MUTUAL FUNDS HIKE STAKE IN STATE-RUN BANKS IN Q4
Domestic mutual funds (MFs) have raised their stakes in public sector banks (PSBs) in the JanuaryMarch quarter. In the first three months of calendar year 2017 (CY17), they have collectively put in ~11,469 crore in the Indian equity market, data show.
The flow continued in April as well, with the MFs putting in ~9,917 crore compared with ~4,196 crore in the previous month. In the past seven months, between October 2016 and April 2017, MFs have pumped in ~53,469 crore in equities. By comparison, they had invested ~16,527 crore in the corresponding period in the previous year.
Of the 16 PSBs where MFs hold stake, their holding in 13 banks increased by up to three percentage points in the March quarter. In eight banks, including State Bank of India (SBI), Canara Bank, Oriental Bank of Commerce (OBC), Vijaya Bank, Corporation Bank and Bank of India (BoI), MFs have increased their holdings for the second straight quarter in a row, data show.
Analysts attribute the stake hike in PSBs to the likelihood of an improvement in financial metrics amid policy initiatives of the government and the Reserve Bank of India (RBI) to tackle the non-performing asset (NPA) issues.
“Bank stocks have been doing well and caught investors’ fancy in anticipation of likely policy measures to tackle the NPA problem. I think things will change over time, as all the stakeholders — banks, RBI and the government — realise that these problems need redressal. Given that the markets are forward looking, a lot of this development has been pre-empted,” said Ramnath Venkateswaran, fund manager-equity at LIC Mutual Fund.
Among individual banks, OBC, Punjab National Bank (PNB), Bank of Baroda (BoB) and Union Bank of India have seen rise of more than one percentage of shares held by MFs. On the other hand, Andhra Bank, Indian Bank and J&K Bank saw MFs cut their stake by less than 50 basis points, the shareholding pattern data suggest.
“We hold SBI and BoB in our portfolio. However, we have not increased our stake in these two in the recent past. We remain tilted towards retail private banks and non-banking finance companies (NBFCs) as the credit growth is only happening on the retail side. Corporate credit growth is still muted. As regards the PSBs, there are still NPL (non-performing loans)-related issues. That apart, the capital adequacy is not uniform across the sector, especially in the PSBs,” said Harsha Upadhyaya, CIO (Equity), Kotak Mutual Fund. New regulations The government, on Friday, notified the Banking Regulation (Amendment) Ordinance, 2017, kick-starting a new framework to deal with the nearly ~7 lakh crore worth of NPAs in the Indian banking system.
Despite the move, experts remain cautious on the segment and suggest the NPArelated issues will take time to be resolved. Upadhyaya of Kotak, for instance, feels that smaller PSBs will continue to face issues though there has been a move to resolve the NPA problem in the industry as the capital adequacy will deteriorate.
Vinay Sharma, fund manager at ICICI Prudential AMC, also shared a similar view. He remained positive on the entire corporate banking space, including the large PSBs, as they emerge from NPA-related issues. He expected their profitability to improve over the next twothree years, but advised to stay away from the smaller players.
“Smaller PSU banks do not seem to be a good investment opportunity owing to their capital constraints and higher NPL issues," he said.
Going ahead, the pace at which the new resolutions are implemented will dictate how these stocks perform at the bourses, experts suggest. “In case they are able to resolve any large NPL issues in the immediate term, these stocks can rally further from current levels. Else, I expect them to remain range-bound,” Venkateswaran of LIC Mutual Fund said.