Mumbai: Mutual funds piled on to private bank stocks in August even as net outflow from equity schemes surged to 10-year in the month. Despite fears of defaults and end of moratorium in August, private banks were strong favourites among fund managers in the month after hitting a 22-month low in July, data for India’s top 20 mutual fund houses showed.
In August, mutual fund schemes increased their weightage to private banks to 17.3%, up 110 basis points (bps) from 16.2% in previous month. However, the weightage is still 280 bps lower compared to 20.1% in year-ago period, according to data sourced from the Association of Mutual Funds in India (AMFI) and NAV India analyzed by Motilal Oswal Financial Services Ltd.
Besides private banks, the other top sector holding for mutual funds in August was technology (10.2%), oil & gas (9.1%) and consumer (8.8%). However, after rising for two consecutive months, oil and gas’ weightage slipped to a 3-month low of 9.1% down 60 bps month-on-month. Consumer sector’s weight has declined for the third consecutive month to 8.8%, down 40 bps on monthly basis.
The increase in exposure to private banks by mutual funds also likely contributed to the rally in the sector in August. In August, Nifty Bank and Nifty Private Bank rallied nearly 10% each while Nifty PSU Bank jumped 8.06% outpacing benchmark Nifty which was up around 3%. Private banks were on a fundraising spree with ICICI Bank Ltd, Axis Bank Ltd and HDFC Ltd raising a combined around ₹35000 crore in August.
However, due to a lack of clarity around non-performing loan (NPL) cycle and growth outlook, large private banks have been underperforming the benchmark in the last few months post March.
“Delay in NPL recognition is a key investor concern. We agree that visibility on potential NPL additions is low now, but clarity should emerge in second half of FY21 given that moratorium has ended and restructuring time lines are limited. Further, large private banks have fortified balance sheets after recent capital raisings – capital ratios are now some of the best amongst global banks,” said Morgan Stanley in a report on 10 September. As factors around weak competition, improving funding franchises and strong digital capabilities are expected to help, analysts at the global firm have built in 10-15% loan CAGRs at large private banks over the next three years.
Others concur. “Capital raising has led to stronger bank balance sheets. Liquidity and solvency risk for banks have eased, although concerns around growth and asset quality persist,” said Edelweiss Securities Ltd.
In terms of month-on-month value increase, seven of the top-10 stocks bought by MFs in August were from Financials: ICICI Bank, Axis Bank, HDFC Bank, SBI, HDFC, Bandhan Bank and Bajaj Finance.
Among Nifty stocks, MFs were net buyers in 38% of stocks, data showed. Stocks that saw maximum decline in value month-on-month were Bharti Airtel, HUL, Infosys, Aurobindo Pharma, UltraTech Cement, Reliance Industries, HDFC Life Insurance, SBI Life Insurance, HCL Tech and IOCL.
Net outflows from equity MFs rose to ₹4,028.83 crore in August from ₹3,845.41 crore in July, according to the Association of Mutual Funds in India (Amfi). The previous highest monthly outflow was ₹7,281 crore in September 2010.