Mutual fund stocks hit new low in March quarter

Indian mutual funds posted their worst quarterly performance in over a year in the period ended 31 March, data released by fund tracker Lipper today showed.

The poor performance of MF stocks was largely attributed to fund managers' misplaced bets on small-cap and mid-cap shares, and sectors like capital goods, which dented unit values amid a continuing industrial slowdown.

Diversified stock funds fell 7.5 per cent on average during the quarter, underperforming the benchmark index's drop of 3 per cent by a wide margin, and registering their worst quarterly show since October-December 2011.

Increased risk aversion hurt Indian stocks in general as the Reserve Bank of India's cautious outlook on rates and political uncertainty resulted in shares posting their first quarterly fall in five quarters.

The poor performance of funds in particular was largely due to the more volatile small and mid-cap stocks, which fell much more than larger companies during the quarter.

R K Gupta, managing director at Taurus Mutual Fund, cited pressure on margins as one of the reasons for the poor performance of these shares. ''I am afraid I don't see any immediate recovery, particularly in mid and small-cap stocks,'' he told Reuters.

According to separate Morningstar India data, the Bombay Stock Exchange's small-cap index slumped 21.3 per cent in the quarter, while the BSE mid-cap index fell 13.65 per cent.

Certain sectoral allocations also hurt overall performance.

Financials and industrials, which collectively account for more than a third of mutual funds' assets and are among the favourite sector picks, struggled during the quarter amid the slowdown.

Reliance Infrastructure Fund was the biggest loser in the March quarter, registering a fall of over 20 per cent, while Sahara Star Value Fund posted losses of 18.3 per cent.