The bull run on Dalal Street remains strong as ever despite all the talk and unease regarding monetary tapering by the United States Federal Reserve and rising inflation and bond yields.
The benchmark BSE Sensex is up 3.6 percent during October so far, better than the 2.7 percent rise during September. The Sensex has appreciated at the rate of 2 percent on average every month in the last two years. So the market momentum remains intact and there is a high probability of the index making a fresh new high either later this month or the next.
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The mid and small-cap stocks are once again under pressure after a forceful attempt by the BSE mid-cap and BSE small-cap index to outperform the benchmark in October.
The BSE mid-cap and small-cap index corrected by 1.91 percent and 2.31 percent on Wednesday compared to just a 0.74 percent decline in Sensex. Before Wednesday's fall, the mid-cap and small-cap index had outperformed the Sensex during the month after a relatively poor show during July to September.
But it will be tough for the mid and small universe to outperform large caps given that the rising commodity and energy price and higher interest rates which will have a bigger impact on the earnings of smaller companies than industry leaders.
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The changing market dynamics is also visible in the performance of equity mutual funds. Till two weeks ago, the small and mid-cap focussed funds were the top performers by a big margin, but the advantage has now shifted in favour of large-cap stocks. While the mid-cap and small-cap funds still dominate the league table if one looks at one-year returns, the picture changes completely if one views the trends in the last three months.
Here are 10 equity mutual funds that have done the best in the last six months and show the promise to do well in the near future as well.
1. At the top of the league table is Baroda Large & Mid-Cap Fund. A relatively new fund with assets under management (AUM) of Rs 642 crore at the end of September 2021, the fund has topped the charts with 22 percent returns in the last three months and nearly 40 percent returns in the last six months.
As the name suggests it invests both in large and mid-cap stocks and is calibrated in its risk exposure. The fund has a P/E multiple of 54X which is nearly 60 percent higher than Sensex P/E of 32X but scores high with one of the lowest expense ratios in the industry at 0.93%.
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2. Baroda Multi-Cap Fund is at the second spot with 21.6 percent returns in the last six months and 44 percent returns in the last six months. It’s a fairly old fund with an AUM of Rs 1156 crore. It’s a multi-cap fund but has a diversified portfolio among industry leaders in IT, private sector banks and oil & gas that is likely to serve it well in the current environment. It reported a P/E of 48X and an expense ratio of 1.51 percent at the end of September which is in line with industry averages.
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3. Aditya Birla Sun Life ESG Fund is at the third spot with three and six months returns of 21 percent and 38.3 percent respectively. Launched just six months ago, it has garnered an AUM of Rs 1116 crore and seeks to invest in companies that are likely to do well due to special circumstances and also seeks to make contrarian investment calls.
Right now its portfolio is dominated by large and mid-cap stocks and private sector banks. It’s a richly valued fund with a P/E multiple of 68X but scores on expense ratio which is a low 0.25%.
4. At the fourth spot is Motilal Oswal Mid Cap 30 Fund. An old scheme with AUM of Rs 2366 crore, it is up 21 percent in the last 3-months and 43 percent in the last 6-months. Its score on expenses ratio is just 0.83 percent but it is richly valued with a P/E multiple of 90X that looks risky in the current market.
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5. Next is ICICI Prudential Large & Mid Cap Fund. The fund is up 20 percent in the last three months and 39 percent in the last six months. An old fund, it reported an AUM of Rs 3825 crore at the end of September. It scores on valuations with a P/E multiple of 37X and its expense ratio of 1.3 percent is also on the lower side. Its portfolio is tilted towards resources and energy firms and could be a good inflation play.
6. ICICI Prudential India Opportunities Fund is at the sixth spot with 19 percent returns in 3 months and 40 percent returns in the last six months. It’s a well-established fund with an AUM of Rs 4300 crore at the end of September. The fund scores on valuation with a P/E multiple of only 31X - among the lowest in the industry. Its expense ratio at just 0.68 percent is also among the lowest in the industry. The fund can be used as a good play on the inflation theme given its portfolio mix.
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7. Another fund that investors can consider is the Axis Focused 25 Fund that is up 19 percent in the last 3-months and 34 percent in the last 6-months. But it’s a risky bet with a P/E of around 101X.
8. ICICI Prudential Dividend Yield Fund is coming next with three-month returns of 19 percent and six-month returns of 41 percent. It scores on valuation with a P/E of 42X and could be a good inflation bet.
9. At the ninth spot is HSBC Focused Equity Fund that is up 19 percent and 33 percent in the last 3 and six months respectively.
10. Union Large and Mid-cap Fund is at the tenth spot with three and six-month returns of 19 percent and 38 percent respectively.
(Advice: This article is for information purpose only. Readers are advised to consult a certified financial advisor before making investment in any of the funds or securities mentioned above.)
(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist).
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