Bangalore: With the government being unable to tackle a sharp slowdown in the domestic growth and unstable global economy which has driven the investors away, there has been a little relief for Indian equity funds.

The diversified stock funds fell in May which was pulled down by banks and automobiles and there is less chances of any rebound after fall of GDP in the March quarter. T.P. Raman the Managing Director of Sundaram Mutual Fund says, “It's going to be very, very tough, neither what the government is doing is right, nor what globally things are happening are right.”

The diversified funds had the worst month performance since November at 5.65 percent and the third consecutive month of decline according to the data given by the fund tracker Lipper, which is a part of the Thomson Reuters Company. The BSE index fell by 6.4 percent in comparison to this and India’s economy grew back 5.3 percent in the three months to March.

The manufacturing has contracted but the fiscal and current account deficits have inflated and rupee has been a t historic low. Economists say that the problem is self inflicted as the government is unable to cut subsidies, remove delays in decision making and push reforms instead of the external environment.

The financial services sector accounted for 22.6 percent of the assets of the diversified equity funds by the end of April as told by the Morningstar India. R.K. Gupta the Managing Director at Taurus Mutual Fund says, “There will be no improvement in bank shares until there is improvement in GDP”, warning that slow growth can worsen the bad loans and compress bank margins.

There was 8 percent drop in the BSE banking index and the banking focused funds fell 7 percent in May. Even India’s No.2 lender, ICICI Bank fell 11.2 percent while State Bank of India shed 3.8 percent. Automobiles companies like Tata Motors shares also fell by 26.4 percent in May lower than expected at its Jaguar and Land Rover unit.

The country’s top car maker, Maruti Suzuki also faced problem because of the sudden rise in petrol prices and high borrowing costs. According to the Morningstar data the diversified funds was backfired due to an increase in exposure to mid-cap and small-cap companies to 37.4 percent by the end of April.