Mutual Funds' exposure in banking stock hits 4-mth high

Fund managers raised exposure in bank stocks to 4-month high of nearly Rs 33,000 crore in October amid rising equities market and various steps taken by the Reserve Bank to prop the banking sector.

According to the latest data available with market regulator Sebi, Mutual Fund investments in banking stocks reached Rs 32,807 crore as on October 31, accounting for 17.77% of their total equity assets under management (AUM) of Rs 1.85 lakh crore.

This was the highest level since June, when fund managers had shored-up their investment in banking shares to Rs 35,442 crore.

In September, MFs' exposure in banking stocks increased to Rs 26,838 crore after touching the lowest level in four years, at Rs 22,744 crore, in August.

The investment had risen to a high of Rs 43,659 crore in December 2012.

Market participants said MFs have shown interest in the banking stocks during the past two months (September-October) primarily on account of measures announced by the new Reserve Bank Governor Raghuram Rajan coupled with overall surge in the stock market.

Banking stocks climbed in October for the second consecutive month on value buying and a slew of RBI measures.

The banking index (bankex) surged by 19.4% in October, while the 30-scrip BSE sensitive index (Sensex) rose 9.2%.

In September, Rajan had announced steps to stabilise the Indian currency and various steps to liberalise the banking system, including higher overseas borrowing limits for lenders and simpler processes for opening branches.

Banking was followed by software sector, where MF investments stood at Rs 25,185 crore. Pharma stocks accounted for Rs 14,216 crore, while consumer non-durables attracted Rs 13,688 crore and petroleum products at Rs 10,430 crore.

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

In 2012, there was consistent investment growth in banking stocks by the industry's equity fund managers and their exposure had risen from 17.23% of total AUM in January 2012 to 21.15% in December.

The increase in allocation of funds to banking stocks in 2012 was largely attributed to declining interest rates.