According to the latest data available with market regulator Sebi, mutual fund (MF) investments in banking stocks reached Rs 40,293 crore as on March 31, 2014, accounting for 19.76 per cent of their total equity assets under management (AUM) of Rs 2.04 lakh crore.
This was the highest level since January 2013, when fund managers had shored up their investment in banking shares to Rs 42,760 crore. This was also the second consecutive monthly rise in exposure.
The investment in the sector had risen to a record high of Rs 43,659 crore in December 2012.
Mutual Funds are investment vehicles made up of a pool of funds collected from a large number of investors. MFs invest in stocks, bonds, money market instruments and similar assets.
According to market participants, MFs have shown interest in banking stocks since September last year primarily on account of measures announced by the new Reserve Bank Governor Raghuram Rajan coupled with overall surge in the stock market.
In September 2013, MFs' exposure in banking stocks increased to Rs 26,838 crore after touching the lowest level in four years at Rs 22,744 crore in August last year.
Meanwhile, the banking index (bankex) surged by 18.6 per cent in March this year, while the BSE Sensex rose 6 per cent.
Rajan, in September last year, had announced steps to stabilise the Indian currency and various measures to liberalise the banking system, including higher overseas borrowing limits for lenders and simpler processes for opening branches.
Banking was followed by software sector, where MF investments stood at Rs 24,315 crore. Pharma stocks accounted for Rs 16,066 crore, while consumer non-durables attracted Rs 12,947 crore and petroleum products at Rs 10,909 crore.