Since the beginning of the second half of the current financial year, banks have been in favour with India's equity fund managers. The second-quarter results were in line or slightly better than expectations. Initial signs indicated the bottoming out of the country's economy.
In October, allocation of equity assets to banking went up 200 basis points (bps) to 18 per cent. (One basis point is hundredth of a percentage point).
This is a significant increase, considering the pace at which managers had cut their exposure to banks. May-September, they had rushed to cut their allocations 4.35 per cent, primarily in state-owned banks, amid concerns on asset quality.
Nandkumar Surti, managing director and chief executive of JP Morgan Asset Management (India), said, "Markets were expecting the results to be worse, which turned out better. Global developments are proving positive for India. Concerns regarding non-performing assets (NPAs) are gradually reducing."
"We are buying banks: Private and public. Valuations are quite cheap even at today's prices," says a fund manager.
Shares of the State Bank of India, the country's largest lender, had gone crashing to hit a 52-week low of Rs 1,452 in August. On Friday, it closed at Rs 1,821.5, a rise of 25 per cent against its year's low. Its private and public peers have seen similar movements. Since July, BSE's Bankex has gained 11 per cent.
Kaushik Dani, equity head at Peerless Mutual Fund, said, "Financials tend to be better when the economy revives. Whether private or public, all benefit. I feel there are early indications of the economy bottoming out."
Surti said those under-weight have been increasing exposure to private and state-owned banks.
Managers said November would continue to see this.
However, there is word of caution. Vetri Subramaniam, chief investment officer (CIO) at Religare Invesco Mutual Fund, said, "Banks had reacted negatively in July-August on the Reserve Bank's monetary tightening. Last two months have seen the situation normalising. But concerns regarding NPAs remain. I continue to remain cautious. There are better avenues."