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MF equity asset allocation continues to rise in banks

Chandan Kishore Kant / Mumbai 18 Jul 12 | 05:48 PM

One out of every five rupee of Indian mutual fund's equity assets is being pumped into bank stocks. During the first half of 2012, fund managers have scaled up their exposure to banking counters by 345 basis points (bps) to around 19 per cent in June. (a basis point is hundredth part of a percentage point)

This is the highest allocation of equity assets by fund managers to the sector ever since the data is available from the Securities and Exchange Board of India. Industry executives say that no fund manager wants to risk of not pre-empting rate cuts and softening of inflation going ahead.

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Strong anticipation among market participants about easing monetary policy in the coming months have consistently been fuelling interest in banks.

Counters like State Bank of India (SBI), ICICI Bank and HDFC Bank have emerged as favourites of fund managers. Country's largest equity schemes including HDFC Top 200, HDFC Equity, Reliance Growth, Franklin India Blue Chip and ICICI Prudential Dynamic have banking names among their top holdings as on 30 June.

Sunil Singhania, equity head at Reliance Mutual Fund, says, "We would rather play some of the larger names in the banking space. Becuase, problems surrounding non-performing assets (NPA) can hit the smaller banks more than the larger banks."

Agrees other fund managers. For instance, HDFC Top 200, the largest equity scheme with an asset of over Rs 11,000 crore, pumped 8.7 per cent and 6 per cent of assets in SBI and ICICI Bank, respectively. On the other hand, Reliance Growth which manages over Rs 5,500 crore assets, invested 4.1 per cent in SBI and around 5 per cent in ICICI Bank. In total, Indian mutual fund equity schemes allocated Rs 36,156 crore of its overall equity investments of Rs 1,91,085 crore in June.

"Weight-age of finance sector in the benchmark indices is around 26 per cent which is reflected in fund's asset allocation. Hopes of rate cuts and liquidity easing have brought bank stocks in radar. We are selective in picking bank counters," says Navneet Munot, chief investment officer, SBI Mutual Fund.


Meanwhile, fund managers have started pruning their holdings in defensives in their portfolios. Whether it was pharmaceuticals or fast moving consumer goods (FMCG), both counters saw cuts. Exposure in pharmaceutical stocks declined by 57 bps to 7.69 per cent while in FMCG, proportion of investment dipped 14 bps to 7.64 per cent.


"Greece's elections brought some clarity at the same time risk-appetite came to the markets which led to some reduction in defensives," adds Kaushik Dani, equity head at Peerless Mutual Fund. Going forward we will look at adding beta in the portfolio and are in a process of reducing exposure to defensives, says Munot. Agrees Singhania who is underweight on FMCG but would rather play pharma because of favourable valuations, faster growth amid a helping currency to the sector.

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