MF exposure to bank stocks at all-time high

By : Chandan Kishore Kant
Last Updated: Mon, Dec 24, 2012 19:40 hrs
Mutual Fund Houses: Expert reactions on the budget

Indian equity fund managers are betting big on bank stocks. The passage of the Banking Bill by both houses of Parliament earlier this month - amid high expectations of imminent interest rate cuts by the central back early next year - has made industry's equity fund managers take the maximum exposure in bank shares.

The year-till-date has seen a steady rise in investments in bank shares, but it reached the top last month (since data is available from Sebi) to over one-fifth of the mutual fund industry's total equity assets under management (AUM).

According to the statistics available from the Securities and Exchange Board of India (Sebi), mutual fund industry's exposure in bank shares stood at 20.59 per cent of the AUM or Rs 42,022 crore. In absolute terms, it is the first time that funds pumped solely into the banking sector crossed the Rs 40,000-crore mark.

Most equity schemes currently have large exposure in shares of banks, such as State Bank of India (SBI), ICICI Bank, HDFC Bank and Bank of Baroda, among others. Amid the mid-cap names, Federal Bank, IndusInd Bank and Canara Bank, among others, made it to the list.

Navneet Munot, chief investment officer at SBI Mutual Fund, said, "In the overall markets, banks have around one-fourth of the total market capitalisation. So, (technically) the industry's large exposure in banks is bound to happen. Going forward, too, bank shares will continue to see rising interest."

Agrees Kaushik Dani, equity head at Peerless Mutual Fund: "Industry fund managers will try to peg in their investments in line with the benchmark indices, which have high weightage from banks. No one wants to have underweight position in banks. On top of it, as hopes are building up on rate cuts and decline in inflation, it will prove advantageous for the sector as a whole."

Interestingly, during the same period last year when the equity market had hit its lows, less than 16 per cent of equity assets were utilised to buy bank stocks. However, as the current year proved better than market experts' expectations, the share of overall funds finding their way to bank stocks rose. In absolute terms, assets invested in banks since December 2012 have risen around 60 per cent from Rs 26,334 crore.

Munot of SBI Mutual Fund continues to own mid-sized private banks, which have been doing well. "These have been able to contain the impact of NPAs (non performing assets)," he adds. Asset deterioration has been a major concern for Indian banks and it has been hitting the stocks as and when any downgrade reports popped up.

Steady rise of AUMs in banking shares has paid of well for the investors. At a time when the benchmark returns (year-to-date) stands at around 24 per cent, bank indices gained close to 55 per cent.

According to Peerless's Dani, large cap bank stocks - both in private as well as PSUs - have room to go further up. One should focus on large-cap banking counters, he says. "Generally, small-cap and mid-sized (banking) counters attract attention when large ones are fairly valued," he adds.

No wonder, then, that sectoral banking equity schemes have emerged as the second best performer this year after the equity fast-moving consumer goods (FMCG) schemes. However, the best performer among bank funds has even outperformed the best performer in the FMCG fund category.

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