MFs cash in as public sector banks rally

Sell shares of SBI, PNB and BoB worth Rs 1,600 crore in October amid rally following recap announcement

Fund managers turned net sellers in State Bank of India, Punjab National Bank and Bank of Baroda as the government's move to recapitalise public sector banks hoisted their stock prices by as much as 40 per cent.

Fund managers sold shares worth Rs 1,660 crore in October in these three banks in order to book profits upon the announcement of a Rs 2.11 lakh crore bank recapitalisation programme. 

Instead, they turned their attention to private banks. Axis Bank, HDFC Bank, Yes Bank and RBL Bank were among the most bought stocks. Fund managers pumped Rs 3,540 crore into these four counters during the month.

“We remain positive about private banks because retail lending and digital capabilities cannot be built overnight. Big private lenders like Axis Bank and ICICI Bank will benefit from a faster resolution of bad loan cases. We will selectively look at large public sector banks too,” said Mahesh Patil, co-chief investment officer of Aditya Birla Sun Life Mutual Fund.

Fund houses like ICICI Prudential, HDFC, Franklin Templeton and DSP BlackRock were the top sellers of the SBI stock during October and they sold shares worth a cumulative Rs 900 crore. Aditya Birla Sun Life emerged as the single biggest buyer of the SBI stock at over Rs 400 crore.

Sanjay Parekh, senior fund manager (equities) at Reliance Nippon Mutual Fund, said most private banks had a strong retail presence and good franchisees. A few of them also had a large corporate exposure and hence they faced asset quality issues, he added. 

“But we feel the strength in retail banking is being under-appreciated. We like retail-focused private banks with the least asset quality issues and those with a large corporate exposure but with a strong retail presence,” Parekh added.

Public sector banks have been inviting the wrath of fund managers for several years now. On several occasions, fund managers have made it clear that despite the rally in private banks’ stocks, the segment will remain in their priority investment list.

The apathy for stocks of public sector banks can be gauged from the fact that in the list of top 20 most invested companies by equity mutual fund schemes, only SBI has found place. On the other hand, private banks in this list include HDFC Bank, ICICI Bank, Kotak Mahindra Bank, IndusInd Bank, Axis Bank and YES Bank.