Mutual fund equity managers have heavily cut their exposure in banking shares, of late. The cut is in excess of 100 basis points, the sharpest fall in recent months.
With slowdown blues hitting growth, issues of rising non-performing assets (NPAs) and talk of debt restructuring have taken a toll on the banking sector, say equity heads. Since the weightage of financials is high in the benchmark indices, bank stocks can’ be ignored. "But in the current scenario, we are cautious, especially on state-owned lenders, including State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda," explains the chief investment officer from among the top 10 fund houses. He says banking might have more pain and private sector lenders, too, could get engulfed.
Other investment experts agreed but added these counters offer cheap valuation from a long-term perspective.
Poor market sentiment is evident from the fact that in August alone, equity assets invested in banks reduced by around Rs 2,400 crore, to Rs 32,970 crore. This brought down the overall exposure of equity assets in banks to 17.7 per cent from 18.75 per cent a month before. Interestingly, at the end of the first quarter, fund managers had pushed their investments to banks at the close to 19 per cent.
During the month, the BSE's Bankex corrected 3.3 per cent to 11,516 points, while individual stocks saw more damage. For instance, during a period when shares of SBI and PNB cracked eight per cent and seven per cent, respectively; private lenders ICICI Bank and Axis Bank witnessed value erosion of a little over five per cent and four per cent, respectively.
On the other hand, information technology (IT) and pharmaceutical companies continued to remain fund managers' favourites. Both sectors found a rise in exposure of equity assets. In IT, for example, exposure jumped a little over 100 bps; in pharmaceutical companies, it inched up over half a percentage point.
In conversation with Business Standard, investment heads said they preferred pharma stocks over fast moving consumer goods (FMCG). "FMCG has done phenomenally well but at over 35xPE, our call is, we should definitely look at other sectors which might be better. Currently, we are underweight on FMCG. We would rather play pharma because valuations are in our favour, growth is faster and currency is helping the sector," explains the equity head of a large fund house.
During August, the BSE Health Care index rose five per cent, while the other defensive index, FMCG, closed six per cent higher.
Amid all these, cement stocks, among the least owned in mutual funds' portfolios, are gaining traction. Strong balance sheets and high cash balances helped cement counters come under investment managers' radar.