Chapter 4 – Performance of Sectoral Funds in India...

Chapter 4 – Performance of Sectoral Funds in India

Performance Evaluation of Mutual Fund Segments In India: With Special Reference to Sectoral Funds 85

Performance of Sectoral Funds in India

4.1. Introduction

4.2. Performance Review of Various Sector Funds 4.2.1. Banking Funds 4.2.2. FMCG Funds 4.2.3. Infrastructure Funds 4.2.4. Energy Funds 4.2.5. Pharmaceutical Funds 4.2.6. Service Funds 4.2.7. Technology / IT Funds 4.2.8. Other Sector Specific Funds

4.3. Conclusion

4.1. INTRODUCTION

Sectoral mutual funds are those mutual funds that confine their investments portfolio to a

particular segment or sector of the economy. These are also known as thematic funds,

such funds focus on one industry such as Banking, FMCG, Energy, Infrastructure,

Technology, Power, Heath Care, Pharmaceuticals etc. The idea behind such funds is to

allow the investors to invest in specific industries or sectors of economy, which are

expected to have strong future growth potential.

These funds are expected to be more volatile as compared to diversified portfolio of

securities in more than one industry or sector of economy. Such concentrated portfolios

can produce high gains or losses, depending on the condition that the chosen sector is in or

out of the growth trend. Sectoral mutual funds lie in the high risk – high reward category

and are not suitable for investors who have low risk bearing capacity.

Contents

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86 Performance Evaluation of Mutual Fund Segments In India: With Special Reference to Sectoral Funds

Generally, these days’ mutual fund houses avoid launching sectoral funds as they are

seasonal in nature and do well only in cycles of growth. As these funds focus on just one

sector of the economy, they have limited diversification options and the fund manager’s

ability to capitalize on other sectors is also limited. Thus if the sector is performing well,

the future perspectives of the funds will be bright.

In a developing country like India, it is easy to identify specific sectors of growth and

promising long term returns for investment. Various sectors such as Technology,

Infrastructure, Banking and FMCG are to name a few for such opportunities. Although

sectoral fund emerged in late 1990s in India but this concept is in its nascent stage even

today. May be the prime reason is the higher risk as compared to other alternatives which

a normal retail investor is not willing to bear.

The performance of various sector funds reveal that few sectors such as Banking, FMCG

and Pharmaceutical have performed over the expectations of the investors while many of

other sectors struggle to provide sufficient returns to the investors.

In this chapter the performance of different sectoral funds is being evaluated on

various parameters such as long term returns on investment, risk adjusted returns, scheme

volatility / risk associated and efficiency level of funds on the basis of Data Envelopment

Analysis (DEA) which is a statistical measure to evaluate fund’s efficiency to generate

returns, keeping in mind certain inputs in terms of associated transaction costs and fund’s

expenses along with outputs in terms of returns, net assets etc.

4.2.1. BANKING FUNDS

The banking and financial services sector plays a vital role in the development of an

economy. Its contribution and importance in promoting trade, commerce and industry in a

country can be easily estimated. In India, banking sector has been an integral part to the

process of economic reforms and growth. Moreover, today with technology being put to

use, transactions have been rather simpler, which in turn has accelerated the pace of

economic reforms.

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Banking and financial services sector of India is grounded on strong base of a very cautious

policy framework proposed and implemented by the Indian regulator(s). Today, the Indian

economy has grown very rapidly in the last decade especially after liberalization, and

similarly many banking and financial services institutions have also recorded the same

growth rate. In the last couple of years, Indian banks and financial services institutions

have not only enlarged their customer base but they have also achieved the higher

efficiency in their operations (by the help of technology), which has resulted in better

quality of banking and financial services in the country.

With promising investment opportunities offered by the banking and financial services

sector, many mutual fund houses thought of launching sector funds focusing on this

promising sector. In May 2003 Reliance Mutual Fund was the first mutual fund house to

launch the fund on this sector (with the launch of Reliance Banking Fund), followed by UTI

Mutual Fund in August 2005, and the others in the year 2008 afterwards.

In the years gone by market capitalization of the banking sector has gone up

significantly; and today the banking and financial services sector occupies a dominant

weightage in the BSE SENSEX (table 4.1) and also in S&N CNX Nifty.

Table: 4.1

Sector wise Composition of BSE SENSEX

Sector wise composition Weightage (%)

Banking & Finance 24.3

IT 15.8

Oil & Gas 14.0

FMCG 10.6

Transport Equipments 9.6

Metal & Mining 7.7

Capital Goods 7.4

Telecom 3.6

Power 3.2

Healthcare 2.5

Housing Related 1.3

(Data as on October 17, 2011)

(Source: BSE, PersonalFN Research)

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The given table (table 4.1) reveals that almost a quarter of index (i.e. BSE Sensex) is held by

companies in the banking and financial services space. It clearly indicates the importance

of financial services sector in a market performance indicator.

Not only this, but on the parameter of performance, banking companies have

outperformed as compared to other industry counterparts from BSE Sensex. The chart

given below depicts that so far (for the period January 1, 2002 to October 17, 2011) the

BSE Bankex has accelerated faster than the BSE Sensex. Hence if anyone was to invest a

sum of 100 (on January 1, 2002) each in the BSE Bankex and BSE Sensex; the same today

would have yielded a sum of 1,113 and 524 respectively (on October 17, 2011).96

Figure 4.1

Performance of BANKEX vis-à-vis BSE SENSEX

(Source: ACE MF, PersonalFN Research)

The outperformance of the BSE Bankex over the BSE Sensex, has not only helped the

banking and financial services sector funds to deliver appealing returns, but even

outperformed the category of diversified equity mutual funds. Moreover, they have

controlled their risk well (as revealed by the Standard Deviation), which in turn have

helped them to strike an impressive risk-adjusted return (as revealed by the Sharpe Ratio).

96

“Banking Funds: Are they driving in top gear?”, http://www.personalfn.com/knowledge-center/FullStory/11-

10-25/Banking_Funds_Are_they_driving_in_top_gear.aspx, (25-Oct-2011) Last accessed May, 2012.

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By and large the equity diversified funds have been less volatile than the BSE BANKEX and

the banking sector funds. But they have underperformed both - BSE BANKEX as well as

banking funds, on the risk-adjusted return basis.

As far as the individual performance of various banking funds is concerned, it can easily

be noted that the funds have given 33.16%, 16.13% and 24.25% annualized returns for 3, 5

and 7 years respectively which is almost equal for 3 years performance as compared to BSE

Bankex but significantly higher for both 5 and 7 years category.

Not only this, but it can also be observed that half of the banking funds have over

performed the banking benchmark index which itself is an outperformer as compared to

S&P CNX Nifty (another more comprehensive market index as compared to BSE Sensex).

Table 4.2

Banking Funds: Return Analysis

Sl. No. Name of the Fund

Returns

3 years

(%)*

Returns

5 years

(%)*

Returns

7 years

(%)*

1. Goldman Sachs Banking BeES 34.07 12.73 22.62

2. Goldman Sachs PSU Bank BeES 27.81 -- --

3. ICICI Prudential Banking and Financial Services Ret. 31.41 -- --

4. Kotak PSU Bank ETF 29.28 -- --

5. Reliance Banking ETF 35.46 -- --

6. Reliance Banking Retail 37.89 20.34 26.88

7. Religare Banking 33.48 -- --

8. Sahara Banking and Financial Services 40.68 -- --

9. Sundaram Financial Services Opp. Ret. 26.21 -- --

10. UTI Banking Sector Reg. 35.27 15.33 23.24

Category Average 33.16 16.13 24.25

BSE Bankex (Sector Benchmark) 34.21 12.19 22.70

S&P CNX Nifty (Market Index) 25.93 7.47 16.87

(Compiled by the researcher; data sourced from AMFI and Value Research Online)

(*Percentage returns for More than 1year are annualized)

On the parameter of associated risk, most of the funds seem to be less risky as they have

an average standard deviation of 36.78 which is lower than that of BSE Bankex (45.46) and

S&P CNX Nifty (39.54). This clearly indicates that banking funds’ return performances

deviate lesser from the average as compared to sectoral benchmark and market index.

