Indian fund managers have cut their exposure in two key rate sensitive sectors — banks and industrial capital goods. Besides, the slow down in the US economy and the S&P credit downgrade, have prompted managers to go in reverse gear for software stocks.
The change in investment strategy came on the back of unexpected increase of 50 basis points (bps) in key policy rates by the Reserve Bank of India (RBI) last month, at a time when markets were anticipating a hike of 25 bps.
Since March, fund houses maintained an investment of over 17 per cent of their equity asset under management (AUM) in bank stocks. However, in July, managers trimmed it by 35 basis points.
During the June quarter, software had become another attraction for fund managers with exposure in the sector crossing nine per cent. However, anticipated impact of the US slowdown on Indian IT companies did not let MFs raise investment in software. Rather, they cut it by 41 bps in July to 8.66 per cent. Similarly, stocks in the capital goods space emerged less attractive as fund houses reduced their investment by close to half-a-percentage point.
Fund managers seem to have taken a contrarian call on the auto sector, which is showing signals of a slow down. “We are doing specific stock picking in the auto space as several counters were available at very cheap valuations last month,” says an equity head at a medium-sized fund house that focuses on equities.
Investment in auto and auto ancillaries, put together, witnessed a rise of 32 bps in July, after remaining flat in the last two months. Fund managers continued to remain focused on defensive sectors — non-consumer durables and pharma. Chief investment officers (CIOs) in the industry said “these are uncertain times and it is advisable to keep higher proportion of equity assets in stocks which are not rate-sensitive”.
So far in the current financial year, fund managers have been consistently increasing their exposure in the non-rate-sensitive sectors. In pharmaceuticals alone, proportion of investment of equity assets has risen by around 125 bps and in fast moving consumer goods (FMCG) an increase of 100 bps was reported during the April-July period. Going forward, equity heads indicated that till global uncertainties remained they would prefer safer play in the markets with consumption stocks. In July, the assets under assetment of the equity schemes squeezed 23 per cent to Rs 1,66,978 crore of the entire industry’s assets of Rs 7,28,187 crore.