Equity mutual funds' banking sector exposure soars to 20.1%

The mutual fund industry is betting big on banking space with investments worth more than Rs 42,000 crore in bank stocks -- taking this sector's exposure to the highest level in more than three years.

According to latest data available with the Sebi data, mutual fund industry's investment in bank stocks stood at Rs 42,022 crore at the end of November, which was 20.59% of the industry's total equity assets under management (AUM) of Rs 2.04 lakh crore.

Besides banking, the exposure to none of the sectors is in double digits, with software being the second-best with an 8.7% exposure.

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

The 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 sector.

The mutual funds had pumped in Rs 38,668 crore in the banking shares at the end of October, while their exposure in the sector was at 19.72% of the AUM.

Market experts believe that the passage of the Banking Bill by Parliament along with expectations of rate cuts by the Reserve Bank early next year have made equity fund managers to raise their exposure in this 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 and passage of the Banking (Amendment) Bill, which would pave the way for entry of more players and investments in the sector, have given a further boost," Destimoney Securities MD and CEO Sudip Bandhopadhyay said.

The year 2012 has seen a consistent growth in investment in banking stocks by the industry's equity fund mangers and their exposure have risen from 17.23% of total AUM in January to 20.59% in November. In absolute terms, funds infusion has grown from Rs 32,380 crore to Rs 42,022 crore.

In November, banking was followed by software sector which have attracted Rs 17,745 crore or 8.7% of AUM, consumer non durables (Rs 16,387 crore or 8.03%) and pharma (Rs 5,689 crore or 7.69%).