<h6>TREND</h6><h2>Pvt banks may not be top pick for MFs, FIIs Apr-Jun</h2>


Pvt banks may not be top pick for MFs, FIIs Apr-Jun

Cogencis, Tuesday, May 7

By Apoorva Choubey

MUMBAI - Domestic and foreign institutional investors preferred large private banks the most in Jan-Mar, but concern over fresh slippages is expected to curb further buying in such stocks in Apr-Jun, while the automobile sector may see fresh selling, experts said.

Among all Nifty 50 stocks, private banks were bought the most by domestic and foreign institutional investors during the March quarter, as stable asset quality, steady net interest margins and healthy loan growth were expected to shore up earnings of such lenders.

Mutual funds and foreign portfolio investors added 1-4% stake in Axis Bank, Kotak Mahindra Bank, YES Bank, and ICICI Bank during the quarter ended March, data compiled from BSE showed.

In fact, foreign and domestic institutional investment in the banking sector hit the highest level in at least two years, analysts said. 

While Jan-Mar earnings of banks have been a mixed bag till now, investors aren't gung-ho on private bank shares anymore, given the higher-than-expected slippages for some lenders such as YES Bank and ICICI Bank, analysts said.

"People weren't aware of the extent of exposure of banks to certain debt-laden companies...so the view on asset quality of banks is definitely not as sanguine as earlier," said Sunil Sharma, chief investment officer at Sanctum Wealth Management. 

The possibility of a default by the likes of Reliance Capital, which hasn't been factored into share prices yet, poses a risk to earnings estimates of private banks that could have exposure to such companies, dealers said. Reliance Capital is one of the many financial services companies that has seen a debt rating downgrade, on the back of a liquidity shortage. 

The recent directive of the Association of Mutual Funds in India, asking debt mutual funds to set aside 50% of loans against shares as provisioning, is indicative of corporate defaults becoming a bigger worry among market players, experts said.  

Besides, growth in loans of banks, particularly to the corporate sector, isn't as strong as was expected, which also remains a concern, managers said. This was seen in the case of ICICI Bank, according to a report by Kotak Institutional Equities. 

The fact that banking stocks were sold after March is reflected in the underperformance of the Nifty Bank and the Nifty Private Bank indices. The Nifty Bank and Nifty Private Bank have fallen 1.5% and 2.4%, respectively, in the last 30 days, compared with a 0.5% fall in the Nifty 50 during the same period.

However, banks such as HDFC Bank, which do not have exposure to real estate developers or other beleaguered companies, may continue to see some buying, fund managers said. 

The sector that is likely to see further selling is automobiles. A bleak demand outlook by companies such as Maruti Suzuki India and TVS Motor Co, an expected rise in product prices because of the implementation of Bharat Stage-VI emission norms, and high dealer inventory have given way to a perception that earnings of automakers are unlikely to recover anytime soon, experts said. 

In Jan-Mar, foreign and domestic institutional investors cut stake in Hero MotoCorp, Mahindra and Mahindra, Tata Motors and Bajaj Auto by 1-2%, making automobiles the most sold sector in the Nifty 50, data showed.

The ownership of foreign and domestic institutional investors was largely steady in information technology, telecom, and pharmaceutical companies during the quarter ended March. 

Even in non-banking financial companies that are a part of the Nifty 50, foreign and local fund managers retained their stake. Fundamentally strong Bajaj Finance, Bajaj Finserv and Housing Development Finance Corp are seen gaining market share as a result of the prevailing liquidity crunch in the banking system, analysts said. 

The only company to see a sharp change in ownership in the quarter ended March was Zee Entertainment Enterprises. Foreign investors added a whopping 4% stake in the company, while domestic investors raised stake by around 0.5%. 

Prospects of higher advertisement sales, relatively cheaper valuation and hope of a merger with a large media company such as Sony, had made investors bullish on the shares of Zee Entertainment, despite the Essel group having issues of high promoter pledging. 

Heavyweight Reliance Industries also saw a marginal increase in ownership of foreign funds and local fund houses. 

Foreign investors sold stake in metal companies while their domestic counterparts bought shares of such companies. 

In consumer staples, foreign investors bought minimal stake while local funds sold shares. However, commentary from companies such as Hindustan Unilever that demand is moderating may lead to selling in the sector in the coming months, analysts said.  End

Edited by Mainak Moitra