Mutual funds cut banking stocks exposure to Rs 82,000 cr in July-end

Mutual funds' (MF's) allocation for bank stocks slumped to Rs 82,000 crore at the end of July, after touching a record high in the preceding month.

Prior to that, fund managers had been raising their allocation to banking shares since February. Although, they had trimmed exposure to the sector between November and January due to higher bad loans.

Experts have attributed the trim in allocation to banking stocks to mounting bad loans of public sector banks.

However, due to the sheer size of the financial sector in India, MF exposure to this sector is still the highest as compared to others such as auto and software and also because in the long run, finance and banking are a major part of the growth story which is India, they added.

In percentage terms, exposure to banking stocks fell to 19.86 per cent of equity assets under management in last month as against 20.4 per cent in June.

The overall deployment of equity funds in bank stocks stood at Rs 82,042 crore at the end of July compared with Rs 93,885 crore in June-end, according to data available from the Securities and Exchange Board of India.

The industry's exposure to banking sector was at Rs 78,644 crore, Rs 71,864 crore, Rs 82,196 crore, Rs 85,330 crore and Rs 90,014 crore in January, February, March, April and May, respectively.

Banking continues to be the most preferred sector with fund managers as they cannot take a bearish call, given the high weightage attached to the index. Pharmaceutical comes in next.

Equity fund managers' deployment in pharma stocks stood at Rs 33,599 crore, followed by finance stocks (Rs 32,834 crore) and software stocks (Rs 32,273 crore).

MFs are investment vehicles made up of a pool of funds collected from a number of investors. They invest in stocks, bonds, money market instruments and similar assets.