* India diversified stock funds rise 6 pct in June
* Improving global, domestic outlook boosts shares
* Exposure to banks, capital goods sectors helps
By Aditya Kalra
NEW DELHI, July 3 India's diversified stock
funds posted their strongest gains in five months in June,
reversing a bleak performance in May on improving global
sentiment and domestic reform hopes, scoring big gains in the
capital goods and financial sectors.
Fresh measures to ease the euro zone crisis, signs the
government may revisit economic reforms and efforts to provide
clarity on a tax proposal that had panicked foreign investors
helped push the benchmark BSE index up 7.5 percent in
June to a near two-month closing high.
Diversified equity funds, which form the largest category of
mutual funds in India by number and assets, returned an average
6.01 percent in June, data from fund tracker Lipper, a Thomson
Reuters company, showed. In May, these funds fell 5.65 percent.
(For a table of mutual fund returns, double-click
"The worst appears to be over and probably July will be a
month of consolidation," said R K Gupta, managing director at
Taurus Mutual Fund, adding that the outlook has improved from
"There is limited downside risk now".
After taking charge of India's finance ministry, Prime
Minister Manmohan Singh managed to restore some market
confidence, saying he wanted to revive the economy's "animal
spirit" and would make investor sentiment a top
Even though rating agencies Standard & Poor's and Fitch have
threatened to downgrade India's rating to junk on worries about
slowing growth and policy inaction, lower stock valuations
prompted brokerages like JP Morgan and Deutsche Bank to upgrade
Indian stocks during the month.
BANKS, CAPITAL GOODS BOOST
Sectoral bets by some Indian money managers also helped
mutual funds in June.
Gains in the capital goods sector, which according to
Morningstar India data accounted for over 10 percent of mutual
funds' assets by end-May, supported net asset values as hopes
for new spending on infrastructure helped the sectoral index
jump 13.7 percent.
Shares in Larsen & Toubro, India's biggest
engineering conglomerate, surged 19 percent for the month, while
Bharat Heavy Electricals Ltd gained 9.6 percent.
Exposure to the financial services sector, fund managers'
top sectoral bet in India with an allocation of nearly 22
percent, also aided performance, with the BSE banking index
rising 9.4 percent.
Sector funds that bet solely on the financial services
sector generated a return of 9 percent for the month.
June's rally was mainly driven by large-cap stocks, but the
BSE mid-cap and small-cap indexes still posted
solid gains to rise more than 4 percent. Morningstar India data
showed funds held 41 percent of their assets in mid- and
small-cap stocks by end-May.
India's top performing funds in June were UTI Banking Sector
Fund and Goldman Sachs Infrastructure Exchange Traded Scheme,
both returning more than 10 percent.
Among other schemes, fixed income funds that invest in
government securities generated a 0.69 percent return on an
average, while India's gold ETFs ended almost flat.
(Reporting by Aditya Kalra; Editing by Richard Pullin)