Mumbai: Equity fund managers in India, who trimmed stock exposure to a four-month low in January, now plan to deploy cash back mainly in energy and financial sectors, according to a Reuters poll conducted from 19-25 February.
Seven of the 10 participants in the Reuters Asset Allocation Poll said the benchmark index is not likely to show negative return in the next three months, making battered stocks a good bet at current levels.
“Valuations are looking quite attractive after the recent decline in the stock market,” said R. Rajagopal, who oversees about Rs3,000 crore as chief investment officer for DBS Cholamandalam Asset Management Ltd. “The corporate results of third quarter have also been robust enough to indicate that the growth rate would be in the range of 20-25%.”
India’s main index was down about 16% on Tuesday from its life-time high, sliding more than 10% intra-day for two successive days in January. The sharp decline has, however, trimmed the one-year forward price-earnings multiple of the index to 17.5 now from more than 20 times in January, making stocks relatively attractive.
Indian funds invested about 91% of their assets in stocks at January-end—down from 94% in December. Five of the respondents said they were likely to raise their equity exposure in the next three months.
Equity funds raised exposure to financial services companies to 16.13% of equity assets in January from 13.59% a month earlier. Six of the 10 respondents said they would add to their positions.
A majority of the stock fund managers are also likely to invest more into the energy sector, which cornered about one-tenth of their equity assets by the end of January. “Investors are playing the consumption story of India that would ultimately benefit the financial services sector,” Gopal Agrawal, head of equity at Mirae Asset Global Investment Management (India) Pvt. Ltd, said. Rising expenditure on infrastructure would also improve loan growth of banks, boosting earnings, he added.
Diversified equity funds have nearly tripled allocation to finance stocks in the past year to about Rs24,700 crore, making it their second favourite sector after engineering, data from fund tracking firm Icra Ltd showed.
Two exchange-traded funds launched in the last five months track the banking index, while six more asset managers are waiting the Securities and Exchange Board of India’s nod to launch finance-focussed funds. Funds are also looking to raise exposure to engineering, auto, construction and the battered technology sector and reduce allocation to metal and textile stocks, the poll revealed.
Nearly one-third of the balanced fund managers said they would cut cash and buy both bonds and stocks in the next three months.