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Sharpe-Ratio, the Risk adjusted return measure of banking funds is attractive with an

average of 0.57 which is clearly the result of higher returns with lesser standard deviation.

This clearly shows that the banking funds are capable of giving above average market

returns with reasonable amount of risk in terms of return deviations.

Table 4.3

Banking Funds: Risk Analysis Sl.

No. Name of the Fund

Standard

Deviation

Sharpe

Ratio Beta Alpha

R-

Square

1. Goldman Sachs Banking BeES 40.67 0.47 1 0.05 1

2. Goldman Sachs PSU Bank BeES 39.75 0.44 0.98 0.43 1

3. ICICI Prudential Banking and Financial Services Ret. 33.53 0.51 0.79 0.98 0.97

4. Kotak PSU Bank ETF 40.31 0.46 1 1.37 1

5. Reliance Banking ETF 40.39 0.50 -- -- --

6. Reliance Banking Retail 36.72 0.62 0.86 5.1 0.96

7. Religare Banking 32.55 0.58 0.76 3.28 0.96

8. Sahara Banking and Financial Services 33.38 0.97 0.7 18.03 0.78

9. Sundaram Financial Services Opp. Ret. 35.83 0.53 0.83 2.02 0.93

10. UTI Banking Sector Reg. 34.62 0.56 0.82 2.62 0.98

Category Average 36.78 0.57 0.9 3.76 0.95

BSE Bankex (Sector Benchmark) 45.46 -- -- -- --

S&P CNX Nifty (Market Index) 39.54 -- -- -- --

(Standard Deviation of annualized returns and Sharpe Ratio are calculated as: since inception for the funds

and for last 10 years in case of sector benchmark and market index; data sourced from BSE, NSE India and

Value Research Online)

When the funds were evaluated by statistical measure called Data Envelopment Analysis

(DEA) to identify the efficiency of funds as a decision making unit to generate returns in

terms of annualized returns and net assets for given input costs such as percentage of

cash, turnover & expense ratios along with front and differed load (if any), it was found

that 5 banking funds got the score of 1 i.e. the status of fully efficient portfolios while 1

fund stood with efficiency score of 0.58 which is near to the average of all banking funds

(0.634).

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Table 4.4

Banking Funds: Data Envelopment Analysis Values Sl.

No. DMU Score %Cash TurnR ExpnR FrontL DfrrdL TRA3Y TRA5Y TRA7Y NetAsst

1. GoldSBB 1 0.25 389 0.5 0 0 34.1 12.73 22.62 278.4

2. GoldSPB 1 0.25 77 0.74 0 0 27.8 -- -- 10.3

3. ICICIBFS 0.232949 4.03 56 2.44 0 0 31.4 -- -- 140.4

4. KOTPSUB 1 0.1 18.65 0.65 0 0 29.3 -- -- 19.2

5. RELBETF 1 2.58 2 0.35 0 0 35.5 -- -- 11.3

6. RELBR 1 8.19 20 1.93 0 0 37.9 20.34 26.88 1707.5

7. RELGRB 0.204592 6.93 93 2.5 0 0 33.5 -- -- 39.2

8. SAHBFS 0.191554 13.18 89.76 2.5 0 0 40.7 -- -- 22.8

9. SUNFSR 0.132221 12.21 120 2.35 0 0 26.2 -- -- 242.7

10. UTIBSR 0.586895 8.04 289.86 2.34 0 0 35.3 15.33 23.24 335.8

Average 0.634821 5.58 115.53 1.63 0 0 33.17 16.13 24.25 280.76


The analysis of returns, risk and efficiency values of banking funds proves that such funds

are a good investment avenue for an investor who wishes to achieve reasonable returns

with moderate to high risk bearing capacity. Though banking and financial services sector

funds have accelerated on generating reasonable risk adjusted returns until now, but they

suffer from the risk of portfolio concentration as top five holdings accounts for more than

60% of total assets held (table 4.5) and a single stock accounts for as high as 22% of the

equity portfolio in some cases.

Some banking and financial services sector funds have proved to be more volatile than

the pure diversified equity funds which make some of them a high risk proposition.

Therefore, their return fortunes are closely linked to the performance of banking sector.

May be the one of the major reason of their higher risk lie in the level of portfolio

concentration which ranges from 43.61% to 84.17% for top 5 holding by the funds (see

table 4.5 for details) with an overall category average of 62.75% for all active banking funds

as on the date of analysis.

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Table 4.5

Banking Funds: Portfolio Compositions

Sl. No. Fund Name Top 5 Holdings (%)

1. Goldman Sachs Banking BeES 84.17

2. Goldman Sachs PSU Bank BeES 78.58

3. ICICI Prudential Banking and Financial Services Ret 52.87

4. Kotak PSU Bank ETF 79.70

5. Reliance Banking ETF 82.49

6. Reliance Banking Retail 49.70

7. Religare Banking 63.28

8. Sahara Banking and Financial Services 49.76

9. Sundaram Financial Services Opp Ret 43.61

10. UTI Banking Sector Reg 62.46

Average 62.75


4.2.2. FMCG Funds

Despite the down-beat economic data from the U.S. and the situation of a “debt-

overhang” in the Euro zone (especially in countries such as Greece, Ireland and Spain), the

Indian equity markets in the year 2010 delivered appealing returns of 17.4%, as the FIIs

displayed confidence in the Indian economy on account of attractive economic growth

rate. But during the same year (i.e. 2010) interestingly the BSE FMCG Index delivered a

return of 32.0%, thereby outperforming the market index (i.e. BSE Sensex, see figure 4.2)

led by strong domestic consumption and consumer confidence. This wave of consumerism

was also backed up by the job opportunities being created after the recession of 2008 and

early 2009, rising income levels of people and FMCG companies’ attempts to increase their

rural penetration. Moreover the good monsoons experienced by most parts of the country,

also attributed to affordable input costs for most companies in the FMCG space.

In the presence of these green signals for the FMCG sector, the FMCG mutual funds

performed handsomely well vis-a-vis FMCG sector benchmark as well as BSE Sensex and

S&P CNX Nifty, the overall market indices.

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Figure 4.2

Performance of BSE FMCG vis-à-vis BSE SENSEX

(Base: 10,000; Source: ACE MF, PersonalFN Research)

In fact when analyzed over a 3–Years time period, they (FMCG funds) outperformed some

good performing diversified equity funds by managing their risk well (as revealed by their

low Standard Deviation in table 4.7), and delivered enticing risk-adjusted returns as

depicted by their high Sharpe Ratio. Moreover, the portfolio churning (see turnover ratio:

column 5–TurnR, in table 4.8) too hasn’t been high (38 and 18 percent) due to the

evergreen prospects posed by most companies in the sector. But nonetheless the expense

ratio has been relatively high at 2.47 and 2.50 percent respectively.

