CRR cut puts bank stocks back on fund managers' radar

Banks are back on fund managers’ radar. With a 50 basis points (bps) cut in their Cash Reserve Ratio (CRR) and rising anticipation of reduction in key policy rates, mutual fund (MF) equity managers are taking a quick buy call on the banking counter.

In January alone, amid a bull run in the equity markets, the equity asset allocation of fund houses to banks rose by 176 bps. The development came after they had consistently reduced exposure to banks over the previous couple of months. Since June last year, this asset allocation had reduced by close to 200 bps till December. In calendar 2011, when the benchmark indices lost a fourth of their value, the bank index lost a whopping 31 per cent.

Kaushik Dani, equity head at Peerless MF, says, “There is a rising sense that interest rates have peaked out. With cuts in CRR, the next policy may see cuts in other key rates.” This will augur well for the banking sector, he adds.

Amid the overall bullish sentiment, bank indices outperformed benchmark indices and have gained close to 30 per cent since January 1. State Bank of India, ICICI Bank, Punjab National Bank and Canara Bank have gained between 25 and 45 per cent.

Aviral Gupta, equity head at Indiabulls MF, says, “Anticipation of cuts in interest rates have boosted confidence in the sector.”

Overall exposure of equity assets of MFs to banks was 17.23 per cent in January against 15.47 per cent in the previous month. In absolute terms, of all invested equity assets, Rs 32,380 crore were pumped into banks in January. Equity experts see further appreciation in bank stocks as interest rates moderate.

However, while allocating more assets to banking, fund managers have reversed gears for the information technology sector, on the back of a rising rupee.

There was a cut of 100 bps in IT exposure and it is once again back to single digit. And, in and fast moving consumer goods, asset allocation has declined 50 bps.

“Defensive stocks are now highly priced. We are choosing those stocks in the segment which have a strong growth factor,” explains an equity head.