Private banks was the top sectoral holding of the mutual fund industry in June 2019, shows a recent Motilal Oswal report. The MF industry has consistently increased its weightage to private banks over the last nine months taking it to a new high of 19.9% in June. Overall, in the last one year, the private bank exposure of the industry grew by 3.7%.
Private banks have consistently delivered strong growth and return on equity, said Vinay Paharia, CIO, Union MF. In addition, on a relative basis their cost of funding is lower which makes them a more popular investment option among fund managers, he added.
Gopal Agrawal, Senior Fund Manager and Head - Macro Strategy, DSP MF attributed the high allocation to private banks to two factors – one, they have significant exposure in index (21.3% exposure in BSE 100 index); second, both banks and NBFCs are core sectors of the economy, providing lifeline in terms of liquidity to other sectors. This makes good quality banks and NBFCs where there is visibility in terms of earnings an integral part of the portfolio, he said.
Other sectors which saw an increase in weightage were NBFCs (9.2%), technology (8.7%) and capital goods (8%).
Talking about the allocation to technology space, Vinay said that top players in the technology space have reported reasonably good earnings last quarter. Also, large IT companies have met their earnings guidance.
Meanwhile, allocation to oil & gas (-0.5%), chemicals (-0.2%), autos (-0.1%) and cement (-0.1%) declined slightly in June compared to May. Oil and gas sector, which saw a lot of interest in February 2019, recorded the highest month-on-month decline in June.
Source: Motilal Oswal, Fund Folio Indian Mutual Fund Tracker Report
If we look at the benchmark composition of BSE 200 Index, the industry is slightly underweight on private banks. While the index has 21.3% allocation to private banks, the MF industry has 19.9% exposure to such stocks. However, the industry is overweight on capital goods, healthcare and cement compared to its benchmark.
Gopal pointed out that capital goods story is largely driven by expectation of capex revival. The exposure to other two sectors – cement and healthcare is due to expectation of improvement in profit margins in cement companies and attractiveness of pharma companies on valuation front.
Source: Motilal Oswal, Fund Folio Indian Mutual Fund Tracker Report
