MFs raise allocations to IT stocks, cut those in banks

Rising NPAs and weakening rupee make fund managers rejig investments

A weakening rupee against the dollar and uncomfortably higher non-performing assets (NPAs) of Indian banks, state-owned ones in particular, made the country's equity fund managers redo their allocations in July.

They pruned exposure in banking stocks by 2.7 per cent to 16.9 per cent, a level not seen for several months. And, raised allocation to information technology (IT) stocks, to 12.9 per cent against 10.2 per cent in June. This is probably the highest exposure of fund managers to the IT sector in recent memory.

As on July 31, overall equity assets under management (including equity-linked savings schemes) were Rs 1.63 lakh crore.

Gopal Agrawal, chief investment officer at Mirae Asset Mutual Fund, said, “The currency factor has helped IT companies. One cannot rule out the possibility of re-rating of some IT stocks, as they are trading at  a PE (price to earnings) value of 14-15 times forward earnings.”

Other fund managers agree. According to an equity head of a large fund house, “The US economy is showing positive data points and this is propelling companies there to invest in technology. This augurs well for Indian software exporting giants.”

The quick juggling of portfolios seems to have worked. During a month when key indices and the broader markets witnessed a week-long carnage, with market participants still unsure on whether one’s out of the woods, raising the holding in IT stocks has helped fund managers gain some stability.

For instance, all the IT majors — Infosys, TCS, Wipro, HCL Tech, Tech Mahindra, Hexaware and MindTree, among others — have managed to keep their heads high so far in August. Their shares have not appreciated much but haven’t declined, too, providing a safe haven to investors.

On the other hand, bank stocks, under pressure for months, cracked further. Shares of private banks joined their state-owned peers ins slipping. Axis Bank shares lost close to 10 per cent in August, while those of ICICI Bank saw an erosion of nearly nine per cent. YES Bank cracked 20 per cent. Among state-run banks, State Bank of India, Bank of Baroda and Punjab National Bank lost 15-20 per cent.

Companies in the pharmaceutical space were another favourite of fund managers.

For the first time since September last year, the sector attracted an allocation of over eight per cent of equity assets. On a month-on-month basis, the rise is around 42 basis points.