Mutual funds lapped up bank shares in December on valuation comfort

Mutual funds (MFs) loaded up on banks in December with Axis Bank, Indian Bank, and Bank of India featuring in the five most-bought stocks list. MFs' investment in these, along with another top buy - ICICI Bank - amounted to over Rs 7,000 crore, according to Nuvama Alternative & Quantitative Research. Reliance Industries and Mankind Pharma were the other two stocks in the most-bought list.

Amid high valuations across most of the market segments, most fund managers are seeing opportunity in the banking sector, especially large private banks.

“The biggest opportunity we see is in private-sector banks. Some of the best-managed banks today are trading at valuations that are lower than their long-term averages,” said Ajay Tyagi, Head of Equities, UTI AMC.

Banking sector stocks account for around 20 per cent of the total investments of active equity schemes of each fund house. Among the larger fund houses, Mirae MF has the highest allocation at - 24 per cent, followed by Franklin Templeton MF.

In its equity outlook for calendar year 2024, Mirae Asset MF said it is ‘overweight’ on retail banks owing to reasonable valuations, possibility of cyclical and structural upside, and consolidation towards strong franchise.

However, MFs have been trimming their allocation towards the largest lender HDFC Bank. In the two month period of November and December, MFs have sold HDFC Bank stocks worth Rs 4,700 crore.

In December, HDFC Bank, Ultratech Cement, Cholamandalam Invest, Indiabulls Housing, and Bharat Electronics were the top five most sold stocks, according to the report.