Mutual funds churn portfolio in favour of private financials in October

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Mumbai: Mutual funds bought financials stocks the most in October—particularly churning their portfolios in favour of select private financial stocks—while cut their holding the most in state-run State Bank of India (SBI). They placed bets on long-term value proposition for stocks such as HDFC Bank Ltd and Housing Development Finance Corp. Ltd (HDFC).

The assets under management (AUM) of equity schemes touched a record Rs7.08 trillion in October, up 7.4% from a month ago. Net inflows into equity schemes, though lower than the previous month, were still strong at Rs16,002 crore, data from industry lobby Association of Mutual Funds in India (Amfi) showed.

“Private banks have always been the preferred port of call for asset managers. The interest continues there,” said Kaustubh Belapurkar, director of fund research at Morningstar Investment Adviser India Pvt. Ltd.

Axis Bank Ltd, surprisingly, was the most bought stock by domestic asset managers, as they collectively bought Rs1,730 crore of the bank’s stocks in October, data from Morningstar showed.

“It (Axis Bank) has been one of the counters—where we haven’t seen too much of buying interest lately from fund managers, even as its peers were in the buy mode for these asset managers,” said Belapurkar.

According to Belapurkar, a sharp correction post its quarterly earnings, where asset quality woes worsened, was probably seen as an opportunity to buy the stock. “It seems like fund managers also stocked up on Axis Bank, ahead of the talk of Bain Capital investing in the company,” he added.

Axis Bank missed the second quarter net profit estimate and increased its credit cost guidance, in an indication that the bad loan stress is likely to continue for a few more quarters.

The bank’s gross non-performing assets (NPAs) rose to Rs27,402.32 crore as on 30 September from Rs16,378.65 crore a year ago and Rs22,030.87 crore in the June quarter.

After Axis Bank, HDFC and HDFC Bank were the most bought stocks by mutual funds in October. They bought Rs1,446 crore and Rs1,178 crore worth of stocks of the two entities, respectively.

Some believed the recent bank recapitalisation plan also aided interest for Axis Bank.

“If the corporate credit story were to revive and stress were to reduce in the system due to recapitalisation plan, Axis Bank is one of key beneficiaries among private bankers, and which is why it has been attracting investor interest,” Vidya Bala, head of mutual fund research at Fundsindia.com, said.

Top lender SBI was the most sold stock by mutual funds, as they dumped Rs1,060 crore of the stock. The stock had rallied 20.51% in October, on the back of government’s recapitalisation plan.

On 24 October, the finance ministry announced a Rs2.11 trillion bank recapitalisation plan for state-owned lenders weighed down by bad loans, seeking to stimulate the flow of credit to spur private investment.

“We saw profit booking taking place in SBI, after the strong gains post the recap plan announcement,” said Belapurkar.

It, however, remains the most-held state-run enterprise by mutual funds, and is the third-most held stock by the mutual fund industry collectively.

Meanwhile, commodity-linked stocks were dumped the most as asset managers likely locked in gains after the recent rally.

Among key stocks that were sold the most were commodity-linked stocks such as Coal India Ltd, Petronet LNG Ltd, Vedanta Ltd, Bharat Petroleum Corp. Ltd. and Hindalco Industries Ltd. Mutual funds sold a total of Rs1,616 crore of these stocks.