Financials most bought stocks by mutual funds in April
By Selene 0
Mumbai: More than 38% of the market value of top 10 stocks bought by mutual funds in large-cap and mid- and small-cap spaces each in April comprise financial stocks, indicating that fund managers are placing their bets on recovery in the growth engine of the world’s fastest growing major economy.
In April, mutual funds purchased financial stocks worth Rs2,644.85 crore or 38.06% of its total purchases of top 10 large-cap stocks by market value, and among the top 10 mid- and small-cap stocks, financial stocks were worth Rs6,949.37 crore or 38%, according to data from Morningstar.
The top buy by mutual fund in the large-cap space was the top private sector lender ICICI Bank Ltd—they bought Rs737.45 crore of the stock last month. Following next was peer HDFC Bank Ltd and mortgage lender Housing Development Finance Corporation Ltd (HDFC).
In the mid- and small-cap space, mutual funds bought Muthoot Finance Ltd, Max Financial Services Ltd, City Union Bank Ltd and Canara Bank, among the top 10 buys in this segment in April.
“The story in financial services, particularly credit is very interesting right now. Financial services firms tend to grow 1.5 times the GDP growth of a country,” said Nitin Jain, chief executive officer, global asset & wealth management at Edelweiss Financial Services Ltd.
Earlier in May, the International Monetary Fund said India’s growth is expected to rebound to 7.2% in the fiscal year 2017-18 fiscal and 7.7% in fiscal year 2018-19 after disruptions caused by the surprise demonetisation announcement in November last year.
“Of these, the private sector companies tend to perform better. That explains, why certain private banks have been shored up heavily by mutual funds in recent times,” said Jain.
Financials have a huge weightage in the benchmark indices, and also form the major chunk of the mutual funds’ holdings in India.
The top three mutual fund holdings in the Indian equity market are: HDFC Bank, ICICI Bank and State Bank of India, which collectively amount to Rs65,636 crore at the end of April.
“Banks are representative of the economic growth, and since that is seen picking up, it will in turn benefit the banks,” said Gopal Agrawal, chief investment officer at Tata Asset Management Ltd.
“Also, the net interest margins are seen turning better as deposit rates have come down. This along with the push for affordable housing push and a strong retail push, also bode well for the banks,” added Agrawal.
The trend may continue going ahead, as fund managers welcomed the NPA (non-performing assets) ordinance announced earlier in May.
Earlier this month, the Union cabinet decided to amend the Banking Regulation Act to speed up the resolution of Rs9.64 trillion stressed assets choking the Indian banking system.
While there are many questions that remain unanswered, analysts believe this is a step towards resolving the sticky issue.
“There is naturally much scepticism as to whether resolution of bad debt cases will happen given the previous failure to address the NPA problem,” Christopher Wood, managing director of CLSA Ltd, said in his newsletter ‘Greed & Fear’, dated 11 May.
“Still in Greed & Fear’s view it is wrong to be too sceptical since if the RBI (Reserve Bank of India) is prepared to be tough it has the leverage to apply since it now has the power to invoke the insolvency code against defaulter,” Wood added.
According to Wood, once the NPA issue is resolved, the way will be clear for public sector banks to raise capital, a process which should also lead, with the encouragement of both the RBI and the government, to the consolidation of public sector banks.
In his Asia ex-Japan long-only portfolio, Wood initiated an investment in State Bank of India with a 3% weighting, and said a further one percentage point will be added to the existing investment in HDFC.
First Published: Thu, May 18 2017. 11 10 AM IST