Corruption scandals hit India funds in January

Corruption scandals and an investor pullback from emerging markets left Indian equity funds among the worst performers in January, while euro zone funds proved the biggest gainers, Lipper data showed. Funds investing in the world's largest democracy represented nine of the bottom 10 worst-performing funds registered for sale in Britain.
Meanwhile, in a reversal of 2010 performance, euro zone equity funds topped the leader board as investors returned to a sector unloved for much of last year because of the fallout from the region's debt woes. The Kotak Funds India Infrastructure and Realty Fund posted the steepest fall, at 15.38 percent, while Neptune Investment Management's India Fund dropped 14.39 percent during January.
Faisal Rahman, portfolio manager for the OpenWorld India Focus Equity Fund, the sixth worst performer in January, said corruption scandals and poor earnings sparked a sell-off just as investors were pulling funds from wider emerging markets. "The corruption scandals in India are taking hold, so the markets are getting nervous there. The other reason these Indian markets are down is because of poor results for some companies like Infosys and HDFC," he said.
India has been hit by a series of corruption scandals in the past few months, damaging its image as an investment destination. The BSE index, which comprises the 30 largest and most actively traded stocks in India, fell 10.8 percent in January. After further falls in February, the index is at its lowest level since the second quarter of last year.
Rahman said India's reliance on foreign investment meant the investor pullback from emerging market equities, which have started the year poorly, had exaggerated falls in India. The benchmark emerging equity index fell 2.9 percent in January, underperforming a 1.2 percent rise in the MSCI all-country world index. "The valuations of the developed world have looked better and people are taking profits from emerging markets. There are also some inflation worries, which led to fears of an increase in interest rates," he said.