The Hindu Business Line : Index funds decline in sync with market

The free fall in the market, reflected in a marked decline in the indices, is spelling trouble for investors in index funds. For those who had entered these funds when the Nifty and the Sensex were at higher levels - higher, considering the latest scores - are losing money faster than they made it, assuming they have not pulled out already.

Monday's closing figures - Nifty at 3,081.35 points and Sensex at 10,481.77 points - are little consolation for those who have seen the benchmarks crash to these ranks from their recent peaks.

Index funds, which number well over a dozen at the moment, are down in sync with the trend, a review of their current net asset values has indicated. All the index stocks have taken a beating during the bedlam that has been evident during the past few sessions, a development that has led the NAVs to come off their highs, it is being pointed out.

Mutual fund circles refer particularly to the decline suffered by heavyweights such as Reliance, Infosys, ITC, ONGC, ICICI Bank and Bharti Tele. Each of these stocks accounts for a critical portion of the two leading benchmarks.

On Monday, these counters continued on their downward journey in one way or other. Reliance, a major constituent of the 30-share Sensex, for instance, was down by over 4 per cent, closing at Rs 931.60 on the BSE, a decline of over Rs 40. Infosys closed nearly 5 per cent lower at Rs 2,826.55, a fall of Rs 148 or so.

ONGC, which currently accounts for a big chunk of the 50-share Nifty, dropped on the NSE by Rs 81 to end the day at Rs 1,207, a 6.29 per cent decrease. TCS closed 5.9 per cent down at Rs 1,780 on the same exchange, ending the session at Rs 1,780.50.

The latest bout of decline, MF sources say, is in line with a trend that started a few sessions back, one that seems to have caught on ever since. The rapid rise in the indices (before the decline started) saw index funds gain considerably. Value Research, the agency that tracks funds' performance, indicates that index funds' returns have turned firmly negative in recent days. Their one-week return is a negative 10.67 per cent, while the one-month return is a negative 7.43 per cent.

This is a contrast with the scenario prevailing, say, a few months ago; the three-month return was 8.24 per cent, while the six-month show was 22.62 per cent.

At this juncture, leading asset management outfits, including such top players as UTI, Prudential ICICI, Franklin Templeton and HDFC, offer products that mostly track the Nifty and the Sensex. While not too much is managed by them collectively (their actively-managed counterparts are far more popular, accounting for a much bigger share of the cake), their presence in the segment has been making the case for index products stronger than before in the Indian market, it is felt.

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