Since the last Indian Union Budget on July 23, 2024, international mutual funds have significantly outperformed their domestic counterparts, with some funds offering returns as high as 39%. Among the top performers, international funds from Mirae Asset Mutual Fund dominated the leaderboard, with their equity-based offerings delivering impressive gains.
The Mirae Asset NYSE FANG+ ETF Fund of Funds (FoF) led the pack, offering a stellar 38.63% return. It was followed by the Mirae Asset Hang Seng TECH ETF FoF, which saw a return of 34.97%, and the Mirae Asset S&P 500 Top 50 ETF FoF, which delivered 28.74% over the same period.
Other notable international funds included the Invesco India – Invesco Global Consumer Trends FoF and Motilal Oswal Nasdaq 100 FoF, which posted returns of 25.35% and 25.21%, respectively. Edelweiss US Technology Equity FoF also performed well, with a 18.66% return during the same period.
In contrast, domestic equity mutual funds have underperformed. Despite strong performances from sector-specific funds such as the Motilal Oswal Multi Cap Fund, which offered a return of 17.53%, and healthcare-focused funds like the WOC Pharma and Healthcare Fund (17.39%) and HDFC Pharma and Healthcare Fund (16.80%), most domestic equity funds lagged behind.
Domestic equity funds primarily focused on sectors like pharma, technology, and small caps performed inconsistently. For instance, Mirae Asset Global X Artificial Intelligence & Technology ETF FoF offered a more modest 14.41% return, while funds such as Kotak Technology Fund returned only 4.35% since the last budget.
The stark contrast in performance can be attributed to several factors, including the significant returns from China-based international funds, driven by a broader market rally following a new stimulus package announced by the Chinese government. This rally, along with shifting investor focus from emerging markets to undervalued markets like China and the U.S., has fueled growth in international funds.
Chethan Shenoy, Director and Head of Product & Research at Anand Rathi Wealth, explained that international funds focused on markets like China and the U.S. have benefitted from a renewed investor focus, particularly following China’s stimulus measures. He recommended that investors limit global equity exposure to a maximum of 5% of their overall portfolio, while advising domestic equity funds as the preferred option for long-term growth in India, where the market is expected to deliver returns of 12-15% annually over the next five years.
While Motilal Oswal Small Cap Fund and other mid-cap funds saw moderate returns (around 12%), funds like PGIM India Small Cap Fund and Edelweiss Small Cap Fund delivered poor returns, with gains of only 0.20% and 0.17%, respectively.
On the negative side, some funds saw significant losses, notably the Quant PSU Fund, which lost 17.04%, followed by the Tata Infrastructure Fund, down 13.94%. Funds from Quant Mutual Fund fared poorly overall, with many posting double-digit losses, including the Quant ELSS Tax Saver Fund and the Quant Flexi Cap Fund, both of which saw losses between 12-13%.
In summary, while international funds have dominated returns since the last budget, particularly driven by global market rallies and stimulus-driven recoveries, domestic mutual funds, particularly those in sectors such as small-cap and infrastructure, have largely underperformed. For investors looking to balance their portfolios, expert advice suggests limiting global exposure while continuing to focus on the growth potential within the Indian equity market.
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