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Action packed three years

Wow! What an amazing three-year period we?ve had at the bourses. I don?t think anybody could have imagined that the past three years would see the kind of action that they have.

Wow! What an amazing three-year period we?ve had at the bourses. I don?t think anybody could have imagined that the past three years would see the kind of action that they have. During this period, the stock markets have been through almost every kind of situation. From the gripping bull run of 2007 to the ugly bear phase of 2008 to the heart-warming recovery of 2009, I don?t remember any other three-year period that has seen such a scenario of escalating fortunes.

The Sensex was at its heightened best during 2007. From 13,000 to 20,000, the ride upwards seemed unending, despite a few dark clouds that could be seen all through the year. The sub-prime crisis in the US was one such dark cloud. The US markets hadn?t crashed because of it, but they were in withdrawal. However, the general belief was that the Indian markets wouldn?t be affected by them because we were hearing the great Indian growth story everywhere. Our equity markets were charged up by the foreign funds and there was a ?decoupling? theory in the air. This theory claimed that the troubles brewing in US would not impact India because our domestic growth had decoupled us from the developed countries. We now know how wrong that theory was.

2008 came crashing, literally, and kept crashing throughout the year. Stock prices almost reached their nadirs and top performing sectors like realty and infrastructure collapsed like a pack of cards. The actual nature of the crisis came to the fore later in the year, and by that time, pessimism was prevailing. No one expected the markets to turn around they way did in 2009. The lowest point came in March and was then left behind. The overwhelming LS election results, an event that no one would have predicted, turned the tide further in favour of the bulls. And despite a few speed breakers, the bulls have managed to hold onto the markets till now.

This three-year period also provides a very interesting way of analyzing fund performances. At Value Research, we have always advocated that equity fund investments should be made for the long-term, which is at least three years. Hence, I decided to look at the performance of equity funds during this three-year period. From the beginning of 2007 towards the end of 2009, the Sensex?s overall performance was a gain of 25%, or a 7.8% gain per year. In the same time, 92 of the 156 equity funds managed to outperform the Sensex.

As far as specific funds are concerned, the top of the list comprises three dividend yield funds and one that is focused on buying low P/E stocks. These funds are Tata Equity PE (rank 3), ING Dividend Yield (4), UTI Dividend Yield (5) and Birla Sun Life Dividend Yield (8). Portfolio-wise these funds are quite diverse from one other. But the common factor that has enabled them to make it to the top performers? list is their value-oriented approach to investing. And therein lies the lesson that these three years have taught us. A value-based investing style will hold you in good stead no matter how the markets behave.

Author is CEO of Value Research

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First published on: 28-12-2009 at 20:45 IST
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