Financial stocks were top picks of mutual funds in 2017

Corporate governance lessons from IDBI-LIC deal and ICICI Bank

Financial stocks, led by top private lender ICICI Bank Ltd, were the most bought by mutual funds (MFs) in 2017, as fund managers placed their bets on a recovery in Asia’s third-largest economy.

Domestic MFs pumped in a record Rs1.2 trillion in Indian shares in 2017, when BSE’s 30-share Sensex delivered 27.91% returns.

Five of the top 10 holdings of MFs were financials, ruled by private lenders HDFC Bank and ICICI Bank, according to data from Morningstar Inc. The five accounted for 58.9% of the top 10 MFs’ holdings at the end of 2017.

Banking and financial services stocks also made up more than 34% of the top 20 stocks bought by mutual funds in 2017, which included ICICI Bank, Housing Development Finance Corp. Ltd, State Bank of India, HDFC Bank Ltd, and Kotak Mahindra Bank Ltd.

“Cyclical story of recovery in economy made lenders attractive collectively,” said Kaustubh Belapurkar, director of fund research at Morningstar Investment Adviser India Pvt. Ltd, the India unit of Morningstar Inc.

Ritesh Jain, chief investment officer at BNP Paribas Mutual Fund, pointed out that financials have huge weightage and constitute 40% of benchmark indices, and added that portfolios largely mirror that weightage of financials.

“The sector though is expanding—we now have insurance companies, mutual fund companies, brokerage firms that have become diversified financial services companies, and small finance banks,” Jain said.

Since September, as many as five insurance firms have been listed, namely SBI Life Insurance Company Ltd, ICICI Lombard General Insurance Company Ltd, HDFC Standard Life Insurance Company Ltd, New India Assurance Company Ltd and General Insurance Corporation of India, along with Reliance Nippon Life Asset Management Ltd, a mutual fund.

ICICI Prudential Life Insurance Co. Ltd was listed in 2016.

“So, options are more for asset managers in the financial space,” Jain said.

Mutual funds stocked up on ICICI Bank shares to the tune of Rs9,928 crore. Mortgage lender Housing Development Finance Corp. was a new entrant to the top 10 holdings list of mutual funds as the second most-bought stock. Mutual funds collectively bought Rs8,889 crore worth of the company’s stock.

“ICICI Bank was available at good value early in 2017. HDFC was preferred heavily in 2017 due to the government’s low-cost housing push,” Belapurkar said.

Surprisingly, Maruti Suzuki India Ltd was the most sold stock by asset managers as they dumped Rs2,410 crore of the stock that slipped two positions to become the eighth-most held stock by domestic MFs.

“Fund managers locked in gains in Maruti after the sharp rally,” Belapurkar added.livemint