Mutual Funds increase exposure in bank stocks on cheaper valuation

Mutual funds raised allocation for banking stocks to Rs 85,330 crore in April, primarily on account of cheaper valuations.

Fund managers had trimmed allocation to banking stocks between November and January, lowering exposure by over Rs 9,000 crore during the period due to higher bad loans.

“The recent focus in clean-up of the Indian banking systems by the RBI and government by rightly recognising NPAs (non-performing assets) to start with has beaten down banking stocks,” Wealthforce.com founder Siddhant Jain said.

“Most of the PSUs and private sector banks are now available at cheaper valuation, which has probably resulted in MF increasing their exposure to the banking sector. We are in the early stages of the next Indian growth story and banking as a sector will definitely benefit from the same,” he added.

In percentage terms, exposure to banking stocks was at 20.26 per cent of equity AUM last month as against 19.92
per cent in March.

Overall deployment of equity funds in bank stocks stood at Rs 85,330 crore at the end of April as compared with Rs 82,196 crore in the preceding month, as per the data available from Securities and Exchange Board of India (Sebi).
It stood at Rs 78,644 crore at the end of January.

The industry’s exposure to banking sector was at Rs 85,376 crore, Rs 88,000 crore and Rs 85,306 crore in October, November and December respectively.

The gross non-performing assets (NPAs) of banking sector are estimated at over 5 per cent of total loans, while overall stressed assets (including declared and potential bad loans) are at about 11 per cent.

Banking continue to be the most preferred sector with fund mangers as they cannot take a bearish call on banking stocks, given the high weightage attached to the index.

After banks, IT was the second-most preferred sector with fund mangers.

Equity fund managers’ deployment in software stocks was at Rs 40,194 crore followed by pharma (Rs 32,820 crore, auto (Rs 28,563 crore) and finance (Rs 26,560 crore).

Mutual funds are investment vehicles made up of a pool of funds collected from a large number of investors. They invest in stocks, bonds, money market instruments and similar assets.