Equity mutual fund managers are banking heavily on bank counters. Though the space has always been a top favourite with them, what is really interesting is the pace at which fund managers increased their exposure to the country’s top banks during the October-December quarter.
Collectively, 21.15 per cent of mutual funds’ equity assets are being pumped into banking shares — a rise of 188 basis points against 19.27 per cent in September, according to statistics available from the Securities and Exchange Board of India (Sebi). One basis point is one-hundredth of a percentage point.
In the other three top sectors — information technology, pharmaceuticals and fast-moving consumer goods (FMCG), the proportions of equity assets invested have reduced.
| BANKABLE MFs' equity asset allocation in top sectors (%) | |||
| Sectors | Sept 2012 | Dec 2012 | Changes (bps) |
| Banks | 19.27 | 21.15 | 188 |
| IT | 9.00 | 7.98 | -102 |
| Pharma | 8.02 | 7.59 | -43 |
| FMCG | 7.57 | 7.51 | -6 |
| Source : Securities and Exchange Board of India | |||
According to industry equity heads, with the government on the front foot for reforms and positive signals of interest rate cuts in the next 12-24 months, sentiments in the banking counters have been boosted. For instance, State Bank of India (SBI), ICICI Bank Ltd, Bank of Baroda (BoB), HDFC Bank Ltd and Punjab National Bank (PNB) make up the top holdings of several equity schemes.
During the quarter, the BSE Bankex gained over nine per cent to 14,345, which rose further in January to 14,580. During this month, several large-cap bank counters, from both private and state-owned banks, have hit their 52-week highs, while some even touched their two-year highs.
“With expected reform measures and rate cuts, investments in projects would start happening, which augurs well for the banking sector as a whole. We are positive on the space (though there are issues of non-performing assets), with SBI, ICICI Bank, Axis Bank, BoB and PNB among our top favourites in the banking sector,” explains the chief investment officer of a mid-sized fund house, requesting anonymity.
India’s largest mutual fund equity schemes, including HDFC Top 200, HDFC Equity, Franklin India Bluechip and Reliance Growth, have large-cap public and private banks in their top holdings.
But it appears that bank stocks are eating into the share of defensive stocks. Fund managers have gradually pruned their holdings in FMCG and pharmaceuticals, owing to their stretched valuations. During the quarter, equity assets’ exposure in pharma stocks declined 43 basis points, while in FMCG, the decline was a lower six basis points.
Though they do not completely rule out the defensives, they would rather be neutral on these counters, as moving out from these at uncertain times may prove fatal for the portfolios.
Companies like Dabur, Hindustan Unilever, ITC and Marico are facing volume growth issue, fund managers add. According to them, price hikes across product categories have helped the companies, but flat volume growth remains a cause of concern.
“Especially, if we look at some of the public sector banks like PNB, BoB and even relatively smaller banks like Union Bank, they all are still available at an attractive valuation of less than 1x FY14,” explains an equity fund manager at one of the top five fund houses in the country, who also requested anonymity.
As on December 31, Rs 2.06 lakh crore of equity assets were deployed in stock markets, out of which Rs 43,659 crore found its way into banks’ shares.
