Best performing equity funds in July 2023

How equity markets performed in July 2023

The Nifty overall gained 2.94% in the month of July 2023 taking the Nifty tantalizingly close to the 20,000 mark but struggling to breach. However, considering that the VIX (volatility index) of the NSE is still very low at around 10.20, the chances of a Nifty rally appear to be quite strong. However, what is true about July 2023 is that the FPI flows continued to be robust with another $5.7 billion of net inflows into equity markets from foreign portfolio investors. With the latest month flows, FPIs have infused nearly $17 billion into Indian equities in the last 3 months. But how did the various indices perform in July 2023 amidst the deluge of FPI inflows? While the Nifty rallied by 2.94% to the 19,754 level, the aspiring Nifty Next-50 index also gained 3.51% in the month of July 2023. But the real action was seen in alpha hunting. The Mid-Cap 100 rallied by 5.50% in July 2023, while the Small Cap 100 index rallied a whopping 7.99% in the month. Let us now turn to the debt markets.

How debt markets performed in July 2023?

While our focus here is on equity funds, the bond yields continue to be a critical factor in determining the attractiveness of equities and so we will focus on the bond market yield movements too. Bond markets saw a bounce in yields in July 2023, with the rally in the last week of July being the sharpest weekly rally since February 2023. For the month of July 2023, the 10-year benchmark bonds closed with yields of 7.18%, higher than the closing levels of May and June 2023. There were several reasons. The 25 bps rate hike by the Fed in its July policy boosted yields in the US markets combined with a sell-off in bonds. In India, higher than expected inflation in June plus prospects of higher vegetables and cereals inflation in July and August have also pushed bond yields higher. That is keeping equity markets also slightly ambivalent. 

Here is a quick summary of how the 7 major categories of equity funds performed in July 2023 in terms of 1-year, 3-year and 5-year returns. We look at 6 actively managed funds and 1 passive equity fund for the purpose of analysis.

Equity large-cap funds

Top performing Direct Plans (Growth Option) on 5-year returns (as on 31st Jul-23) with 1-year and 3-year returns for comparative reference. The benchmark has been shaded:

Equity multi-cap funds

Top performing Direct Plans (Growth Option) on 5-year returns (as on 31st Jul-23) with 1-year and 3-year returns for comparative reference. The benchmark has been shaded:

Equity flexi-cap funds

Top performing Direct Plans (Growth Option) on 5-year returns (as on 31st Jul-23) with 1-year and 3-year returns for comparative reference. The benchmark has been shaded:

Equity mid-cap funds

Top performing Direct Plans (Growth Option) on 5-year returns (as on 31st Jul-23) with 1-year and 3-year returns for comparative reference. The benchmark has been shaded:

Equity small-cap funds

Top performing Direct Plans (Growth Option) on 5-year returns (as on 31st Jul-23) with 1-year and 3-year returns for comparative reference. The benchmark has been shaded:

Equity linked savings schemes (tax saving)  

Top performing Direct Plans (Growth Option) on 5-year returns (as on 31st Jul-23) with 1-year and 3-year returns for comparative reference. The benchmark has been shaded:

Index funds (equity)

Top performing Direct Plans (Growth Option) on 5-year returns (as on 31st Jul-23) with 1-year and 3-year returns for comparative reference. The benchmark has been shaded: 

What we read from the equity fund story in July 2023

Here is what we read from the equity funds story for July 2023.

1. There has been some pressure on the 1-year returns of equity funds in July 2023. However, this has been more in the generic large-cap funds and not so much in mid-cap and small-cap funds. This underperformance has less to do with markets in July and more to do with a relatively higher base in the comparative month last year. 
    
2. If you look at the median returns of various equity fund categories, all of them have done better than the benchmark returns, which is a very good sign for equity funds as a whole. More importantly, the top-3 funds ranked herein have all beaten the various indices with a neat margin. The outperformance has been more pronounced in alpha-hunting funds like mid-cap funds and small-cap funds. 
    
3. From a fund selection perspective, the good news is that the fund rankings have been stable each month over the last year. That is a signal that, when it comes to the leaders, past performance is a good barometer of the future. This has larger implications for investors and mutual fund advisors. It just makes past returns more reliable.

With the equity indices like the Nifty and Sensex close to peak levels, outperformance by the equity funds is axiomatic. It is the extent of outperformance that is the icing on the cake!