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Mutual funds (MFs) lowered allocation to banking stocks by Rs 6,662 crore (nearly $1 billion) to Rs 78,600 crore in January, primarily on account of mounting bad loans of public sector banks (PSBs).
Fund managers have been continuously trimming allocation to banking stocks since November, lowering exposure by Rs 9,000 crore in two months.
“In recent months, banking stocks, specially PSBs like Punjab National Bank and Bank of Baroda have declared massive NPAs (as part of the Reserve Bank of India’s push to clean the banking system) leading to downgrade in their stocks. Consequently, MFs have reduced their exposure to such stocks as they are no longer growth bets for the short term,” Wealth-force.com Founder Siddhant Jain said. “However, due to the sheer size of the financial sector in India, MF exposure to this sector is still the highest as compared to others such as auto and software and also because in the long run, finance/banking is a major part of the growth story which is India,” he added.
In percentage terms, exposure to banking stocks was at 19.24 per cent of equity AUM last month as against 19.97 per cent in December. Overall deployment of equity funds in bank stocks stood at Rs 78,644 crore at the end of January as compared with Rs 85,306 crore in the preceding month, as per the data available from Sebi.
The industry's exposure to banking sector was at Rs 88,000 crore and Rs 85,376 crore in November and October respectively.
The BSE bankex index slumped by nine per cent during the period under review, while the benchmark Sensex witnessed a plunge of nearly five per cent.
The gross non-performing assets (NPAs) of banking sector are estimated at over five per cent of total loans, while overall stressed assets (including declared and potential bad loans) are at about 11 per cent.
An analysis of their latest quarter results shows that the cumulative gross NPAs of 24 listed public sector banks, including market leader SBI and its associates, stood at Rs 3,93,035 crore as on December 31, 2015.
Despite the current decline, banking is the most preferred sector with fund mangers as they cannot take a bearish call on banking stocks, given the high weightage attached to the index.
After banks, information technology was the second-most preferred sector with fund mangers. Equity fund managers' deployment in software stocks was at Rs 43,115 crore followed by pharmaceuticals (Rs 33,785 crore, automobile (Rs 26,653 crore) and finance (Rs 23,131 crore).
MFs are investment vehicles made up of a pool of funds collected from a large number of investors. They invest in stocks, bonds, money market instruments and similar assets.
