Fund houses prefer value-based buying during June correction in equity markets.
Fund managers are back to buying banking and automobile stocks, after a steep correction this month made valuations cheaper and hence attractive.
The preference for interest rate-sensitive stocks comes at a time when the possibility of further rate increase by the Reserve Bank of India (RBI) looms large due to unrelenting inflation. In May, the mutual fund industry had cut its exposure of equity assets in banks by over 50 basis points (bps). In automobile, the holding was reduced marginally by 12 bps, considering the slowdown the sectors would face in a high rate scenario. However, during the correction phase, asset managers could not resist the temptation of picking these rate-sensitive stocks, which, they say, were available at reasonable valuations.
| FLUCTUATING VALUE | ||||
| Company | June 1, 2011 | Low since June 1 | Correction (%) | June 29, 2011 |
| Tata Motors | 1,079.45 | 925.00 | -14.31 | 997.80 |
| Maruti Suzuki | 1,248.90 | 1,087.15 | -12.95 | 1,176.55 |
| TVS Motor | 55.60 | 50.15 | -9.80 | 53.10 |
| Hero Honda | 1,861.25 | 1,708.00 | -8.23 | 1,847.55 |
| SBI | 2,329.65 | 2,123.00 | -8.87 | 2,380.50 |
| ICICI Bank | 1,085.05 | 1,004.00 | -7.47 | 1,087.15 |
| PNB | 1,100.10 | 1,030.00 | -6.37 | 1,084.05 |
| Canara Bank | 546.75 | 501.00 | -8.37 | 522.45 |
| All figures in Rs /share Source: BSE | ||||
“Some of these stocks corrected dramatically, that made them attractive bids to enter,” says N Sethuram, chief investment officer, Daiwa Mutual Fund. “We are maintaining a buy-call on private banks, while we are underweight on the public sector banks,” he adds. For instance, the share price of auto major Maruti Suzuki lost 13 per cent, while that of Tata Motors crashed 14 per cent since the start of June. In banking, shares of the State Bank of India (SBI) plunged nine per cent, while that of ICICI Bank and Punjab National Bank lost six per cent.
“There is a realisation (among fund managers) that inflation is flattening out and the worst has already been factored in. This has led to value-based buying in banks and auto, as the correction offers reasonable entry point which makes sense,” said Kaushik Dani, equity head at Peerless Mutual Fund. He added indices of auto and banks had shown resilience and the stocks had smartly moved up.
The BSE Bankex dipped six per cent, while the Auto Index was down over eight per cent during the short correction phase. Both indices have recovered to a large extent in the last few trading sessions, ever since the rally began in the latter part of the last week. “When the shares of SBI are at Rs 2,100 and Maruti slips to a low of Rs 1,100, there are no second thoughts before entering the counters. There has been a tremendous value-based buying during the last week that will clearly make money if inflation remains where it is,” says the chief strategist at a Mumbai-based brokerage house. According to Tejas Doshi, vice-president (research) at Sushil Finance, “Public sectors banks are a value-buy currently. The valuation differential is still large when compared with private banks.”
According to the statistics available from the Securities and Exchange Board of India, the mutual fund players had put in Rs 7,523 crore of their overall equity assets (Rs 1,92,087 crore) in the auto sector in May, against Rs 8,298 crore in the previous month. Similarly, the amount invested in banks stood at Rs 32,820 crore, a drop of around Rs 3,000 crore against the previous month. Equity heads say in June the overall exposure in these two sectors is likely to see a surge.
