Banking sector schemes of domestic mutual funds are finding it hard to beat the benchmark indices as lower allocation to shares of public sector lenders has impacted returns, reported The Economic Times. It is worth noting that PSU lenders have been top performers of late.
Actively managed banking sector funds restricted their exposure to shares of public sector banks at 7-12% of their total assets, while mostly sticking to their private peers. Fund managers are betting that the rally in PSU banks may not last long as private lenders have been eating into their market share.
The average returns from banking sector schemes were 16.80 percent so far in 2022 as against 17.8 percent of the benchmark Bank Nifty index. The Nifty PSU Bank index has jumped 51.6 percent and the Nifty Private Bank index has gained 17. 6 percent in this period.
Among shares of top PSU banks, SBI has surged 30.5 percent, Bank of Baroda has jumped 98 percent, Canara Bank has advanced 52 percent and Union Bank has soared 46 percent, buoyed by a strong set of numbers. Net profit of all public sector banks in the September quarter surged 50 percent from the same period a year ago.
Actively managed banking funds manage investor money to the tune of 22,000 crore across 15 schemes. Most of them largely stuck to private sector banks like HDFC Bank, HDFC Ltd, ICICI Bank, Axis Bank and Kotak Mahindra Bank. While most of them had exposure to SBI and Bank of Baroda in PSU banks, their allocation to smaller banks was relatively small.
Money managers and analysts say it has been a catch-up rally for PSU banks, which have underperformed private lenders for over a decade.
“PSU banks were a tactical play as there was a valuation mismatch compared to private sector banks. This has shrunk post the rally in PSU banks,” said Azeem Ahmad, head (PMS), LIC Mutual Fund.