Mutual funds stock up on banks, trim FMCG holdings in March

Mutual fund houses have increased their exposure to sectors like banks, software and finance while reducing their holdings in consumer non-durables, ferrous metals, capital goods and auto in March this year compared to the year-ago period.

MF exposure in banks rose 2.54% to 20.11% at the end of March 2013 against 17.57% in the corresponding month of the previous year, latest Sebi data show. This means over one-fifth of mutual funds? equity money was parked in banking shares at the end of FY13. MF exposure in banks had reached a peak of 21.15% at the end of December quarter of FY13.

?Fund managers increased their allocation to the banking sector as interest rates declined during the year. The concern on asset quality of banks, especially public sector banks, also reduced somewhat as the year progressed,? said Dhruva Chatterji, senior research analyst, Morningstar India. What also helped boost the banking portfolio of mutual funds was the rally in banking stocks in FY13, added Chatterji. The BSE Bankex gained over 8% in FY13.

As on March 31, 2013, mutual funds had invested the most in banks such as ICICI Bank (R10,097 crore), State Bank of India (R6,669 crore), HDFC Bank (R5,325 crore), Axis Bank (R1,915 crore), Bank of Baroda (R1,600 crore) and IndusInd Bank (R1,298 crore).

MFs also significantly raised their holding in the software sector by 1.34% to 10.73% for the three months to March 2013 from 9.39% in the year-ago period. The financial sector, on the other hand, saw a rise of 0.81% in MF exposure from 4.75% to 5.56%. Other sectors that saw a sizeable increase in MF exposure include oil (0.62%), construction (0.62%), cement (0.55%) and consumer durables (0.44%).

Consumer non-durables, or the FMCG sector, saw the highest reduction in MF exposure ? from 7.92% in March 2012 to 6.95% in March 2013 ? a reduction of 0.97%. High valuations in FMCG stocks such as Hindustan Unilever prompted fund managers to reduce their exposure in the sector, experts said. Other sectors that saw a significant reduction in MF holdings include ferrous metals (0.84%), industrial capital goods (0.75%) and auto (0.74%).

The last month of FY13 saw mutual funds raise their exposure to software and defensive sectors such as pharma and consumer non-durables by anywhere between 0.22% and 0.29%.

While fund houses had been trimming their holdings in defensives in the second half of FY13, they flocked back to defensives in March as benchmark indices retreated in February as well as March.