Mutual funds increased their exposure to private bank stocks in June, after the exposure to private lenders dropped to a 20- month low in May, data for India’s top 20 domestic MF houses shows. These MFs command nearly 97% of the industry in terms of assets under management (AUM).
In June, fund houses had an exposure of 17.1% to private banks, followed by consumer with 9.6%, oil and gas (9.4%) and technology (8.7%) sectors, according to data sourced from the Association of Mutual Funds in India (AMFI) and NAV India analyzed by Motilal Oswal Financial Services Ltd.
The preference for the private banking sector had hit a 20-month low to 16.7% in May, down 130 basis points from the previous month, and 300 basis points lower compared to May 2019. However, while MFs increased their private bank exposure, it is still far away from the levels seen in pre-covid-19 days.
“This is a gradual increase of mutual funds’ exposure to private banks as exposure to the sector had fallen drastically from 20.3% in January to 18.1% in March and then 16.7% in May. However, typically mutual funds have high exposure to private banks among sectors, but had fallen after a steep correction in markets in March," said Deven Mistry, research analyst, Motilal Oswal Financial Services. Though net inflows into equity schemes plummeted to a four-year low, mutual funds were net buyers in 50% of Nifty stocks in June.
The fund managers’ bet on private banks was in stark contrast to the challenges the sector is facing since the lockdown. The Reserve Bank of India permitted lending institutions to extend moratorium on term loan instalments from 1 June to 31 August. Also, post March quarter, many banks have deployed higher provisioning for covid-19.
However, analysts said the overall funding environment for the sector seems to have improved given the level of liquidity in the banking system with a decline in yields following the RBI rate cuts and the various fund-raising channels put in place by the Centre.
Emkay Global Financial Services analysts said the recent up-move in banking stocks could be partly attributed to positive news flow around lower moratorium numbers and higher collection rates as unlocking has begun.
“However, we believe that it is too early to read in to these trends and the real picture on the asset quality front will emerge once the moratorium is lifted," they added. Lower valuation after steep corrections in March is also attributed to the interest in private bank stocks.
Among the Nifty stocks, the highest net buying by mutual funds was witnessed in Kotak Mahindra Bank (up 12.3%), Bharti Infratel (up 11.3%), JSW Steel (up 9.9%) and Britannia (up 9.1%). While stocks of Zee Entertainment, ONGC, Tata Motors, Bajaj Finance and Tata Steel saw steep cuts of 6-14%, the data shows.