closed July 2024 on a positive note. Nifty closed July 2024 with gains of 3.92%, Sensex closed 3.43% higher, and the Nifty Next 50 with gains of 4.56%. Also, the mid-cap index gained 5.84% while the small cap index gained 4.48%. Despite the FPI selling, the domestic investors continued to ensure robust gains on key generic indices in July 2024.

BOND YIELDS CLOSE JULY 2024 BELOW 7%

For July 2024, India 10-year bond yields opened at 7.013% and closed lower at 6.924%. In May 2024, bond yields had dipped below 7% after the RBI announced a bumper dividend of ₹2.11 Trillion. However, in last couple of months, the bond yields went above 7% on several occasions. The election uncertainty and the economic risks of a coalition government had pushed the yields above 7%. Markets were apprehensive that it would lead to government missing on its fiscal deficit targets. However, with the government cutting its final fiscal deficit target to 4.9% for FY25, these concerns have been laid to rest.

There are still a number of X-factors for the bond yields. The Fed is expected to cut rates in September and there were ample indications to that effect in the Fed policy statement on July 31, 2024. In the upcoming monetary policy in August 2024, the RBI is essentially expected to maintain status quo on repo rates. However, there is an outside possibility that the RBI could take up a pre-emptive rate cut of 25 bps, to give out a dovish signal to the market. For now, the one factor that is holding the bond yields in the range of 6.9% to 7.0% is the uncertainty over food inflation. If food prices taper in the July reading, then bond yields could find more realistic levels. However, the volatile bond yields is taking a toll on short term performance of debt funds, and that was evident in July 2024 too. Here is a quick look at how equity, debt and hybrid funds performed as of end July 2024.

Equity Large-Cap Funds