Fund managers are withdrawing after a two-year long run in public sector bank (PSB) stocks, noted a report by Business Standard.
Quoting a brokerage report, BS stated that Domestic mutual funds (MFs) were net sellers of PSB stocks for the first time in nine quarters, offloading shares worth ₹1,800 crore in the March quarter. In the previous eight quarters, fund houses had invested more than ₹10,000 in PSBs amid deep discounts in valuation vis-à-vis their private sector peers, it informed.
Fund managers told BS that the upside potential of PSBs could be limited in the near term as most positives are priced in and as that happens private banks are turning attractive.
"Since most of the improvement is already visible and valuations are near the fair zone (even expensive in a few cases), the journey upwards from hereon is a tough task. On the other hand, you have some large private sector banks which have not delivered any returns to the investors in the past two years. Given the price value gap and a comfortable risk-reward perspective, it makes good sense to move some money to private banks and book out from PSU banks," said Sumit Agrawal, senior fund manager – equity, Bandhan MF.
The PSB pack was the best-performing sectoral index in FY23, gaining 36 percent even as the benchmark Sensex gained barely a percent. The PSB rally came on the back of business improving as the pandemic’s impact declined.
The report informed that on average, the top 20 MFs had 3.8 percent of the equity portfolio invested in PSB stocks at the end December quarter, which declined to 3.2 percent by the March quarter.
This was because sentiment about banking shares turned sour in March after the collapse of the Silicon Valley Bank in the US and fears of contagion risk, said BS.
"With the rising interest rate cycle, where RBI increased the repo rate by 250 basis points over the last year, the growth prospects could moderate to a more sustainable range. Valuations have risen to their earlier averages. Hence investors, including MFs, started paring down their shareholding in the PSBs. In the recently ended quarter, of the 12 banks, MFs cut stakes in 7 entities, remained neutral in 2 and increased their holding in 3 banks," said Gopal Kavalireddi, Head of Research, FYERS.