MFs' investment in banks back to earlier highs, auto loses fancy

Exposure up 66 basis points to 16.78 per cent in February

Mutual funds are again showing interest in banking stocks, while the automobile sector continues to lose the fancy of fund managers. With over 10 per cent correction in the banking index during the first two months of the current calendar year, fund houses’ exposure of total equity assets under management in bank shares is close to the October highs.

According to the Securities and Exchange Board of India (Sebi), mutual funds have upped their exposure to the banking sector by 66 basis points (one basis point is one hundredth part of a percentage), to 16.78 per cent in February from 16.12 per cent in December.

In February alone, the exposure scaled up by 25 basis points, compared with the previous month. Whereas, exposure in the auto industry has slipped below four per cent, to 3.71 per cent.

In value terms, MFs’ investment in banks as on February 28 was Rs 31,889.8 crore. In automobiles, it was Rs 7,053.4 crore of a total equity asset under management of Rs 1,90,091.6 crore.

Between April and October, the Bombay Stock Exchange Bank Index or Bankex had moved north by 31.5 per cent. This resulted in MFs’ investment exposure in the sector mounting to 16.8 per cent in October from 13.9 per cent in March.

N Sethuram, chief investment officer of Daiwa Mutual Fund, says, “During the earlier quarters of the current financial year, bank stocks saw heavy rally. Post that, they were under pressure and recent months saw big corrections, which made the sector attractive for investment. In fact, mutual funds’ investment still has room to go up further in banks.”

With the central bank tightening key rates further by 25 basis points last week, equity heads feel it could put margin pressure on banks. Banking stocks have a weightage of a little over 20 per cent in the benchmark domestic indices.

According to a banking sector analyst at a Mumbai-based brokerage, “Sharp corrections in the bank shares made the sector a valuable buy, which market participants, including MFs, were quick to pick up. We see impact on the net interest margins of banks in the March quarter.”

The auto sector has its concerns, says another fund manager. “With interest rates going north, finance costs have gone up. Besides, the industry is facing a steep rally in input costs, which is likely to put a burden on automakers, dampening their margins. For the time being, we are negative on auto,” he adds.

This is evident from the fact that during the second half of the current financial year, investment exposure in autos by MFs, which had touched as much as 4.24 per cent, could not stay there. Since October, the proportion of total investment in the sector had dipped 50 basis points till February.

Other sectors which saw MFs’ exposure decline in February include industrial capital goods, retail, cement and oil.

In sectors like petroleum products, consumer non-durables and software, fund houses increased their proportion of investment.