Actually FMCG as a sector is quite defensive nature, which limits the wealth erosion

during times of economic slowdown or during the bear phase of the equity markets. In fact

in the figure 4.2 it is evident that during the last bear phase of the Indian equity markets

(i.e. from January 9, 2008 till March 9, 2009) the BSE FMCG index tumbled far lesser(-

24.2%)97, when compared to the broader market index – BSE Sensex (-55.4%). This has also

been displayed in the performance of FMCG funds. The figure also depicts the

defensiveness of the FMCG sector. In the year 2006 & 2007 when the Indian equity

markets (BSE Sensex) were surging, the BSE FMCG lagged during the rally; but the

downside was well arrested, as the consumption story was unhurt.

97

“FMCG Funds on a fast track”, http://www.personalfn.com/knowledge-center/FullStory/11-02-07/

FMCG_Funds_on_a_fast_track.aspx, (07-Feb-2011) Last accessed May 2012.

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If we evaluate the individual returns of the FMCG funds, we can say that in a market which

is indicating the returns of 32.54% for last 3 years (see table 4.6), they have managed to

provide more than 40% returns and similarly have over performed in 5, 7 and 10 years

return segments leaving behind both indices BSE FMCG and S&P CNX Nifty.

Table 4.6

FMCG Funds: Return Analysis

Sl.


Returns

3 years

(%)*

Returns

5 years

(%)*

Returns

7 years

(%)*

Returns

10 years

(%)*

1. ICICI Prudential FMCG 40.13 15.2 29.62 25.34

2. Magnum FMCG 44.22 18.26 21.75 23.42

Category Average 42.18 16.73 25.69 24.38

BSE FMCG (Sector Benchmark) 32.54 15.62 24.46 16.76

S&P CNX Nifty (Market Index) 25.93 7.47 16.87 18.48



The results of return and risk analysis also indicates that FMCG funds have the capability to

provide fairly high returns at lower amount of risk. This is the result of promising nature of

industry and its potentials to remain green even in the time of global slowdown.

Table 4.7

FMCG Funds: Risk Analysis Sl.


Standard

Deviation

Sharpe

Ratio Beta Alpha

R-

Square

1. ICICI Prudential FMCG 22.8 0.97 1 5.31 0.8

2. Magnum FMCG 18.36 1.41 0.7 13.7 0.65


BSE FMCG (Sector Benchmark) 23.75 -- -- -- --

S&P CNX Nifty (Market Index)* 39.54 -- -- -- --

(Standard Deviation of annualized returns and Sharpe Ratio is calculated as: since inception for the funds and

for last 10 years in case of sector benchmark and market index; data sourced from BSE. NSE India and Value

Research Online)

The values of DEA also point out towards the higher efficiencies of the funds as highly

efficient decision making units. It may also because there are only two active funds at the

time of analysis. But risk and return analysis has already confirmed the performance of

such funds even in the bearish market.

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Table 4.8

FMCG Funds: Data Envelopment Analysis Values Sl.

No. DMU Score %Cash TurnR ExpR FrontL DefrdL 3YAR 5YAR 7YAR 10YAR NetAss

1. ICIFM 1 14.02 38 2.47 0 0 40.13 15.2 29.62 25.34 106.6

2. MAGFM 1 5.66 18 2.5 0 0 44.22 18.26 21.75 23.42 55.6

Average 1 9.84 28 2.485 0 0 42.175 16.73 25.685 24.38 81.1


FMCG funds fairly have a concentrated portfolio of top 5 stocks on account limited stocks

available under its ambit of selection. So if one peeps into the top 5 stocks of the FMCG

funds, they would find ITC Ltd., HUL, Nestle Ltd., Pidilite Industries Ltd., Britannia Ltd.,

while others such as Marico Ltd., Tata Global Beverages Ltd., GSK Consumer Healthcare

Ltd., Asian Paints Ltd. and Eveready Industries (India) Ltd. can also be found commonly in

their portfolio.

Table 4.9

FMCG Funds: Portfolio Compositions

Sl. No. Fund Name Top 5 Holdings

(%)

1. Magnum FMCG 61.89

2. ICICI Prudential FMCG 49.28

Average 52.62


While overall the FMCG sector has performed well over the years backed by the strong

consumption story, in a general opinion the fortune of the FMCG funds is closely linked to

its dominant sector holdings (which is 75% of its net assets). Moreover, as the stock

selection universe is restricted, it leaves the fund manager with limitations of reducing the

stock specific risk. Also, if FMCG funds are going to command a higher expense ratio (when

compared to diversified equity funds), then it seems an unpalatable choice because their

net assets are smaller (than diversified equity funds), which thus requires less resources for

them to be managed.

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4.2.3. Infrastructure Funds

The economic reforms with the policies of Liberalization, Privatization and Globalization

started in India way back in 1991, when the Government in majority decided to open up

the doors of economy through such policy initiatives which were aimed to achieve

sustainable and higher economic growth rate. Through integrated efforts, India is able to

manage the growth rate of nearly 9%. However, it was but obvious that to sustain such a

higher economic growth rate, India needed renovation in its basic infrastructure.

On the second round of reforms, some of the Indian mutual funds identified the

investment opportunities in the specific sectors of infrastructure such as power, roads,

ports, irrigation along with infrastructure financing services and thus launched

infrastructure specific funds in the mid of 2005-2006. But if we evaluate their performance

today, it is a mixed kind and not very attractive as it was expected to be in 2005-06. While

the Indian economy was on growth track since August 200598, until the U.S. sub-prime

mortgage crisis emerged in the U.S and hit India in January 2008, fund houses focused on

acquiring more Assets Under Management (AUM) through infrastructure funds, and the

performance was also quite good. But during the bear cycle hit by the U.S. sub-prime

mortgage crisis and the bankruptcy of Lehman Brother, many of these funds were declined

considerably, and even today while the Indian equity markets have shown a smart

economic recovery, the infrastructure sector of India failed to gain the highs of its glory

again.

98

“Infrastructure Funds: Are they a damp squib?”, http://www.personalfn.com/knowledge-center/FullStory/

11-10-12/Infrastructure_Funds_Are_they_a_damp_squib.aspx, (12-Oct-2011) Last accessed May 2012.

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Figure: 4.3

Performance of CNX Infrastructure vis-à-vis BSE-200 & S&P CNX Nifty

(Source: BSE, NSE, PersonalFN Research)

Thus even as far as the performance of infrastructure funds is concerned, they haven’t

delivered very appealing returns. The mean annualized returns for 3, 5 and 7 years stand at

20.98, 6.53 and 18.52 percent respectively (table 4.10). In fact fund houses following

strong investment processes and systems too have delivered unsatisfactory returns as their

portfolios felt the turbulence of sub-prime mortgage crisis in the U.S., Lehman Brothers

bankruptcy and anti-inflationary monetary policy stance adopted by RBI.

It is noteworthy that growing emphasis on the infrastructure development and the

euphoria generated during the exuberant bull phase – prior to sub-prime mortgage crisis

and Lehman Brothers bankruptcy made infrastructure a favorite theme in the year 2005.

Many key sectors in infrastructure such as construction and power, witnessed tremendous

growth in activity as companies chalked out aggressive expansion plans, and investors too

gave an encouraging response to the capital raising plans of such companies. Holding some

of these sectors and stocks therein Infrastructure funds certainly generated delighted

returns during 2006 and early 2008, but later these same stocks were hammered during

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the downside of the Indian equity markets (specifically from January 9, 2008 until March 9,

2009, see Figure 4.3).

Table 4.10

Infrastructure Funds: Return Analysis

Sl.


