MFs up the ante on private banks, increase weight to nearly 21%

Fund managers expect well-managed banks to grab higher market share

Mutual funds (MFs) have increased their weight on private banks to a new high of 20.8 per cent in September. With some of the players in the financial space facing heat on their loan exposures, money managers are of the view that better-run private banks are poised to corner higher market share.  

Private banks are the top sector holding for MFs, followed by non-banking financial companies (8.9 per cent), technology (8.7 per cent), consumer (8.4 per cent), and capital goods (7.8 per cent), showed a report by Motilal Oswal Financial Services.

“More efficiently-run banks are likely to see increased market share, as weaker players may not be able to participate in the credit offtake cycle. Private banks tend to give better risk-adjusted returns on account of their superior risk management,” said A Balasubramanian, chief executive officer of Aditya Birla Sun Life MF.

The fund house launched its banking exchange-traded fund on Wednesday, which would track the Bank Nifty index.  

Fund managers add that increased weight towards private banks might also be on account of a shift in institutional investors’ sentiments on non-banking financial companies (NBFCs).

“The concerns over NBFCs pertaining to their liabilities and growth, has prompted institutional investors to shift their allocation towards private banks, which might have also led to the uptick in weight,” said Akash Singhania, fund manager at Motilal Oswal Asset Management Company (AMC).

According to a brokerage report, HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank were among the top five stocks to see the highest net investments by MFs in September. Net investments in HDFC Bank and ICICI Bank stood at Rs 7,400 crore and Rs 4,500 crore, respectively; Axis Bank and Kotak Bank stood at Rs 4,080 crore and Rs 3,730 crore, respectively.

Given the asset quality concerns in the overall financial space, the banking segment can also see polarisation with quality names drawing higher investor interest, and getting easier access to capital, say analysts.

In a one-year time-frame, banking sector funds have delivered returns of 10.6 per cent, outperforming most of the equity categories during this period.

“While we don’t have a banking fund in our basket at present, we feel the banking and financial space remains a strong long-term theme for investors,” said Swarup Mohanty, chief executive officer of Mirae AMC.

Analysts point out that the banking sector funds also offer a tactical opportunity as a benign interest rate scenario can lift stocks of state-owned banks.

“Public-sector banks being more sensitive to change in yield, compared to private banks, will remain major beneficiaries if further rate cuts lead to a decline in G-sec yields,” analysts at ICICI Direct said in a note. “Accordingly... aggressive investors may consider allocating some portion of their thematic allocation into banking funds,” the note added.