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Energy stocks turn favourites, CRR takes a toll on bank scrips

Energy stocks turn favourites, CRR takes a toll on bank scrips

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 firms’ 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 that will benefit these firms," said Agrawal, who has investments in Oil and Natural Gas Corp. Ltd and Hindustan Petroleum Corp. Ltd.

Oil prices are off record highs of more than $78 (Rs3,432) 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, BSEOIL, has gained 9.58% in the two months to 21 February, against a 6% rise in the 30-share main BSE Sensex.

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 (CRR) twice in the last three months and raised its key short-term lending rate last month to its highest level in four years.

The BSE Bankex (BSEBANK) has dipped 4.12% in the one month ended 21 February compared with a 0.04% rise in the Sensex. “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, said.

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.

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