Indian equity funds rose smartly in August, piggybacking on the main index which gave its best monthly return so far in 2006 as investors bought bluechips on expectations of strong profit growth.
Average net asset values (NAVs) of funds investing in diverse sectors such as personal care and pharmaceuticals rose between 7.6 and 13.5 per cent compared with an 8.9 per cent gain in the 30-issue benchmark index, data from fund tracking firm Value Research showed.
"There is some cheer building up into large-cap funds as the index gets closer to its earlier highs," Dhirendra Kumar, managing director at New Delhi-based Value Research, told Reuters. "But the momentum is still to manifest itself completely in small-cap and mid-cap funds."
The index rose 955 points in August, fuelled also by foreign investment inflows of $1.03 billion. The amount was more than a quarter of the $3.7 billion in foreign funds that has come into equities so far this year.
At 1:10 pm (0740 GMT), the index was up 1.13 per cent at 11,910.93 points. At this level, it is still down about 6 per cent from its record peak hit in May but up about 26.5 per cent since the start of the year.
Schemes investing in the drugs sector gave an average return of 13.5 per cent, handsomely outpacing the 9.6 per cent rise in their sector benchmark. Domestic drug firms such as Cipla Ltd have been in demand following a better-than-expected first quarter financial performance.
Funds investing in the beaten-down banking sector saw NAVs rising 11.9 per cent on average, compared with the 11 per cent rise on the sector index. Bank stocks were out of favour between April and June as many investors exited the shares on fears that rising interest rates would hurt earnings.
Automobile sector funds gained 11.7 per cent on average, outpacing the 10.5 percent return on the sector index as robust monthly sales and cost savings more than offset rising input costs.
Funds investing in the booming technology sector gained 9.3 per cent on average, outpacing the 8.5 per cent gain in the sector index.
Diversified funds, the largest category both in terms of assets under management and number of schemes, gained 9.3 per cent but failed to overtake the 9.6 percent rise in the S&P CNX 500.
Index funds rose 8.6 per cent on average, in line with a similar gain on the S&P CNX Nifty, and schemes investing in the personal care sector rose 7.6 per cent compared with the 7.9 per cent rise in the sectoral index.
Balanced funds, which spread assets over debt and equity in varying ratios, gained between 2.5 and 7.8 percent.