Investors in overseas funds the biggest winners since India's 2016 demonetisationToday is the second anniversary of demonetisation. Two years ago on this day, all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series were stripped off their legal tender. Even though the move was announced as a step to curb black money and corruption, the objectives of demonetisation shifted from an anti-black money move to digitisation. Since 99.3% of the money came back, and a lot of cash transactions have also started reappearing, demonetisation did not meet its original objectives. However, it has had a huge impact on the Indian people, companies and the overall economic system.

Demonetisation was a big event. Investors have learned some lessons from it, and the biggest lesson would be not to react. While the stock markets did give a knee-jerk reaction in 2016, ultimately over the medium and the long term, it is earnings that guide the sentiment of the market. Plus, a rush of money into domestic markets has ensured that your investments have not gone sour. RupeeIQ looks at the mutual fund performance since demonetisation. It is a 2-year period where we have studied close to 430 equity funds. Read on.

Biggest Winners

The best-performing equity fund in these two years since demonetization is not connected to Indian consumption or economy. The Rs 98-crore Motilal Oswal NASDAQ 100 Exchange Traded Fund is an international equity funds that mainly invests in technology stocks. This fund generated 26.53 CAGR. An investment of Rs 10 lakh would be worth Rs 16 lakh. With US equities doing so well and technology companies driving the American market, this fund has really been the best of the lot.

Technology as a theme has done well in Indian equity market over the past year. This is why the 2nd, the 3rd and the 4th best-performing equity funds since demonetization are India-focussed tech equity funds. Tata Digital India Fund has given 24.59% CAGR, followed by ICICI Prudential Technology Fund 22.88% CAGR and Aditya Birla Sun Life Digital India Fund 22.29% CAGR. It is also important to understand that demonetization did not really affect technology companies that much. The big Indian IT firms are all dependent on overseas client spends. In short, these Indian IT firms are much more of a global story than one reflecting local trends.

But we must not forget one fund. There is the Tata India Consumer Fund that has delivered over 22% CAGR since 2016 demonetisation. Consumption as a theme has been all-pervasive in the Indian context. The fund’s bets paid off in a big way. There has been some recovery in consumption patterns of the Indian public since demonetisation. But, stocks of consumption-oriented firms have done much better. With investors not averse to paying a premium for consumption stories, the theme has been a huge winner across funds.

International edge

If you look at the top performers since demonetisation in 2016, it is difficult to ignore the fact that international equity funds populate the chart in a big way when it comes to performance. Funds that have bet on American stocks have done better than funds that bet on India.

Clearly, global has worked better than local.

Investors in DSP US Flexible Equity Fund, Franklin India Feeder Franklin US Opportunities Fund and ICICI Prudential US Bluechip Equity Fund have got more than 20% CAGR in these two years. Clearly, the demonetisation effect is not visible in these funds. These are America focussed funds that have benefitted from the upswing in US equities.

There are also others like Reliance US Equity Opportunities Fund, Aditya Birla Sun Life International Equity Fund – Plan A, Kotak US Equity Standard Fund, HSBC Global Consumer Opportunities Fund – Regular Plan and DHFL Pramerica Global Equity Opportunities Fund who have secured the space in the top 20 funds list since demonetisation. They have generated between 15 to 20% CAGR in this period. That is more than acceptable under any condition.

Category-wise

To have a clear idea of how funds have performed, look at the category wise returns chart given below. We have given average returns, the returns of the best performing fund and the worst performing fund. In large cap space, index funds and ETFs have done better than actively managed large cap schemes.

Since Demonetization
Fund category Average return % Best fund return % Worst fund return %
Technology/IT 21 24.6 17
International 11.5 26.5 -11
Largecap (including index funds and ETFs) 10.95 19.9 4.05
Consumption 9.1 22.1 -1
Largecap (excluding index funds and ETFs) 9 14.4 4.05
Banking 8.7 15.5 -3
Value 8.5 13.7 2.8
Dividend yield 8.4 13.2 2.2
Large & Midcap 8.1 12.9 4.4
ELSS (tax-saving) 8 15 2.5
MNC 7.9 10.4 4.7
Energy 7.8 11.1 3.9
Multicap 7.72 14.5 -1.7
Other themes 7.4 12.7 1
Infrastructure 5.5 12.8 -3.2
Midcap 5.4 12.4 -2.15
Smallcap 4.8 17.4 -1.8
PSU -0.4 0.7 -2
Pharma -1.7 3.8 -6.4

The average returns in consumption, banking, value, dividend yield, large & midcap, and ELSS (tax-saving) have been between 8-9%. Infrastructure, midcap and smallcap funds have fared badly. The two worst performing categories are PSU focused funds and pharma funds.