MUMBAI: Indian fund managers increased exposure to energy stocks as of mid-February, making it their third-most preferred sector after engineering and information technology, a Reuters poll of 13 fund houses showed.
Diversified equity funds’ exposure to energy sector stocks went up to 8.19% in mid-February from 6.96% in January with nearly half the respondents planning to increase investments in the next three months, the poll showed. This is in line with the findings of a poll conducted by Reuters in January, which indicated more than half of the respondents were planning to invest further in energy stocks.
“Refining companies’ valuations are lower than the asset valuations,” Prateek Agrawal, head of equities, ABN AMRO Asset Management (India) Ltd., said.
“There’s a valuation comfort and crude is moving in a direction which will benefit these companies,” Agrawal, who has investments in Oil and Natural Gas Corp. Ltd and Hindustan Petroleum Corp. Ltd, told Reuters.
Oil prices are off record highs above $78 (Rs3,452) per barrel hit in July last year, but are off the 20-month low of $49.90 hit in January. US crude rose above $60 a barrel on Wednesday.
India’s BSE Oil and Gas index has gained 9.58% in two months to 21 February as against a 6% rise in the country’s 30-share benchmark BSE index.
Fund managers reduced their stake in financial services stocks in February to 7.90% from 9.14% in December with more than a fifth of the respondents planning further cuts.
“Upward revision in interest rates has led to paring of exposure to financial services stocks,” Sanjay Sinha, head of equity, SBI Funds Management Pvt. Ltd., said.
India’s central bank raised the cash reserve ratio twice in the last three months and raised its key short-term lending rate last month to its highest level in nearly four years. The BSE Bankex has dipped 4.12% in the one month ending 21 February as compared to a 0.04% rise in India’s benchmark BSE index.
“In a scenario of hardening interest rates, financial sector companies will be having limited leverage to expand their income,” Sinha said.
Equity fund managers have been steadily cutting investments in engineering stocks, from 16.50% in December 2006 to 14.58% in February. However, the sector still remains the most preferred by diversified equity funds.
Funds have been consistently reducing allocation to the sector for the last three months but nearly half of the respondents said they would now maintain their current exposure in the next three months, the poll showed.
“Fund managers have booked some profits in engineering stocks,” Sanjay Dongre, fund manager, UTI Asset Management Co. Pvt. Ltd., told Reuters.
Dongre however added that it was a temporary blip and such companies would do well over a period of one year or more as their order books continued to swell quarter after quarter.
“I wouldn’t decrease my exposure to engineering companies, on the contrary I would increase my exposure,” he added.