Large MFs slow down bank shares' accretion in July, turn cautious

Latest story I wrote for the news organisation I work for currently:

Large MFs slow down bank shares' accretion in July, turn cautious
Cogencis, Tuesday, Aug 22

    By Rajesh Gajra
    NEW DELHI - Select large mutual fund houses have curtailed the rate of

growth in exposure of their equity schemes to large banks last month with

some even reducing the exposure, the latest on-month change in fund house

level exposure in large bank stocks shows.

    This comes in the backdrop of a sharp rise in collective equity exposure

of all mutual fund schemes in all banks in the last one year, rising to

22.57% of total equity assets under management at the end of July from 19.86%

at the end of July last year, according to Securities and Exchange Board of

India data.

    In July, ICICI Prudential Mutual, the largest fund house by total assets

size in Apr-Jun, reduced its fund house level equity exposure in four of the

give largest bank stocks, according to fund house wise share holding data

from brokerage firm East India Securities (see table).

    The equity holding data, which excluded arbitrage funds, showed Reliance

Nippon Mutual Fund's on-month rise in fund house level holding in four of the

largest bank stocks in July slowing down as compared to the previous month.

    HDFC Mutual Fund increased its bank share holdings in July but at a

slower rate in two large bank stocks and stayed unchanged in another bank.

    HDFC Mutual Fund and Reliance Nippon Mutual Fund were the second-and

third-largest mutual funds by total assets size in the quarter ended June,

according to Association of Mutual Funds in India data.

    The on-month change was considered for fund house holding in the five

largest banks by market cap size--HDFC Bank Ltd, ICICI Bank Ltd, State Bank

of India Ltd, Axis Bank Ltd and Kotak Mahindra Bank Ltd. Together, the five

banks' market cap account for 80% of total market cap of 14-stock Bank Nifty

index and form a substantial portion of mutual funds' banking sector exposure.

BANK SHARES

    In the case of SBI, HDFC Mutual Fund and Reliance Mutual Fund

dramatically slowed down their accretion of the bank's shares in July as

compared to the previous month.

    ICICI Prudential Mutual Fund went a step ahead and cut its shareholding

in SBI by 7.19 mln shares on month.

    There was a mixed trend in the case of HDFC Bank shares.

    ICICI Prudential Mutual Fund was seen selling continuously in HDFC Bank

the last three months. At the end of July, the mutual fund's total holding in

HDFC Bank stood at 24.27 mln shares having sold 1.41 mln shares across its

various schemes during the month.

    Scheme wise, the largest sellers in July were ICICI Prudential Balanced

Advantage Fund, ICICI Prudential Select Large Cap Fund, ICICI Prudential

Value Fund and ICICI Prudential Focused Bluechip Equity Fund, data from

Cogencis' Corporate Fundamental Database showed.

    HDFC Mutual Fund, however, increased its fund house level exposure to

HDFC Bank shares in July by 1.96 mln shares on month to 27.52 mln shares,

which was more than the on-month increase in the previous two months.

    Reliance Nippon Mutual Fund bought 980,000 shares of HDFC Bank in July.

While this was an improvement over an on-month decline of 730,000 shares in

June it was much lower than 2.24 mln shares it had bought in May.

    Interestingly, in the case of ICICI Bank, ICICI Prudential Mutual Fund

was a seller for the third consecutive month in July. HDFC Mutual Fund and

Reliance Nippon Mutual Fund too slowed down their fresh accretion of ICICI

Bank shares in July as compared to the previous month.

    A similar trend was seen in the case of Kotak Mahindra Bank shares.

GOING FORWARD

    Banking stocks have been among the most preferred buys of several mutual

funds in the last one year with the industry wide exposure in bank stocks to

the extent of 21.91% of total equity assets at the end of July being the

highest in one year.

    But analysts are cautious of whether the rapid growth seen in bank stocks

exposure will continue in the next one year.

    Valuations of bank stocks are not cheap, according to Vinay Sharma, fund

manager at ICICI Prudential Mutual Fund who manages ICICI Prudential Banking

and Financial Services Fund among a few other schemes. "But there is still

scope for valuation expansion given that we are in early stage of an economic

cycle," said Sharma.

    Any positive or negative surprise on either non-performing loans

resolution, credit growth or any other related reforms could act as a trigger

for increasing or decreasing exposure to banking stocks, according to Sharma.

The table below lists the on-month change in holdings of five large bank

stocks in the last three months by three of the largest mutual funds.

                  On-month change (In mln shares)

                  ----------------------------------------------------------

                  HDFC MF            ICICI MF             Reliance Nippon MF

                  ---------------     ---------------     ------------------

                  Jul   Jun   May     Jul   Jun   May     Jul   Jun   May

                  ---   ---   ---     ---   ---   ---     ---   ---   ---

Axis Bank         0.9   0.4   0.0     1.5   2.6   5.1     2.9   3.8   0.2

HDFC Bank         2.0   1.3   0.8    -1.4  -0.7  -2.1     1.0  -0.7   2.2

ICICI Bank        4.3  34.9   3.3    -5.2  -6.1 -20.1     4.8   6.5   0.4

Kotak Mah. Bank   0.0   0.0   3.2    -0.1   1.1   7.5     0.0   0.1   0.1

SBI               5.0  16.4   2.4    -7.2  64.3   7.2     2.3  12.6   2.3

Data source: East India Securities

End