Returns

3 years

(%)*

Returns

5 years

(%)*

Returns

7 years

(%)*

1. AIG Infrastructure and Economic Reform Inst 28.26 -- --

2. AIG Infrastructure and Economic Reform Reg 27.39 -- --

3. Birla Sun Life Infrastructure 25.59 5.48 --

4. Canara Robeco Infrastructure 33.77 10.95 --

5. DSPBR T.I.G.E.R. Inst 24.36 -- --

6. DSPBR T.I.G.E.R. Reg 23.64 6.41 20.12

7. Escorts Infrastructure 2.66 -- --

8. HDFC Infrastructure 24.99 -- --

9. ICICI Prudential Infrastructure 22.93 9.13 --

10. ICICI Prudential Infrastructure Inst I 23.97 -- --

11. L&T Infrastructure 8.46 -- --

12. LIC Nomura MF Infrastructure 18.13 -- --

13. Religare Infrastructure 21.08 -- --

14. SBI Infrastructure Fund Series 1 17.2 -- --

15. Sahara Infrastructure Fixed Pricing 19.18 5.99 --

16. Sahara Infrastructure Variable Pricing 20.13 6.8 --

17. Tata Growing Economies Infrastructure Plan B 20.54 -- --

18. Tata Indo Global Infrastructure 12.86 -- --

19. Tata Infrastructure 19.58 5.22 --

20. Taurus Infrastructure 32.72 -- --

21. UTI Infrastructure 13.18 2.26 16.92


S&P CNX Nifty (Market Benchmark) 25.93 7.47 16.87



It can also be observed that infrastructure funds have underperformed in comparison to

S&P CNX Nifty during last 3 and 5 years segments (Table 4.10).

This indicates that the diversified portfolios (e.g. Nifty 50 shares index) have generated

more returns for last 5 years while due to sectoral restrictions and poor performance of

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infrastructure companies, the infrastructure funds were bound to fall short of the market

index.

As far as the associated risk and risk adjusted returns are concerned, the infrastructure

funds’ performance deviated less as compared to S&P CNX Nifty. The average standard

deviation for funds remained at 32.11 as compared to 39.54 in case of Nifty (table 4.11).

Table 4.11

Infrastructure Funds: Risk Analysis Sl.

No. Name of the Fund Standard

Deviation

Sharpe

Ratio Beta Alpha R-Square

1. AIG Infrastructure and Economic Reform Inst 30.93 0.38 1 4.59 0.87

2. AIG Infrastructure and Economic Reform Reg 30.92 0.36 0.9 3.9 0.87

3. Birla Sun Life Infrastructure 35.65 0.28 1.1 1.24 0.92

4. Canara Robeco Infrastructure 33.52 0.44 1.1 6.65 0.91

5. DSPBR T.I.G.E.R. Inst 30.41 0.24 1 -0.21 0.94

6. DSPBR T.I.G.E.R. Reg 30.38 0.22 1 -0.79 0.94

7. Escorts Infrastructure 30.54 -0.25 0.9 -14.5 0.76

8. HDFC Infrastructure 35.13 0.28 1.1 1.55 0.9

9. ICICI Prudential Infrastructure 28.61 0.13 0.9 -3.25 0.94

10. ICICI Prudential Infrastructure Inst I 28.61 0.16 0.9 -2.44 0.94

11. L&T Infrastructure 39.4 -0.05 1.2 -11.7 0.92

12. LIC Nomura MF Infrastructure 30.7 0.04 1 -6.32 0.96

13. Religare Infrastructure 25.7 0.22 0.8 -0.56 0.93

14. SBI Infrastructure Fund Series 1 33.98 0.05 1.1 -6.61 0.93

15. Sahara Infrastructure Fixed Pricing 32.1 0.21 1 -0.72 0.86

16. Sahara Infrastructure Variable Pricing 32.11 0.24 1 0.08 0.86

17. Tata Growing Economies Infrastructure Plan B 28.49 0.22 0.9 -0.62 0.92

18. Tata Indo Global Infrastructure 30.94 0.06 1 -5.64 0.88

19. Tata Infrastructure 32.53 0.1 1 -4.6 0.95

20. Taurus Infrastructure 45.53 0.32 1.4 4.19 0.82

21. UTI Infrastructure 28.19 -0.03 0.9 -7.78 0.95

Category Average 32.11 0.17 1 -2.07 0.90




Research Online)

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Merely lowering down the risk does not satisfy investors and that is clarified by Sharpe

ratio which has very alarming for infrastructure funds. An average ratio of 0.17 which

means less than 20% risk premium returns for taking extra risk on investment, this is not at

all satisfactory.

Although the efficiency of fund managers to manage input costs and outputs such as

cash percentages, turnover, expense ratio and returns along with net assets is been almost

satisfactory as it is confirmed by average of data envelopment analysis values which

remained at 0.72 for the category. This clearly indicates that due sector specific reasons

the performance of infrastructure funds is relatively low while the management of assets

and costs has no severe problems as such.

Table 4.12

Infrastructure Funds: Data Envelopment Analysis Values Sl.

No. DMU Score %Cash TurnR ExpR FrontL DefrdL 3YAR 5YAR 7YAR NetAsst

1. DTR 1 1.62 58 1.88 0 0 23.64 6.41 20.12 1904.8

2. UI 1 3.09 130.54 1.8 0 0 13.18 2.26 16.92 2398.4

3. BSLI 0.763748 9.17 51 2.26 0 0 25.59 5.48 -- 380.5

4. CRI 1 8.56 113 2.43 0 0 33.77 10.95 -- 131.4

5. IPI 0.876723 8.18 89 1.88 0 0 22.93 9.13 -- 2462.2

6. SIFP 0.628322 7.52 71.67 1.2 0 0 19.18 5.99 -- 8

7. SIVP 0.670267 7.52 71.67 1.84 0 0 20.13 6.8 -- 8

8. TI 1 5.4 18 1.91 0 0 19.58 5.22 -- 1355.1

9. AIGIERI 0.752203 6.66 71 1.75 0 0 28.26 -- -- 117.9

10. AIGIERR 0.566885 6.66 71 2.46 0 0 27.39 -- -- 117.9

11. DSPTI 0.835267 1.62 58 1.44 0 0 24.36 -- -- 1904.8

12. ESINFRA -0.02099 2.93 10.4 2.5 0 0 2.66 -- -- 3.2

13. HDINFRA 0.740267 2.11 41.37 1.97 0 0 24.99 -- -- 911.5

14. ICIPII 0.739267 8.18 89 1 0 0 23.97 -- -- 2462.2

15. LTINFRA 1 10.14 128 2.5 0 0 8.46 -- -- 34.9

16. LNMFI 0.762322 4.6 4 2.42 0 0 18.13 -- -- 129.4

17. RGINFRA 0.448503 3.05 56 2.5 0 0 21.08 -- -- 52.6

18. SIFS1 0.319349 9.78 71 2.12 0 0 17.2 -- -- 846

19. TGEIPB 0.670457 35.17 7 2.08 0 0 20.54 -- -- 96.7

20. TIGI 0.878242 35.12 15 1.79 0 0 12.86 -- -- 757

21. TAI 0.478166 8.77 148 2.5 0 0 32.72 -- -- 16.2

Average 0.719476 8.85 65.37 2.01 0 0 20.98 6.53 18.52 766.60


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The reasons for low standard deviation and average management efficiencies can also be

traced to the fact that the infrastructure funds are highly diversified with in the sector as

the average top 5 holding accounts for nearly 28% of total assets (table 4.13). It is good

example of risk diversification with in the sector when the sector itself is passing through

tough time.

