MFs trim financial sector exposure

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MFs trim financial sector exposure

Anirudh Laskar / Mumbai July 11, 2008, 0:59 IST

Mutual funds have substantially trimmed their exposure to banking and financial services stocks due to uncertainty on interest rates.

Over the last six months, some of the country's top 10 mutual fund schemes in terms of assets under management (AUM) have cut their holdings in financial services stocks by as much as 14 per cent, while scaling their investments in pharmaceutical and healthcare, telecom and metal scrips.

The country's two largest banks - State Bank of India and ICICI Bank - have suffered the biggest dips in the portfolio holdings of mutual funds. The funds have pared their holdings in SBI by 16.1 per cent and ICICI Bank by 7.1 per cent between January and June this year.

NOT SO BULLISH Exposure to financial services
Name of the fund house	% of assets on Jan 31	% of assets on Jun 30
Reliance Mutual Fund	10.35	5.12
ICICI Prudential Mutual Fund	11.33	9.05
HDFC Mutual Fund	18.25	16.03
UTI Mutual Fund	15.94	10.19
Birla Sunlife Mutual Fund	16.14	11.42
Name of Schemes	% of assets on Jan 31	% of assets on Jun 30
Reliance Growth	5.21	1.61
DSP ML Tiger	18.94	11.44
Reliance Vision	16.16	9.8
Tata Infrastructure	15.06	9.48
Franklin India Flexi cap	25.19	11.54
Data for equity-diversified class of funds (Source: Value Research)

In January, 170 equity-diversified funds held around 35.8 million shares in ICICI Bank and this dropped to 33.2 million at the end of June.

The funds also reduced their holdings in SBI by 16.1 per cent to 9.9 million shares at the end of June from 11.8 million in January. Between January and June, Reliance Mutual Fund has trimmed its exposure to the financial services sector by over 5 per cent of its net assets, while UTI Mutual Fund has reduced its exposure by around 6 per cent.

Fund managers said the industry will adopt a cautious approach to stocks that are sensitive to interest rates. Concerns over double-digit inflation may force the Reserve Bank of India to initiate further monetary tightening, thereby pushing up the interest rates in the coming months.

Consequently, the interest rate-sensitive stocks such as banking and real estate may suffer a further hit in prices.

"The fundamentals have affected the banking and financial services sectors over the past six months. The interest rates have been rising and the macro-scenario still looks uncertain. The rupee depreciation has helped the pharma stocks to gain over the past few months" said a senior executive at Reliance Mutual Fund.

"Public sector banks have found it difficult to pass on the interest rate hikes completely to the customers due to pressure on the policy front. The chances of mark-to-market losses on the investment books are higher, which might prevent the fund managers to scale up their investments in banking stocks by any significant amount. However, the funds may increase their exposure to the financial sector marginally this year," said Anup Maheshwari, executive vice president, head- equities and corporate strategy, DSP Merrill Lynch Fund Managers.

Reliance Growth Fund, which manages assets worth Rs 4,856.16 crore, has reduced its exposure to banks and financial services from 5.21 per cent of AUM to 1.61 per cent between January and June 2008.

Similarly, DSPML TIGER Regular Fund, which recorded an AUM of Rs 3,613.29 crore in June, cut its exposure to financial services to 11.44 per cent from 18.94 per cent in January. Fund managers attribute the drop in exposure to the decline in share prices in the last six months.


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