Suddenly, mutual funds are gung ho on banking, financial services stocks

Banking is already the top sector holding for most mutual funds given the share the sector has in the market. NSEBSETata MetaliksLoading data…

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          ChartsValuation & Peer ComparisonCommunity BuzzPEER COMPANIESMax IndiaEXPAND TO VIEW ALL By Bhavana Acharya

          Banking and financial services were the most favoured sectors for equity mutual funds in July, with both sectors seeing their share in equity fund AUMs inching steadily higher.

          Sebi data shows these two sectors accounted for 31.2 per cent of total equity asset under management at the end of July compared with 27.8 per cent in last July.


          Source: Sebi

          Banking is already the top sector holding for most mutual funds given the share the sector has in the market. Funds had begun turning wary of banks in the previous months, opting instead for NBFCs. But the past six months has seen a sharp surge in share of AUM, moving from 20.9 per cent in January 2017 to 22.6 per cent in July 2017 (latest available data). The value of fund holdings in banking is up by a strong 42 per cent in July 2017 from January, and even more by 57 per cent from a year ago.

          Funds have also continued to bet on financial companies. Value of holding in financial companies is up 55 per cent and 70 per cent in the same period. Max India, IDFC, Oriental Bank, Capital First, Equitas Holdings, and Muthoot Finance are some of the stocks that have seen a rise of more than 3 percentage points in mutual fund holdings between the December 2016 and June 2017 quarters.

          What drives the rising preference here is that financial services provide a play on both the investment cycle of economic growth and the consumption cycle. An uptrend in consumption will lead to growth in the retail loan book, which is already shoring up several banks and boosting most non-banking financial companies. A revival in overall corporate credit growth and moves to force a solution to the bad loan problem will help ride the broader economic growth.

          Other traditional consumption sectors such as FMCG and durables are offering lower opportunities given their higher valuations. Cement, a sector some funds consider a proxy consumer play due to housing demand, is steadily seeing mutual fund preference coming down. Funds also appear to be maintaining status quo on automobiles, with the sector’s share in the equity AUM dipping marginally over the past six months.

          On the cyclical side, funds already picked up sectors that showed promise such as energy. This bet continues. Funds have also added to another reviving sector – metals and steel. The two sectors account for 3.3% of the AUM in July 2017, up from the 2% just six months ago. In value terms, the sectors’ holdings have doubled. Tata Metaliks, for example, saw a sharp 4 percentage point increase in fund holding between December 2016 and June 2017.

          Software began to gather some interest in the early part of 2017, but that has given way over the past three months. From an 8 per cent AUM share in February 2017, the share slid to 6.3 per cent by July 2017. Pharmaceuticals, of course, continue to see dipping fund holding. The troubles dogging the sector seem to be keeping funds away, barring the truly contrarian.

          (Bhavana Acharya is a Mutual Funds Analyst at FundsIndia.com. Views expressed in this article are writer’s own and do not represent those of ETMarkets.com. Investors are advised to consult their financial planners before taking any investment call based on these views)

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