 "mutual fund investment")
Mutual fund (MF) managers have trimmed their allocation in public sector banks (PSBs) in the recent months amid assumption that the stock prices may have already run their course.
The decision to cut PSB exposure, according to fund managers, is also driven by the availability of better opportunities in the private bank space.
In March, MFs sold Rs 2,500 worth of PSB stocks, while investing Rs 4,900 crore in private bank stocks. MFs have been net sellers of PSB stocks for the last three quarters.
“In the banking and financial services fund, we now have only one PSB compared to three in the previous year. This is because we expect the profit growth to moderate in the financial year 2025,” said Amey Sathe, fund manager, Tata Mutual Fund.
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PSB shares have seen a sharp rally in the past few years on the back of strong profit growth and improved asset quality. The interest was also driven by attractive valuations of some of the PSBs.
The Nifty PSU Bank index is up 84 per cent in the last one year compared to just 12.6 per cent rise in the Nifty Private Bank index. Over a three-year time horizon, the performance differential is even more stark. The Nifty PSU Bank index is up 3.6 times vis-a-vis the 42 per cent rise in Nifty Private Bank index.
Fund managers say that since the PSBs have run up a lot in the past 2-3 years, the valuations are now at a fair zone for the larger PSBs and stretched in the case of smaller ones. At the same time, the underperformance of most private banks has led to improvement in valuations.
“PSBs were attractive from the valuation point of view post covid, leading to higher allocation. Now that most of the re-rating is done, there has been some cut in exposure. Further re-rating from here on would require improved financial performance to sustain. At the same time, the private bank stocks are available at valuations near to their long term average, and are expected to do better in the medium to longer term,” said Gaurav Kochar, fund manager, Mirae Asset Investment Managers.
The shift in allocation led to significant changes in MF holding in banking stocks in the previous quarter. While the largest private bank HDFC Bank saw the MF holding rising from 15.1 per cent to 20 per cent, the ownership in largest PSB State Bank of India declined from 12.9 per cent to 11.5 per cent, shows Capitaline data.
The underperformance of private banks and trimming of PSB exposure led to a decline in overall banking sector weight in market-cap based schemes.
Banks had a 15.9 per cent weight in these schemes (of top 10 fund houses) at the end of March compared to 19.4 per cent at the start of calendar year 2024.
Auto and pharma were some of the sectors that gained weight. The m-cap schemes include largecap, midcap, smallcap, multicap and large and midcap funds.