Table 4.13

Infrastructure Funds: Portfolio Compositions

Sl. No. Fund Name Top 5

Holdings (%)

1. AIG Infrastructure and Economic Reform Inst 30.28

2. AIG Infrastructure and Economic Reform Reg 30.28

3. Birla Sun Life Infrastructure 21.09

4. Canara Robeco Infrastructure 28.91

5. DSPBR T.I.G.E.R. Inst 17.29

6. DSPBR T.I.G.E.R. Reg 17.29

7. Escorts Infrastructure 26.06

8. HDFC Infrastructure 35.61

9. ICICI Prudential Infrastructure 29.20

10. ICICI Prudential Infrastructure Inst I 29.20

11. L&T Infrastructure 21.15

12. LIC Nomura MF Infrastructure 35.55

13. Religare Infrastructure 28.42

14. Sahara Infrastructure Fixed Pricing 16.52

15. Sahara Infrastructure Variable Pricing 16.52

16. SBI Infrastructure Fund Series 1 33.22

17. Tata Growing Economies Infrastructure Plan B 21.67

18. Tata Indo Global Infrastructure 21.15

19. Tata Infrastructure 25.10

20. Taurus Infrastructure 28.62

21. UTI Infrastructure 25.58

Average 28.05

(Compiled by the researcher, data sourced from Value Research)

It is also a recognized fact that infrastructure need in India is clearly outpacing the supply.

Infrastructure deficit has been glaring and impeding India’s growth story. And to achieve

and sustain the high growth rate (of above 8%), India needs to show remarkable

improvements in the quality of infrastructure. According to World Economic Forum, “India

requires infrastructure investment of $1 trillion over five years starting in April 2012 as it

aims to boost economic growth to 10%”.

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4.2.4. Energy Funds

Energy mutual funds offer an attractive opportunity to investors with a long term horizon

since they represent a stable industry with a bright future. The demand for energy

continues to rise steadily and this is particularly true for nations growing at a rapid pace

specially India. Along with this trend, the pressure on natural resources which is harnessed

to provide energy and related services has also increased considerably. With the

advantages of professional management and well diversified portfolios mutual funds are

the most viable route to invest in this sector.

In India, the private Investment in the power sector was allowed the post-liberalization

era after 1991 (after amending the energy laws). At present 100% Foreign Direct

Investment is permitted for projects relating to electricity generation, transmission and

distribution (other than atomic reactor power plants), without refraining them from any

limit on the project cost and quantum of FDI. All these moves fuel power sector reforms in

India and make this sector as promising one. The nature of this sector remained long term

and the companies in this segment have been defensive. A comparison of BSE Power and

BSE Sensex (Figure 4.4) shows that the volatility in the BSE power is less as compared to

BSE Sensex.

Figure: 4.4: Performance of BSE Power vis-à-vis BSE-Sensex

(Compiled by the researcher; data sourced from BSE India and Value Research Online)

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The table 4.14 reveals that barring "DSPBR Natural Resource & New Energy Fund", most

energy funds have delivered absolutely uninspiring returns in 3 years time frame. Whereas

on an average these funds have delivered average returns of 21.86, 13.57 and 36.99

percent for last 3, 5 and 7 years respectively. Moreover, this category average has not been

able to outperform broader indices such as S&P CNX Nifty for last 3 years returns.

Table: 4.14

Energy Funds: Return Analysis

Sl. No.

Name of the Fund

Returns

3 years

(%)*

Returns

5 years

(%)*

Returns

7 years

(%)*

1. DSPBR Natural Resources and New Energy Reg 35.07 -- --

2. Escorts Power & Energy 6.47 -- --

3. Reliance Diversified Power Sector Retail 17.61 13.57 26.99

4. Reliance Natural Resources Retail 25.14 -- --

5. Sahara Power & Natural Resources 27.44 -- --

6. Sundaram Energy Opportunities 19.41 -- --

7. UTI Energy 20.00 -- --


S&P CNX Nifty (Market Index) 25.93 7.47 16.87



When the funds are analyzed on their volatility front, Sahara Power & Natural Resources

Fund and Sundaram Energy Opportunities exposed the investors with relatively higher

level of risk as compared to most of other funds (as revealed by their Standard Deviation in

table 4.15), whereas risk-adjusted returns (as revealed by their Sharpe Ratio) generated by

them are also quite unappealing. Only DSPBR Natural Resources and New Energy Fund

managed to provide sufficient risk adjusted returns (Sharpe ration being 0.62).

The overall situation is also not quite good as average risk adjusted returns are 0.25

(table 4.15) which cannot be up to the expectation of any investor. In general, the

economic data encourage the investors about the bright future of energy sector but still

the mutual funds of this sector are not performing up the mark. Probably the main reason

for the underperformance of these energy funds (as many governmental and expert

reports say) is that the companies which they invested in seemed to be suffering with

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problems such as unavailability of fuel. This in turn has also led some Indian energy sector

companies to look beyond the domestic boundaries for their resources. Moreover, many

companies are also facing problems on the land acquisition and environment clearance

issues. The new Bill relating to land acquisition continues to face political opposition,

where it provides for acquisition by project development agencies to the extent of 70% of

the land required for a project, with the balance to be obtained by the Government. All

these factors (amongst others) are leading to delay in project execution, which is reflecting

on the performance of the stock prices of energy sector companies and therefore causing

lower returns for sectoral funds.

Table: 4.15 (A)

Energy Funds: Risk Analysis

Sl. No. Name of the Fund Standard

Deviation

Sharpe


1. DSPBR Natural Resources and New Energy Reg 27.1 0.62 0.80 0.84 0.9

2. Escorts Power & Energy -- -- -- -- --

3. Reliance Diversified Power Sector Retail 31.39 0.12 1.0 0.98 0.91

4. Reliance Natural Resources Retail 27.91 0.16 0.9 0.88 0.92

5. Sahara Power & Natural Resources 34.02 0.34 1.1 1.05 0.88

6. Sundaram Energy Opportunities 34.23 0.13 1.0 1.03 0.85

7. UTI Energy 27.61 0.14 0.87 0.87 0.92


S&P CNX Nifty (Market Benchmark) 39.54 -- -- -- --



Research Online)

Energy funds have failed to power their investors' portfolio on the risk adjusted return

front. While some have fancied on investing in companies beyond the energy theme, they

haven't been able to accentuate their performance. The systemic problems (as seen in

table 4.14 and 4.15) faced by the sector also poses to be risk and hinders capital

appreciation.

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Table: 4.15 (B)

Energy Funds: Data Envelopment Analysis Values

Sl.

No. DMU Score %Cash TurnR ExpR FrontL DefrdL 3YAR 5YAR 7YAR NetAsst

1. DNRNER 1 2.08 64 2.3 0 0 35.07 -- -- 141.4

2. EPE 0.368157 4.8 15.35 2.5 0 0 6.47 -- -- 1.4

3. RDPSR 1 5.76 13 1.82 0 0 17.61 13.57 26.99 2,854.40

4. RNRR 0.710777 1.32 54 1.87 0 0 25.14 -- -- 1,992.90

5. SPNR 1 9.03 65.51 2.5 0 0 27.44 -- -- 4.1

6. SEO 0.73592 5.51 129 1.94 0 0 19.41 -- -- 984

7. UE 1 3.95 21.26 1.64 0 0 20 -- -- 411.8

Average 0.83069343 4.64 51.73 2.08 0 0 21.59 13.57 26.99 912.86


On the other hand, the scores of data envelopment analysis points out towards the

reasonable efficiency levels of energy funds with category average of 0.83 which is quite

high. Therefore, it can be inferred that the fund managers have managed the ratio of input

costs and output returns considerably well but as the whole sector is suffering from the

lower growth, the funds were bound to perform poor.

