Sensing a significant growth in banking stocks in the near future, especially in the private sector banks, mutual fund managers are on a buying spree of bank shares to beat their target. They have also raised their allocation in the sector to about Rs75,000 crore in April this year, anticipating a rate cut by the Reserve Bank of India (RBI) early next week.
"An overall weightage of the banking sector in Nifty is over 30 per cent. In most of the mutual fund schemes, our target is to beat the benchmark. So, we have to keep certain percentage of our investment in banks too. However, we see the best investment opportunity is in private sector banks, rather than its state-owned pears. When it comes to public sector banks, one has to be very specific in this matter," Chief Executive Officer (CEO) of a Mutual Fund House told The Pioneer.
As per the data available from Securities and Exchange Board of India (Sebi), overall deployment of equity funds in bank stocks stood at Rs74,810 crore in April 2015 as compared to Rs73,575 crore in the previous month. In comparison, equity fund managers' deployment in banking stocks stood at Rs41,104 crore in April 2014.
"Mutual fund is a pass-through business and it is constantly traded. Our holdings in banking stocks are in various schemes are constantly monitored. As such, they do not pose any problem for the MF industry," Association of Mutual Funds in India (Amfi) Chief Executive HN Sinor said.
According to the industry experts, fund managers have raised their allocation to bank stocks expecting a rate cut by the RBI which is scheduled to be held on June 2. They, however, feel that fund managers cannot take a bearish call on banking stocks, given the high weightage attached to the index.
"We always keep a tab on the bank stocks in the indices. It is true high non performing assets (NPAs) are not helping banks generate revenues. If any industry is faced with such risks, then as investors it becomes our job to identify the capacity and manage the risk accordingly," said the head of another leading MF House.
However, Dhirendra Kumar, Chief Executive Ofiicer (CEO) of Value Research disagreed about the move of the fund managers and said, "I do not believe in the trend. As per our data, mutual fund investment in bank stocks was around 17 per cent in Jan 2014 and it has marginally gone up to around 22 per cent in April 2014. Though there is an overall weightage is around 32 per cent in all banks, private banks have maximum share in it. So, I do not think there is a massive buying momentum in the bank stocks."
As far as investments in banks are concerned by various sectors, mutual fund's exposure to banks was at as high as 20.7 per cent in April, while country's largest insurer lIC's overall exposure in banks was only 9 per cent. On stock movement, the BSE bankex index inched up 0.8 per cent in April, while the benchmark Sensex witnessed a drop of 3.4 per cent.
The IT sector was the second-most preferred one with fund mangers after banks with an exposure of Rs34,100 crore, followed by pharma (Rs27,587 crore), auto (Rs24,544 crore) and finance (Rs22,425 crore).