In the past year, thematic PSU funds on average have given returns of 17.75 per cent — the highest among all funds — reveals the data from Value Research.
Infrastructure funds and consumption funds have given returns of 14.21 per cent and 12.22 per cent, respectively.
Pure equity funds, such as large-cap equity funds, have given returns of just 6.77 per cent in the past year.
Only small-cap funds have managed to give higher returns at 12.11 per cent in the past year.
Market participants say that attractive valuation and hope for privatisation have led to major rerating in PSU stocks. The government’s strong infrastructure push has led to a rally in the sector.
Several top PSU stocks like NTPC, PowerGrid, and Oil and Natural Gas Corporation have given returns in the range of 35-42 per cent in the past year.
Among all equity funds in the mutual fund (MF) industry, central public sector enterprise exchange-traded funds have been the top performer, with returns of 40.26 per cent in the past year.
D P Singh, deputy managing director and chief business officer, SBI MF, says, “Thematic funds are cyclical in nature and have given higher returns in the past year. Such funds are high risk-high return funds. I think pure equity funds (diversified equity funds) are evergreen and will recover soon.”
With a surge in returns, new investors are attracted to sectoral funds. The data from the Association of Mutual Funds in India shows that net assets under management of thematic funds stood at Rs 1.49 trillion as of end-April, compared with Rs 1.01 trillion in April 2021.
Huge correction in technology stocks notwithstanding, the sector has continued to remain one of the top performers in the past year. In the past three months, IT funds on average gave negative returns of 10.52 per cent, but in the past year, it has generated positive returns of 11.56 per cent.
ICICI Direct Research in its note stated that, “prior to the recent correction, IT funds have been a consistent outperforming category since the past three years on the back of improved earnings growth and valuation rerating as investors foresee higher IT spends to lend higher growth visibility. While the IT sector has underperformed, many stocks still trade at premium valuations, compared to historical average despite recent correction”.
Increasing commodity prices and rising inflation leading to tighter monetary policy may keep volatility intact in domestic equity markets. Given such situations, fund houses will be betting on sectors such as consumer goods, industrial, and lending financial.
“Consumer companies that have pricing power continue to do well during high inflation-interest rate regime due to its essential nature in day-to-day consumption. They tend to hold their demand and margins during a high inflationary regime as demand for such goods generally tends to be inelastic to inflationary pressures,” said Edelweiss MF in its note.
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