Mutual funds betting 'dangerously' high on banks: Assocham

Mutual funds betting 'dangerously' high on banks: Assocham New Delhi: Mutual funds in the country are betting "dangerously high" on the banking stocks, claiming about 20 percent of their portfolio allocations amid concerns that the banks would post an erosion in the quarterly earnings, according to a study by Assocham.

As per data analysed by the Assocham for the last 12 months, Mutual funds investment in the banks stock at the end of February stood at Rs 36,812 crore, which was 20.10 percent of the industry's total equity assets under management (AUM) of Rs 1.83 lakh crore.

However, as per market regulator Sebi's data, exposure to the banking space declined from their highest level of 21.40 percent seen in January.

Also, the absolute investments into banking shares also declined to Rs 36,812 crore in February, from Rs 42,760 crore in January.

"MFs in India are betting dangerously high on banks' stocks which claim about 20 percent of their portfolio allocations even amidst concerns that the banks would report a sharp erosion in their earnings in the fourth quarter of 2012-13, as they face squeeze in the net interest margins and increase in non-performing assets," the study said.

Apparently overlooking the underlying stress in the banking sector, the fund managers drove movement in the bank stocks which have gained about nine per cent in the last fiscal in the market.

"The kind of money pumped in the banking stocks in the context of stress on their assets seems illogical," it added.

It found that the entire fund deployment by the MFs is skewed in favour of a few sectors. Besides being overweight on the banking portfolio, software and pharmaceuticals are the other two segments attracting much of the MF deployment.

In February, MFs invested Rs 19,123 crore in the software accounting for 10.40 percent and pharma Rs 13,544 crore, or 7.40 percent, of their total fund deployment in the stock market, the study added.