4.2.5. Pharmaceutical Funds

Last three years have been quite eventful for the global economy and financial markets.

The economic recovery in the U.S. led by its ballooning debt-to-GDP ratio (of nearly 98%),

dwindling economic growth rate along with a debt-overhang situation in the Euro zone has

impacted the Indian markets. India has escaped relatively unscathed, but many sectors

have suffered severely during the downturn.

Sectors such as real estate, power and capital goods which were the investors’ favorites

in the last few years have been completely gone out of priority lists. However

pharmaceutical sector has been the only sector which has been held up during this

descending trend of the Indian equity markets (see figure 4.5), thereby proving to be

defensive and thus taking care of the health of investors’ portfolio.

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Figure: 4.5

Performance of BSE Health Care vis-à-vis BSE 100 and BSE Reality

(Base: Rs 100, Source: BSE website, PersonalFN Research)

Actually, over last 3 years time frame, BSE Healthcare index has landed in the top 3

performing indices after encouraging performance by banking and financial services sector

(due to cautious policy measure adopted by Reserve Bank of India) and auto sector (due to

promising consumption story in India). This epic success of pharmaceutical funds is mainly

credited to the intrinsic strengths of the Indian pharmaceutical industry. The Indian

pharmaceutical industry ranks 3rd across the world in terms of volumes and 14th in terms of

value in accordance to the latest data published by departments of Pharmaceuticals,

India.99

Table: 4.16

Pharmaceutical Funds: Return Analysis

Sl.


Returns

3 years

(%)*

Returns

5 years

(%)*

Returns

7 years

(%)*

Returns

10 years

(%)*

1. Magnum Pharma 34.88 5.16 12.88 20.97

2. Reliance Pharma 49.61 23.01 25.66 --

3. UTI Pharma & HC 33.01 13.76 15.14 18.37


BSE-HC (Sector Benchmark) 30.42 11.2 13.28 17.43




99

“The anti-ageing formula of pharma mutual funds”, http://www.personalfn.com/knowledge-center/FullStory/

11-09-20/ The_anti-ageing_formula_of_pharma_mutual_funds.aspx, (20-Sep-2011) Last accessed May 2012

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When we judged the individual performance of Pharma funds, they were found

accelerated on the return front across all time frames. The average performance over 3, 5,

7 and 10 years time frame was above the sector benchmark as well as market index (table

4.16). Reliance Pharma Fund has topped the category by delivering returns of 49.61%,

23.01% and 25.66% over the 3, 5 and 7 years time frame, followed by Magnum Pharma at

the second position. UTI Pharma & Healthcare however have been average performers,

especially over 5 and 7 years time frame.

Interestingly while most funds have delivered appealing returns, so far they haven’t

exposed their investors to a very high risk (as revealed by their Standard Deviation) thereby

leading them to provide luring risk-adjusted returns (as revealed by their Sharpe Ratio).

Funds’ standard deviation varies between 22.04 and 32.55 (table 4.17), which is good and

less risky than BSE-Health Care and S&P CNX Nifty. The risk adjusted performances are also

remarkable as compared to other sectoral funds. Reliance Pharma stands again the top

fund with medium standard deviation (28.75) and highest Sharpe ratio (1.02). While UTI

Pharma & HC along with Magnum Pharma, also did well as compared to other sectoral

counterparts.

Table: 4.17

Pharmaceutical Funds: Risk Analysis

Sl.


Standard

Deviation*

Sharpe

Ratio* Beta Alpha R-Square

1. Magnum Pharma 32.55 0.52 1.2 0.03 0.80

2. Reliance Pharma 28.75 1.02 1.0 14.7 0.76

3. UTI Pharma & HC 22.04 0.73 0.9 3.58 0.95


BSE-HC (Sector Benchmark) 37.30 -- -- -- --




Research Online)

Being sector funds, Pharma funds have followed a top-down approach, but the market cap

bias is different in each fund. For instance Reliance Pharma Fund which has accelerated on

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the returns has maintained a balance between allocating towards large caps and midcaps

and diversified to a great extent, keeping its top 5 holding percentage as low as 43.01%.

Whereas UTI Pharma & Healthcare Fund adopted a more defensive stance by

predominantly holding their top 5 assets in the large cap domain with allocation rate of

52.76%.

Table: 4.18

Pharmaceutical Funds: Analysis of Portfolio Compositions

Sl. No. Fund Name Top 5 Holdings

(%)

1. Magnum Pharma 53.47

2. Reliance Pharma 43.01

3. UTI Pharma & Healthcare 52.76

Average 46.78


Because of their high performance on the scale of annualized returns, lower standard

deviation and higher risk adjusted returns, the higher level of portfolio efficiency rate was

expected. And this came to be as per the data envelopment analysis values, which came

out to be 1 for all three prevailing funds as on date (table 4.19).

Table: 4.19

Pharmaceutical Funds: Data Envelopment Analysis Values

Sl.

No. DMU Score %Cash TurnR ExpR FrontL DefrdL 3YAR 5YAR 7YAR 10YAR NetAsst

1. MP 1 4.08 31 2.5 0 0 34.88 5.16 12.88 20.97 41.56

2. RP 1 2.05 9 2.23 0 0 49.61 23 25.66 -- 603.2

3. UPH 1 7.38 60.47 2.09 0 0 33.01 13.8 15.14 18.37 95.6

Average 1 4.51 33.49 2.27 0 0 39.17 13.99 17.89 19.67 246.79


The Pharma funds are attributed to be lower on the scale of turnover ratio and moderate

on the part of expense ratio. Hence it can be expected that while an investor may want to

take opportunities present in the Pharma sector, he/she should choose such funds to be an

essential part of his investment portfolio.

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4.2.6. Service Funds

In laws few months, Indian telecom industry has been in limelight for possibly all wrong

reasons. But by such news, nothing can be taken away from the success it has achieved by

growing rapidly in relatively a short period of time. With a subscriber base of 865.71million

as per the records of telecom regulator – Telecom Regulatory Authority of India (TRAI),

India ranks second in terms of number of telephone users in the world. Similarly, the IT

industry also, which has been a leading industry in India’s growth story, which has earned

immense respect for itself over last two decades across the globe. But Moreover, because

the services industries theme is far broad and comprises of many other sectors such as

Banking, Non-Banking Financial Companies (NBFCs), Financial Services firms, Information

Technology, Telecom Services, Power, Shipping, Media, and Education & Training are few

to quote.

Figure 4.6

Sector wise constituents of CNX Service Sector index

(Data as on September 30, 2011; Representation to hotels is miniscule 0.46%)

(Source: NSE, PersonalFN Research)

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While population has always been interpreted as major threat, interestingly this growing

population has played a vital role in the growth of services industries theme. It is

remarkable that India’s demographic study reveals that the country has a large young

population (as compared to developed economies), where large pool of young talented

population works in the aforementioned services industries theme. As a result, the services

industry theme has shown a stable growth of 6.7% in the span of last 10 years. Moreover,

in post liberalization era- i.e. for the period 1993 to 2003, the growth rate posted by the

theme has accelerated to 8.2% and thereafter until recently has recorded a double-digit

growth of 10% year-on-year as per the records of Ministry of Finance.

Initially (at the time of inception) in 2001, while most fund houses acquired large AUMs

under this theme, the recessionary phase witnessed in 2008 until March 2009, forced

many investors to exit from the theme in difficult situation thus resulting in AUMs decline.

