India's actively managed diversified equity funds turned in their best annual returns in four years, fired by a sustained multi-year bull run in the domestic stock market, in 2007.
These funds rose an average 55.97 per cent with nearly three fourth of the funds doing better than the 47.15 per cent gain of India's benchmark BSE index in 2007, data from global fund tracking firm Lipper showed.
"2007 turned out to be a momentous year for equity funds in India, with the broader market faring well," Dhruva Raj Chatterji, research analyst at Lipper, said.
Equity funds posted their last best annual performance in 2003, with an average return of 103.4 per cent.
"Themes and sectors such as infrastructure, capital goods, banking and financial services, metals, mid cap and small cap were the flavour of the year and funds with higher exposure to these segments managed to outperform," he added.
The BSE Mid Cap and BSE Small Cap indices rose 68.63 per cent and 93.67 per cent respectively in 2007 and helped funds, which kept 40-48 per cent of their assets in such stocks, outperform.
"They always do well when the two segments outperform," Suraj Saraf, senior analyst with fund tracking firm ICRA Online Ltd, said.
In 2006, when the two indices were up only 31.13 per cent and 15.97 per cent respectively, compared with 46.7 per cent rise in the benchmark index, nearly eight out of ten Indian equity funds had underperformed.
Analysts also attributed the outperformance in 2007 to funds' big exposure to performing sectors such as metals, construction, capital goods, energy and banking. Equity funds invested nearly 62 per cent of their assets in such sectors at November-end.
Timely exit from out-of-favour sectors such as tech and auto helped. While the BSE IT index lost 14.1 per cent, the BSE Auto index rose only 2.7 per cent in 2007. Funds nearly halved exposure to them between January and November.
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