If economic indicators be the music of mutual funds (MFs), play on, sir, play on. The Indian markets, especially the equity markets, are showing strong signs of revival, buoyed by some cheering news on the domestic as well as foreign (read USA) front. After an extended bout of pain, this comes as a much-needed dose of relief.

Notes From The Ring

May has been a good month for Indian MFs, with the industry adding some strength to its otherwise depressed asset sheets. Investor interest has risen across financial markets, and with it, the industry's Assets Under Management (AUM). The debt market turned bullish, even as the equity market broke out of the bearish sentiment that had engulfed it for some time. In all, it was excitement time for players who had begun to doze off.

Like the mercury scale in the heat of summer, the indices have been inching northward. Good corporate results have been a big help, and the markets have responded positively to the gains in profits, although much of the extra bottomline money can be traced to treasury tactics rather than genuine business efforts. Over the month, the S&P Nifty and BSE Sensex rose by 7.79 per cent and 7.47 per cent, respectively, against a fall of 4.97 and 2.92 per cent respectively in April. The best part is that the improved sentiment is broad-based, and the same trend is reflected in the world's developed markets as well. The Dow has given an absolute return of 4.37 per cent over the month, while Nasdaq is up to the tune of 8.99 per cent. The Hang Seng, FTSE, Kospi, Strait Times and SETI went up by 8.83, 3.11, 5.68, 5.28 and 7.79 per cent, respectively.

For a clearer view of the month's hits and misses, take a look at some of the funds' performances. Prudential ICICI, Franklin Templeton and Standard Chartered MF registered AUM gains of 9 per cent or more. Relatively new players, especially those with banking industry backing, have also put in noteworthy performances. There has been remarkable growth in the AUM of Deutsche and HSBC MF. Deustche registered an increase of 54 per cent, while HSBC MF is up 42 per cent.

Beyond that, the idea of 'institutional plans' has proved to be success. The MF industry has been busy launching plans aimed at corporates and other institutional investors, and the latter have been busy buying into them. These plans mirror the portfolio of their parent schemes, differing just in their expense ratios (sold as the main factor in posting a better return over their parent plans). Simplified, this means that institutional plans gain from the application of economies of scale.

Tuning and Retuning

May's sectoral performances are quite interesting. The PSU sector received the most buying interest. The BSE PSU index did remarkably well, posting a massive gain of more than 30 per cent. Placed against the modest gain of only 4.27 per cent the previous month, this is more than just a little remarkable.

The BSE Health Care & Lifex indices have given an absolute return of 7.24 and 6.54 per cent, respectively. The BSE Tech and Mindex, in contrast, have risen just 0.91 and 0.3 per cent, respectively, while the once scorching BSE it has shed 3.34 per cent of its value over the month. This is quite a sharp reversal from earlier trends, and has become a subject of heated speculation. How, amidst all this, did those other fancied indices, BSE FMCG and Brandex, perform? Well, they delivered an absolute return of 7.08 and 6.74 per cent, respectively-only a little less than the bourses' average.

Categorised by asset class preference, equity-based mutual funds generated an impressive average return of 10.37 per cent. Out of 144 schemes studied, only 8 posted negative returns. Incidentally, all these schemes are sector schemes investing in it and technology in general. Banking stocks remained in the limelight all through May. Reliance Mutual Fund announced the launch of a banking sector fund, which was among the many reasons.

The best performance was posted by Sundaram Select Midcap Fund. The fund has maintained a well-diversified portfolio of mid-cap stocks with more than 25 per cent exposure to banking sector (with more than 5 per cent holding each in Union Bank and Andhra Bank, its top holdings, which registered dramatic gains last month). The second best fund in the category has been Franklin India Prima Fund, a mid-cap again, with an absolute return of 21.87 per cent. This fund has Tata Tea as its top holding (over 8 per cent exposure), a stock that has risen sharply over the month. This scheme is also bullish on banking, and has increased its exposure to this sector from 11.53 per cent in April to 16.56 per cent in May.

Among index schemes, Junior bees Fund has again become the king with an absolute return of 24.53 percent. This scheme tracks CNX Nifty Junior, which comprises of mid-cap stocks. Among tax planning schemes, Birla equity plan posted the best performance. This scheme has exposure to stocks like Indo Gulf Fertilizers. Among new entries to the portfolio are banking sector stocks such as Corporation Bank, Union Bank and Vijaya Bank. It has given up stocks such as MTNL, Zee Telefilms and Visualsoft. Prudential ICICI Tax Plan holds the second position. This fund is bullish on the banking sector, apart from the auto sector.

Otherwise, among sector schemes, Alliance Basic is a fund to track. This scheme invests in basic industries such as banking, oil, petrochem, automobiles and so on. This scheme has more than 50 per cent exposure to the banking and oil sectors. The second-best performer is UTI Growth Sector Fund - Petro.

Chords Struck

Amidst all this good news, it's a good question to ask just how long all this cheer will last. There have been some jarring moments, and occasional shudders, as a new month gets underway. But by and large, the answer looks tilted towards the affirmative.

As always, it's important to watch the US economy, which shall serve as a beacon for investors the world over. The indicators for May have been good. The US non-manufacturing index is up, productivity levels are rising, retail sales are up, consumer confidence is growing and the S&P 500's longest and biggest rise in three years that's currently underway looks set to continue. After a long time, all the right chords seem to be getting struck simultaneously, almost to finely engineered precision. Japan's recession and banking crisis are a worry, but not on the immediate horizon. Back home, we have the first stirrings of an IPO boom in the Maruti sell-off. Add to this the positive sentiment wrought by the strengthening of the rupee against the dollar, and the forex reserve statistics that keep plotting each dot higher than the other, and Indian funds appear to be in fine shape. Expect action.