How large-cap mutual funds withstood the crash

Mumbai, Aug 31:

Manic Monday of Aug 24 and its aftermath may have shaved a few lakh crore rupees from the market capitalisation of Indian equities but some large-cap mutual funds not only managed to buck the trend, they have also given returns higher than options such as investments in fixed deposits and pension schemes.

Even as bluechips after bluechips fell by the wayside, wrapped by worries over a host of issues such as the slowdown in China at a rate higher-than-expected and uncertainties over the position of the US Federal Reserve on interest rates, these large-cap funds withstood one of the steepest crashes in India’s equity markets’ history.

The trend was evident with one-year return of large cap funds such as “Reliance Top 200”, “Kotak 50”, “Reliance Focused Large Cap Fund”, “Franklin India Bluechip” and “UTI Mastershare” ranging between 11.93 percent and 9.68 percent on August 24.

As of Monday, their returns were between 13.8 percent and 10.7 percent.

The funds are identified as “Large Cap” due to investment of at least 80 percent of total corpus in companies having a market capitalization of at least Rs.16,000 crore.

“Large-cap funds are chosen by investors due to their stability, good governance, economy of scale and the strength to withstand shocks,” Anand James, co-head, technical research, Geojit BNP Paribas, told IANS.

“The falls on Monday were too steep and relative to others these funds outperformed. This is in the unique natures of these types of funds.”

According to analysts, small- and mid-cap shares were the ones which actually got battered during Monday’s crash. However, the opportunity of value buying and fast recovery was also evident in them.

“We have strong confidence in our research and that has resulted us in backing stocks with strong fundamentals across funds, and especially large caps. We believe that it is in testing times that the fund needs to demonstrate confidence and performance,” Sundeep Sikka, chief executive of Reliance Capital Asset Management told IANS.

Other market observers point out that on a relative basis these kinds of funds do outperform their peers from other schemes.

“It is the classic repeat-example — during 2011-13 export-led stocks like pharma and information technology (IT) were doing very well. The most important thing is what are the components of the funds,” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.

The knock-out blow of Aug 24 or more commonly now known as the “Black Monday” wiped out Rs.7 lakh crore ($100 billion) in terms of marketcap. The carnage effectively wiped out last year’s market returns.

The last one-year return of the bellweather indices such as CNX Nifty and S&P Sensex stood at (-)1.23 percent and (-)2.64 percent, respectively, following Monday’s rampage.

The major fall on “Black Monday” came on the back of the massive implosion in the Chinese markets, fears of its economy output falling leading the world a step closer to another recession.

On that day, the S&P BSE Sensex lost as much as 1,624.51 points, or 5.94 percent — which was the steepest fall in terms of points.

However, the massive correction in the markets was a “golden opportunity”, said James. “We have been advising investors to stay put as these kinds of corrections are rare and an opportunity to build great portfolios,” James added. (IANS)