Mutual funds' exposure to banks soars to over 3-yr high

The mutual fund industry is betting big on banking space with equity investments worth over Rs 43,000 crore, the highest level in over three years.

According to latest data available with the Sebi data, mutual fund industry's investment in banking stocks stood at Rs 43,659 crore at the end of December, which was 21.15% of the industry's total equity assets under management (AUM) of Rs 2.06 lakh crore.

Banking is the only sector to log double digit exposure. Software is the second most preferred sector with MFs having 7.98% exposure, followed by pharmaceuticals (7.59%) and consumer non-durables (7.51%).

At current levels, the MF industry has the highest exposure to banking sector since at least August 2009 both in terms of percentage as well as in absolute terms.

Data is not available for sector-wise mutual fund exposure before August 2009, when the equity funds had deployed Rs 22,587 crore (12.73%) in banking shares.

The mutual funds had pumped in Rs 42,022 crore in the banking shares at the end of November, while their exposure in the sector was at 20.59% of the equity AUM.

The year 2012 has seen a consistent growth in investment in banking stocks by the industry's equity fund mangers and their exposure has risen from 17.23% of total AUM in January 2012 to 21.15% in December.

In absolute terms, fund infusion has grown from Rs 32,380 crore to Rs 43,659 crore.

Market experts believe that expectation of rate cuts from Reserve Bank of India (RBI) has made equity fund managers raise their exposure in the sector.

"We have been seeing a steady rise in investment in bank shares in the last three months by mutual funds on expectation of a reduction in key short-term lending rate by RBI in January," Destimoney Securities MD and CEO .

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said.

Additionally, the passage of the Banking (Amendment) Bill, which paves the way for entry of more players and investments in the sector, had also given a boost to the sector.

In December, banking was followed by software sector which have attracted Rs 16,467 crore or 7.98% of AUM, pharmaceuticals saw an investment of Rs 15,667 crore or 7.58% of AUM and consumer non durables witnessed a deployment of Rs 15, 498 crore or 7.51% of the AUM.

Last month, the Reserve Bank had cut short-term lending rate called repo by 0.25% to 7.75% and also slashed Cash Reserve Ratio, which is the portion of deposits that banks have to park with the central bank, by similar margin to 4%.