Mutual funds these days are in the news for virtually very other reason than performance. It's logical. Reports of downing (or downed) shutters, head honchos finding new fish to fry, proposed acquisitions, and the entry of new players in the arena are infinitely more exciting than the returns being dished out by most funds.

You can't blame the money managers of course, what with the stockmarkets uncomfortably ensconced at 2,900 levels for most of October and the first half of November.

The average performance of all equity funds was a negative 0.326 per cent as compared to the BSE Sensex, which generated a negative return of 0.35 per cent. The NSE's Nifty was down by 0.40 per cent. To the funds' credit, a little over 60 per cent of the schemes considered for this study managed over average returns, with approximately 47 per cent dishing out positive returns.

At the time of writing, the Sensex was threatening to vault into 3,000 territory, but a full-blown rally still appears as likely as a peripatetic punter pulling off a powerpoint presentation at a P3 party.

The scenario wasn't much different in October, either. Only the trends were different then, with most of the fund managers playing around with different permutations in that month. Several funds actually bought into Hindustan Petroleum despite the disinvestment brouhaha, the banking and pharmaceutical sectors found more takers, and the information technology services bandwagon took the beating of its life.

Today the public sector oil majors may be back on the buy list, but last month it would have been difficult to fathom why so many funds were hiking their holdings in these stocks at a time when the opponents of disinvestment were crawling out of the woodwork.

Now that they've crept back in (or have they?), the optimism of Alliance, DSP, Zurich, Birla Mutual Fund and IL&Fs to cosy up to HPCL and HDFC Mutual Fund, and Franklin to plump for BPCL has been borne up. HPCL continues to be the favourite, with many of the money managers picking up the stock when it was being hammered down because of the hi-jinks of the anti-disinvestment lobby.

Old Economy Attractions

Funds, meantime, also warmed up to the banking sector, with HDFC Bank, Karur Vysya, J&K Bank and State Bank of India entering the limelight. In fact, Alliance Mutual Fund increased its exposure to J&K Bank even as it reduced its holdings in HDFC Bank and Punjab National Bank.

The interest in this industry can only increase, what with many banks lining up initial public offerings. The pharma sector-particularly the research-driven Indian part of it-also caught the fancy of the major funds, with Ranbaxy being on top of most of their shopping lists. Franklin Templeton for its part preferred to increase its stake in Cipla, Dr Reddy's and Sun Pharma.

Two frontline stocks that were being battered to new lows virtually every day-Hindustan Lever and Reliance Industries-came back into the reckoning. Reliance of course was buoyed by its much-touted gas strike, and Lever should get another boost when Morgan Stanley increased the FMCG giant's weightage in the Morgan Stanley Capital Index.

Another long-time laggard, Zee Telefilms was being lapped up by Prudential ICICI, Tata and Cholamandalam, to name just three, and two-wheeler supremo Bajaj Auto made it to the portfolio of Prudential ICICI, Birla Mutual and Franklin Templeton. Grasim too was favoured by Franklin as well as Zurich.

IT On The Backburner

Probably taking a cue from their brethren in the West, fund managers got rid of plenty of it stocks, the main ones being Digital Globalsoft, HCL Technologies, Mastek and Polaris Software.

HCL Technologies' grim quarterly report card was the main reason for funds like Prudential ICICI, IL&Fs and Franklin Templeton dumping the stock with a vengeance. Amongst the few it stocks that were actually bought were i-flex and Satyam.

Stocks that also made it to the sell list include many that were actually being lapped up by other funds. For instance, Birla Sunlife, DSP Merrill, ING, Tata, Zurich and HDFC decided they'd had enough truck with BPCL. Alliance and Prudential ICICI preferred to book profits with Punjab National Bank. Alliance also reduced its exposure to Bajaj Auto and Bhel, with Franklin and IL&Fs adopted Alliance's sell strategy with Bhel. Franklin, Kotak and Zurich thought it prudent to reduce their holdings in ITC, and Alliance and Prudential trimmed their exposure to Dr Reddy's.

Without doubt, the show-stealers of October were from the petro sector, with Reliance and the public sector petro stocks helping funds generate decent returns. UTI Growth Sector Fund-Petro managed returns of 7.8 per cent last month, and JM Basic 7.03 per cent, which isn't bad considering the performance of the rest. JM Basic's decision to block over 63 per cent of its money in Reliance clearly paid off.

And with the Reliance stock still headed northward, who knows, November could be even better. Watch this space.