Mutual funds betting dangerously high on banks: ASSOCHAM

Business

oi-Sneha

By Sneha B K

Published: Thursday, April 4, 2013, 10:22 [IST]

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

Mutual funds deployed as much as Rs 36,812 crore in the banking stocks in February, 2013 accounting for 20.10 per cent of their total deployment of Rs 183,139 crore. The trend has been more or less the same as per the data analysed by the ASSOCHAM study for the last 12 months.

The situation is particularly bad for the PSU banks and some of them have even been downgraded by global rating agencies.

NPAs ratio of total deposits of the state-owned banks have increased to above four per cent by December 2012. It was a shade over three per cent in December 2011. Rightly so, the government is equally concerned over rise in NPAs. Banks, particularly in the PSU sector are expected to report lower earnings and high NPAs in the fourth quarter of the current fiscal, the study said.

"In this backdrop it is rather surprising that banks remain fancied stocks of the mutual funds.." the ASSOCHAM study said, adding that some of the real economy sectors like textiles, engineering, consumer durables and even telecom services remain quite low on the priority list of the MFs.

In any case, the MFs have not been rewarding their unit-holders so as to infuse their confidence in the stock market.

"The strategy by investment officers by the fund managers seems to be skewed. Even if there is an undiscovered valuation left in some of the sectors like cement, retailing, textile and engineering, not much research appears to have been done and investment opportunities discovered ,"the study said.

The spread for the scheduled commercial banks have considerably narrowed down to 125-150 basis points in the last few months from a peak of 875 bps in 2009-10.

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