Market volatility during 2022 affected mutual fund performance across the board. However, some sector and thematic funds fare better, providing better returns to investors than others.
In a mutual fund review report 2022, brokerage house ICICI Direct informed that banking funds led equity mutual funds this year. They remain the best performers as investors expect business performance to continue on the back of loan growth and asset quality, he said.
Banking funds significantly outperformed in CY22 with a one-year return of around 30 percent compared to a 20 percent return delivered by large-cap funds, the report pointed out. Among banking funds, PSU funds were the top performers.
This was followed by infra funds with a one-year return of more than 25 percent.
“Funds Value/Contras made a comeback in 2022 particularly after last year’s high in October 2021. The average return of the category for the last one year was around 23 percent,” said the brokerage.
The variation in the return of funds in the focus category remains significantly high with the one-year return of the worst fund at -10 percent and the one-year return of the best fund at 26 percent, informs ICICI Direct. In general, this category is very volatile and only aggressive investors should be exposed to this category, he warned.
Also, he noted that pharma funds, after a short period of performance in September, continue to underperform.
In general, the broker noted that while large caps recovered sharply from the September lows and outperformed, midcap and small-cap funds began to outperform in the last month. If the overall market does not witness a significant correction, he expects midcap/small cap funds to continue to perform.
Global funds also outperformed in the past three months after months of strong performance, the broker noted, adding that tech stocks led the recovery in U.S. markets as a sharp fall spurred buying deals. by investors.
“Volatility, in general, is likely to be higher in the coming months. The higher volatility will continue to lead to a sharper rotation in the performance of sectors and market segments. Investors should be very careful while will invest in sector money,” the adviser. broker
Source: ICICI Direct Report
Markets and tributaries
After witnessing a sharp recovery in October and November 2022, markets turned volatile in December with moderate booking profits visible near all-time highs. In December, Nifty lost around 3 percent while for the year, it is up around 4 percent.
Inflows into equity funds have also declined sharply in the last six months, noted ICICI Direct. From the heights of ₹18,500 crore by May 2022, the inflows have decreased further as investors have turned cautious as the markets again scale all-time high levels, he said.
However, when markets trended lower in September, inflows were higher. Retail investors have always shown investment maturity over the past few years where inflows have been higher at lower levels and lower at higher market levels, pointed out the brokerage.
History
Just before the fall triggered by the Covid-19 pandemic in February 2020, inflows were below an average of ₹4,500 crore per month as the markets rallied around 11 percent from the low of 11,000 on the Nifty 50 index in August 2019 to the 12,200 level in January 2020, the report mentioned.
He emphasized that the markets continued to rally after the fall caused by the Covid in 2020 as investors turned into net sellers (flow of production from ₹5850 crore per month from July 2020 to February 2021). Now, in the last three months from August 2022 to October 2022, as markets have moved and are trading near all-time highs, inflows have been reduced to an average of ₹5900 crore per month since ₹15,500 crore (average from November 2021 to June 2022), he added.
AUM
The assets under management (AUM) in the mutual fund industry cross ₹40 lakh crore for the first time ever, rising to an all-time high in November 2022 to ₹40.4 lakh crore from ₹39.5 lakh crore by October 2022, informed the brokerage. The increase in AUM was mainly due to mark-to-market gains in equity-oriented funds.
AUM of equity oriented funds at the end of November 2022 was at ₹15.6 lakh crore as compared to ₹15.2 lakh crore by October 2022, he said. He further informed that the inflows during November 2022 fell sharply ₹2,250 crore from ₹9,390 crore by October 2022.
“Excluding NFOs, the industry witnessed output outflows for the first time since February 2021. Output outflows in November were at ₹168 crore vs. inflows of ₹6,340 crore in October. Overall, inflows were the lowest in the last four months, since markets recovered in July 2022. NFO in October and September were at ₹2,426 crore and ₹3050 crore, respectively. SIP inflow continues to rise and entered ₹13,307 crore in November as compared to ₹13,040 crore by October 2022,” the report stated.
Source: ICICI Direct
Strategy
While investors still need to be careful while investing in duration funds as the absolute level on dated paper is still far below the historical average, medium-term paper (three to five years) offers a good investment opportunity. Investors can start allocating their long-term debt allocations to short-term/medium-term debt funds, the brokerage advises.
First Published: 29 Dec 2022, 04:32 PM IST