After witnessing a high in AUM of 1,918 (for all the aforementioned 4 funds) as on

December 31, 2007100, the same stands at barely 588 Crores as on September 30, 2011,

as panic selling led to investors exit from their investments.

The figure (4.7) below reveals that the CNX Service Sector Index which is used to

benchmark the performance of the companies in the services industries theme, over a

decade’s time period has not only outperformed broader index S&P CNX Nifty by a good

margin, but also it has fall down in the bearish equity markets. Moreover, in the recovery

phase of the Indian equity markets it accelerated much faster than the S&P CNX Nifty

index.

100

“Service Industry MFs: Have they served you well?”, http://www.personalfn.com/knowledge-center/FullStory/

11-11-14/Service_Industry_MFs_Have_they_served_you_well.aspx, (14-Nov-2011), Last accessed May 2012

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Figure: 4.7

S&P CNX Nifty vs. CNX Service Sector

Data as on September 30, 2011 (Source: ACE MF, PersonalFN Research)

As far as the performance of services sector industries funds is concerned, the return

generated by them over 3 years time frame are quite attractive as the average

performance of the funds is just equal to that of market index. Whereas in last 5 years

category, most of the funds have given disheartening results at 4.02% of average returns

which is quite below the market index. On the volatility front too, all services industries

funds have kept their risks in moderate to high level category (as revealed by their

Standard Deviation), which have helped by them to maintain just below average risk-

adjusted returns (as revealed by their Sharpe Ratio) which are not too attractive but also

not too disappointing.

Table: 4.20 Service Funds: Return Analysis

Sl.

No.

Name of the Fund

Returns

3 years

(%)*

Returns

5 years

(%)*

Returns

7 years

(%)*

Returns

10 years

(%)*

1. ICICI Prudential Services Industries 26.25 4.44 -- --

2. Principal Services Industries 23.58 3.17 -- --

3. Tata Service Industries 26.64 4.47 -- --

4. UTI Services Industries 26.06 4.00 13.81 20.45


S&P CNX Nifty (Market Index)

25.93 7.47 16.87 18.48



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Table: 4.21 Service Funds: Risk Analysis

Sl.

No.

Name of the Fund Standard

Deviation

Sharpe


1. ICICI Prudential Services Industries 30.99 0.28 0.99 0.96 0.94

2. Principal Services Industries 26.62 0.3 0.84 1.54 0.92

3. Tata Service Industries 37.10 0.32 1.14 2.91 0.88

4. UTI Services Industries 28.68 0.3 0.90 1.71 0.92





Research Online)

But if we assess the service category funds over the fund management efficiency measure

through data envelopment analysis, it can be concluded that except ICICI Prudential

Services Industries and Tata Service Industries, the other two funds achieved the high score

of 1 which means they are proficient in managing input costs and resulting returns

effectively.

Table: 4.22 Service Funds: Data Envelopment Analysis Values

Sl.


1. IPSI 0.814375 4.15 79 2.38 0 0 26.25 4.44 -- -- 187

2. PSI 1 0.91 52 2.49 0 0 23.58 3.17 -- -- 82.8

3. TSI 0.566885 1.77 28 2.46 0 0 26.64 4.47 -- -- 97.6

4. USI 1 3.61 21.19 1.57 0 0 26.06 4 13.81 20.45 245.5

Average 0.845315 2.61 45.05 2.23 0 0 25.63 4.02 13.81 20.45 153.23


Speaking about the portfolio characteristics, being thematic in nature most services

industries funds hold a concentrated portfolio. As per the latest disclosed fund-facts, as on

September 30, 2011 the allocation to top-10 stocks has been in the range of 48.7% to

62.9%, while the allocation to top 5 sectors has ranged from 53.0% to 79.0%. But an

interesting point is that despite having on an average 35 stocks in the portfolio, the

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churning across schemes has been moderate with a portfolio turnover ratio ranging

between 21 percent to 79 percent (see column 5: TurnR of table 4.22). While services

industries funds so far have delivered average returns around market benchmark, we

believe that the limited domain for stock selection sometimes exposes them to portfolio

concentration risk and even high churning. While many have preferred to invest in services

industries funds to ride the boom but they have suffered because of high portfolio

concentration risk when detrimental economic factors took place which negatively

affected the theme.

4.2.7. Technology / IT Funds

Technology has increasingly become an integral part of our daily lives and the future

prospects of this sector seem to be brighter. However, the boom of technology funds in

the late nineties and their subsequent downfall during the decline has invoked a certain

degree of doubt even among bullish periods on this category. But for investors seeking

aggressive growth in long term, investing in funds that focus on technology and innovation

could be a sensible option in times to come. As of today, after a decade, if we assess the

contribution which the Indian IT industry has made, it has participated immensely to

India’s economic progress. It has witnessed astronomical growth in last two decades and a

few million $ industry is now worth approximately $76 billion.101 Moreover, technological

innovations and ability to execute critical projects has won the respect for Indian software

companies worldwide. Also, it enjoys dominance in the sectoral breakup of BSE SENSEX

and plays an important role in the index movement.

Interestingly, even during downturn of the Indian equity markets in 2008 (until March

2009), the Indian IT sector has displayed good elasticity, along with a smart recovery during

the re-growth of the Indian equity markets, thus leaving investors’ in the IT sector (who

invested even during the high of 21,000 of the market) to earn profits.

101

“Is falling rupee making Tech funds attractive?”, http://www.personalfn.com/knowledge-center/FullStory/

11-11-28/Is_falling_rupee_making_Tech_funds_attractive.aspx, (28-Nov-2011) Last accessed May, 2012.

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Figure: 4.8

BSE IT vs. BSE SENSEX

(Source: BSE India, PersonalFN Research)

However the performance of technology mutual funds reveals that, in all the returns

categories 3, 5, 7 and 10 years they have just performed slightly better than the sector

benchmark BSE-IT. ICICI Prudential Technology performed best in terms of 3 years

annualized returns category while DSPBR Technology.com dominated the rest 5, 7 and 10

years time frame.

Table: 4.23 Technology Funds: Return Analysis

Sl.


Returns

3 years

(%)*

Returns

5 years

(%)*

Returns

7 years

(%)*

Returns

10 years

(%)*

1. Birla Sun Life New Millennium 21.87 0.83 12.83 20.53

2. DSPBR Technology.com Reg 27.18 8.62 18.27 25.55

3. Franklin Infotech 33.09 4.38 13.83 20.99

4. ICICI Prudential Technology 39.13 6.00 16.12 21.69

5. Magnum IT 30.39 1.68 14.54 18.17


BSE-IT (Sector Benchmark) 29.32 3.79 13.43 18.09




Being thematic funds in nature they have displayed more or less same volatility as

compared to BSE IT index, and in case of risk-adjusted returns. Two funds ICICI Prudential

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Technology and Franklin InfoTech provided fair returns while the rest funds remained just

around the category average.

Table: 4.24 Technology Funds: Risk Analysis

Sl.


Standard

Deviation

Sharpe

Ratio Beta Alpha R- Square

1. Birla Sun Life New Millennium 30.00 0.19 0.9 -9.01 0.64

2. DSPBR Technology.com Reg 29.08 0.35 0.9 -4.58 0.68

3. Franklin InfoTech 27.14 0.68 1 1.8 0.99

4. ICICI Prudential Technology 30.75 0.56 1 1.18 0.74

5. Magnum IT 34.19 0.37 1.1 -5.5 0.75

Category Average 30.232 0.43 0.9 -3.22 0.76

BSE-IT (Market Benchmark) 39.54 -- -- -- --



Research Online)

The study of data envelopment analysis suggests that the Technology funds have not been

too good in managing input and output ratio of funds. Only two funds could achieve the

rating of highly efficient portfolio (ICICI Prudential Technology and Franklin InfoTech).

