New Delhi: Mutual fund managers continued to be bullish on bank shares, with their allocation to the sector reaching an all time-high of over Rs 1.26 lakh crore at the end of March, mainly due to cheaper valuations.


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In comparison, fund managers' investments in bank shares stood at Rs 80,468 crore at the end of March 31, 2016.


"MFs have been adding exposure to financial sector, especially banking stocks due to several reasons -- lower valuations due to price corrections, expectation of corporate lending growth returning and better net interest margins, especially after the demonetisation announcement which lowered cost of funds for many banks," said Kaustubh Belapurkar, Director Manager Research at Morningstar Investment Adviser.


During the past fiscal, many private sector banks, NBFCs and select PSU banks witnessed fresh purchases. Stocks like ICICI Bank and SBI witnessed significant additions, at the same time Axis Bank saw consistent selling, he said.


Besides, fund managers subscribed to the initial public offering of Ratnakar Bank, he added.


Overall, the deployment of equity funds in bank stocks stood at Rs 1,26,587 crore at the end of March 2017, compared to previous high of Rs 1,19,796 crore in the preceding month, as per data by Morningstar.


Banking continues to be the most preferred sector with fund managers as they cannot afford to take a bearish call on the banking stocks, given the high weightage attached to the index, he added.


Mutual funds are investment vehicles made up of a pool of funds collected from a large number of investors. They invest in stocks, bonds, money market instruments and similar assets.