Home >Mutual Funds >News >Mutual funds raise exposure to PSU banks to 15-month high in May

MUMBAI: As covid-led uncertainties are gradually receding, mutual fund houses are increasing their exposure to the banking sector, especially in the public sector undertaking (PSU) segment.

An analysis of India’s top 20 domestic mutual fund houses shows that they have been consistently pumping money into PSU banks for the last seven months.

In May, PSU Banks’ weightage among mutual funds reached a 15-month high of 3.4%, a jump of 30 basis points compared to the previous month and 120 bps in the year-ago period, according to data sourced from the Association of Mutual Funds in India (AMFI) and NAV India, analysed by Motilal Oswal Financial Services Ltd. As a result, the sector, which was in the thirteenth position a year ago climbed to the ninth position in the allocation of mutual funds.

In May, Nifty PSU Bank index jumped 18% after a consecutive loss in the previous two months. Nifty Private Bank index also climbed 6.33% in May, while Nifty Bank rose 8.37% outpacing benchmark Nifty which gained 6.50% in May.

According to analysts, March quarter earnings by banks suggest that the asset quality issue is less worrisome and the impact of the second wave is likely to be manageable.

“So far, the impact of covid has not been as bad as forecasted by various agencies post the first lockdown. If anything, we are probably looking at a reduction in headline gross and net non-performing loans (NPLs) for the banking system. The high moratorium ratio gave a less-than-convincing signal on the eventual slippage ratio in the first year of covid," said Kotak Institutional Equities Research in a note on 7 June.

Motilal Oswal Financial Services said that the corporate cycle is also clearly turning; therefore, some PSU banks are expected to benefit from it. “PSU banks are trading at a price to book ratio of 1.1 times, near the historical average of 1 time. Some of the PSBs reported a lower retail slippage trend versus few midcap private banks…We expect credit costs to normalize and business momentum to improve in both retail and corporate," the brokerage firm said.

Data showed that private Banks (18%) was the top sector holding for mutual funds in May, followed by Technology (11%), Healthcare (7.6%), and NBFCs (7.4%).

Meanwhile, besides oil & gas, capital goods and insurance, which are seeing a monthly increase in their weights by MFs, contact intensive sectors like autos, retail and real estate are also getting fund allocation from mutual funds.

Sectors such as healthcare, metals, consumer, technology, telecom, chemicals, consumer durables and cement saw a month-on-month decline in their weightage, showed data. However, mutual funds are cutting their stake in metal stocks with weightage reducing by 20 bps to 3% in May, after hitting a 29-month high in April. Following a 22% rise in April, NSE Metal gained 6.47% in May.

At an aggregate level, net inflows into equity mutual fund schemes raced to a 14-month high of 9,235.48 crore in May, showed data issued by the Association of Mutual Funds in India (AMFI). Equity schemes saw a net inflow of 1,783.13 crore in April, while it was 5,045.53 crore in May last year. The contribution of monthly systematic investment plans (SIP) rose a tad to 8,818.90 crore in May from 8,590.89 crore in April.

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