While rests of the funds were found to less efficient as their efficiency scores were less

than 1 (see table 4.25).

Table: 4.25 Technology Funds: Data Envelopment Analysis Values

Sl.


1. BSLNM 0.575114 4.38 18 2.5 0 0 21.87 0.83 12.83 20.53 48.93

2. DTR 0.796602 0.9 98 2.48 0 0 27.18 8.62 18.27 25.55 55.2

3. FI 1 2.11 1.31 1.47 0 0 33.09 4.38 13.83 20.99 115

4. IPT 1 8.3 11 2.49 0 0 39.13 6.00 16.12 21.69 99.5

5. MI 0.618187 5.48 7 2.5 0 0 30.39 1.68 14.54 18.17 40.4

Average 0.797981 4.24 27.06 2.29 0 0 30.33 4.30 15.12 21.39 71.81


Although the performance of Technology Funds today is not that attractive as it seemed to

be 5 or 7 years back but still those Indian IT companies which are run by the efficient

managements will find out ways of dealing with challenges faced by the industry and IT

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may still remain a dominant sector in the Index. But a noteworthy point is that the IT

industry derives 90% of its revenues by providing technological services to overseas clients

- majorly from US and Europe, and is thus subject to pitfalls of broader global economic

headwinds such as currency volatility, slowdown in western economies and lesser IT

spending among others.

4.2.8 Other Sector Based Funds

Except the major sectoral funds such as Banking, FMCG, Infrastructure, Energy,

Pharmaceutical, Service and Technology / IT, there are some other thematic funds also

that follow the strategies of sectoral funds. Such funds include Lifestyle, Consumer

Oriented funds, Media and Entertainment, PSU, Rural Focus, Transportation, Life Sciences,

and MNC etc.

Table: 4.26

Other Sector Funds: Return Analysis Sl.

No.

Name of the Fund

Returns

3 years

(%)*

Returns

5 years

(%)*

Returns

7 years

(%)*

Returns

10 years

(%)*

1. Birla Sun Life Buy India 32.95 8.97 21.74 23.74

2. Birla Sun Life India GenNext 29.11 11.37 -- --

3. Birla Sun Life India Opportunities 24.32 -0.93 9.63 --

4. Birla Sun Life MNC 40.74 12.3 20.51 24.38

5. JM Basic 10.72 -7.11 -- --

6. Magnum COMMA 28.48 8.39 -- --

7. Reliance Media & Entertainment 27.2 5.34 14.6 --

8. Sahara R.E.A.L 15.17 -- -- --

9. Sundaram CAPEX Opp Reg-D 15.06 3.12 -- --

10. Sundaram CAPEX Opp Reg-G 14.9 3.38 -- --

11. Sundaram Entertainment Opportunities Ret 9.42 -- -- --

12. Sundaram Rural India Reg 26.1 5.84 -- --

13. Tata Life Sciences & Tech 35.76 8.33 18.19 23.07

14. UTI India Lifestyle 27.48 -- -- --

15. UTI MNC 36.28 12.55 19.59 22.42

16. UTI Transportation and Logistics 41.95 7.47 15.56 --





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Among these funds, in 3 years return category, UTI Transportation and logistics along with

two MNC Funds: Birla Sun Life MNC and UTI MNC have been the top three performers with

41.95%, 40.74% and 36.28% returns respectively. These returns are at par with that of

other major types of funds discussed earlier. While in the longer run (5, 7 and 10 years

time frame), again MNC funds along with Buy India, Gen-Next, Life Sciences funds have

performed significantly better as compared to other funds.

As most of these thematic funds own little wider investment portfolio, their

performance seem to be little similar to diversified market index S&P CNX Nifty (as shown

in figure 4.26). In the 3, 5 and 7 years category the overall average matches the

performance of the index whereas in 10 years category, the average of two MNC funds

along with Buy India and Life Sciences has over performed the index returns.

Table: 4.27

Other Sector Funds: Risk Analysis Sl.

No.

Name of the Fund Standard

Deviation

Sharpe

Ratio Beta Alpha

R-

Square

1. Birla Sun Life Buy India 29.43 0.53 0.92 8.46 0.91

2. Birla Sun Life India GenNext 24.02 0.53 0.74 7.15 0.87

3. Birla Sun Life India Opportunities 31.09 0.27 0.96 1.06 0.88

4. Birla Sun Life MNC 23.88 0.92 0.72 16.3 0.84

5. JM Basic 51.92 -0.14 1.58 -19.3 0.86

6. Magnum COMMA 30.58 0.31 0.97 2.15 0.93

7. Reliance Media & Entertainment 35.16 0.25 1.03 0.80 0.80

8. Sahara R.E.A.L 25.72 0.23 0.71 0.37 0.70

9. Sundaram CAPEX Opp Reg-D 40.31 0.16 1.15 -2.47 0.76

10. Sundaram CAPEX Opp Reg-G 39.51 0.16 1.13 -2.36 0.76

11. Sundaram Entertainment Opportunities Ret 32.06 0.20 0.82 -0.02 0.61

12. Sundaram Rural India Reg 31.39 0.31 0.96 2.39 0.88

13. Tata Life Sciences & Tech 28.42 0.68 0.86 12.7 0.85

14. UTI India Lifestyle 22.96 0.56 0.72 7.16 0.93

15. UTI MNC 20.66 0.98 0.63 15.4 0.86

16. UTI Transportation and Logistics 28.88 0.82 0.76 0.77 0.92





Research Online)

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On the parameters of risk and risk-adjusted returns, MNC funds topped the race for

providing maximum risk adjusted returns. The volatility (standard deviation) is also quite

low, which makes such funds a better choice for an investor who is ready to take only

moderate risk to achieve higher gains. The overall average of risk for all funds is also quite

low at 31.00 as compared to market index at 39.54 percent. The lower standard deviation

and higher alpha values (with the average of 3.17) indicates that these funds carry lower

risk in comparison to market index but provides 3.17% more returns over the index.

4.3 CONCLUSION

After analyzing the sector wise performance of each category of sectoral funds on the

parameter of 3, 5, 7 and 10 years of performance, it can easily be concluded that few

sectors and some specific mutual fund houses have made a mark through such types of

funds. Although it is hard to establish any trend among the performances of specific

sectors or time frame with the sectors but surely few sectors such as Banking, FMCG,

Pharmaceuticals, MNC and Transportation have performed very well in the past. Banking

funds have proved their importance and maintained the significance in the economy and

also in the portfolio of an investor. Their performances in long run (7 to 10 years time

frame) have been superior with lower risk. FMCG and Pharmaceutical funds happen to be

like evergreen sectors and similarly their sectoral funds too. Whether it is the case of short

or medium term performance (3 to 5 years) or long term (7 to 10 years) most of FMCG and

Pharma funds have over performed the sectoral benchmarks and market indices.

On the other hand, the performance of Technology, Lifestyle and Service sector funds

has been just up to the standard. They have not significantly and consistently

outperformed the sectoral benchmarks and market indices over different time frames.

Funds such as Infrastructure, Entertainment, Energy (in short run) and Basic Industry have

really disappointed the investors despite their scope and importance in the economy. Such

funds could not even attain the performance standard set by market indices and respective

industry benchmarks.

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Chapter 4 – Performance of Sectoral Funds in India...

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