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Large-cap funds have in the last three years gone through an entire market cycle without having benefitted their investors much. During this period the Sensex moved from the 16000-levels to the 8000-levels and back to the 17000-levels in June 2011, giving returns of about 13.5 percent. The CNX Nifty also gave returns of 15.4 per cent during the same period.
However, mutual fund investors were left in the lurch with most funds underperforming the benchmark index. The benchmark index for the large-cap funds is the CNX Nifty.
Only three large cap funds outperformed the index in the last three years. They were ICICI Prudential Focused Bluechip Equity (Inst I) and ICICI Prudential Focused Bluechip Equity (Retail), and Franklin India Bluechip fund. As on June 2008, there were a total of 46 large-cap focussed funds in the industry.
In the last one year, the top two positions among the best performers have not changed.
While the Nifty gave returns of 10 per cent, these funds gave 11.64 and 10.85 per cent returns respectively. Currently, there are 60 large cap funds.
A large-cap fund is typically required to hold at least 75 per cent in the large-cap stocks and the remaining in 0-25 per cent in mid-cap stocks. “Generally, the exposure of a large-cap fund is only in quality mid-cap stocks. But keeping in view the current market conditions, the exposure to mid-cap has been reduced due to uncertainty surrounding these stocks in a rising interest rate scenario,” said Mr Mahesh Patil, Head Equity-Domestic, Birla Sun Life Mutual Fund.
The top five sectors for these funds over the last one year period have been the financial, energy, technology, FMCG and automobile sectors. “However, in the short-term, rising inflation and interest rates spikes have resulted in the focus shifting to non-interest rate sensitive sectors like technology, FMCG and healthcare,” said Mr Kaushik Dani, Head – Equity, Peerless Mutual Fund.
Market volatility also changes the strategy of the fund managers to the extent that stock-picking becomes much more important. Sector choices are also narrowed down because of interest rate volatility and fund managers find it difficult to maintain the balance between sectors and stocks. “In such cases, the idea is to choose the relatively cheaper stocks available within the sector choices,” said a fund manager.
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