Even as pure equity funds have borne the brunt of a sharp correction in markets, sectoral funds have managed to give double-digit returns over a one-year period, a report by Business Standard stated.
As per the report, returns of thematic funds, such as public sector undertaking (PSU), infrastructure, consumption, and information technology (IT) have fared well in this period as compared to the large-cap funds.
"In the past year, thematic PSU funds on average have given returns of 17.75 percent, the highest among all funds. Infrastructure funds and consumption funds have given returns of 14.21 percent and 12.22 percent, respectively," informed Business Standard, quoting data from Value Research.
However, pure equity funds, such as large-cap equity funds, have given returns of just 6.77 percent in this time and only small-cap funds have managed to give higher returns at 12.11 percent in the past year, it noted.
Market experts told BS that the attractive valuation and hope for privatisation have led to major rerating in PSU stocks adding that the government’s strong infrastructure push has led to a rally in the sector.
With a surge in returns, new investors are attracted to sectoral funds, said BS. The data from the Association of Mutual Funds in India shows that net assets under management of thematic funds stood at ₹1.49 lakh crore as of end-April, compared with ₹1.01 crore in April 2021.
Several top PSU stocks like NTPC, PowerGrid, and Oil and Natural Gas Corporation have given returns in the range of 35-42 percent in the past year, it further pointed out.
Among all equity funds in the mutual fund (MF) industry, central public sector enterprise exchange-traded funds have been the top performer, with returns of 40.26 percent in the past year, informed the report.
Meanwhile, the huge correction in technology stocks notwithstanding, the sector has continued to remain one of the top performers in the past year, it added. In the past three months, IT funds on average gave negative returns of 10.52 percent, but in the past year, it has generated positive returns of 11.56 percent, BS highlighted.
Further, ICICI Direct Research in a recent note stated, “prior to the recent correction, IT funds have been a consistent outperforming category since the past three years on the back of improved earnings growth and valuation rerating as investors foresee higher IT spends to lend higher growth visibility. While the IT sector has underperformed, many stocks still trade at premium valuations, compared to historical average despite recent correction”.