MUMBAI - Domestic mutual funds have been aggressive buyers of bank
stocks since the past one week. The interest in bank stocks was
because of an upbeat outlook for the sector on hopes of declining
interest rates, which is seen boosting the credit off-take and
treasury income of banks.
"Banks have started slashing PLR (prime lending rate), which
increases the credit off-take and improves overall bottomline...Now
the growth potential in banking sector is good," said R.K. Gupta,
managing director, Taurus Mutual Fund.
India's major lender, State Bank of India, last week announced a
25-basis-point cut in its benchmark prime lending rate that fuelled a
rally in SBI as well as other bank stocks.
Following SBI's move, Bank of India announced a cut in home loan
rates and automobile loan rates by 25 bps each and on educational loan
by 50 bps.
Housing Development Finance Corp Ltd, Canara Bank, and Allahabad
Bank have already cut their lending rates earlier this month. Many
other banks are in the process of reviewing their rates.
Fund managers believe the banking and financial services sector
will continue to be in the limelight as they expect interest rates to
drop in 2008-09.
Jayesh Shroff, fund manager, SBI Mutual Fund, said, "On
anticipation of softening of (interest) rates, we are upbeat on this
sector. We are bullish on both private and public banks."
A fund manager at a private mutual fund said, "The credit growth
has been moderated, margins are expected to be good and interest rates
have peaked and will have to come down, which is favourable for this
"We are upbeat on public sector and also on old generation private
sector banks. It is a consumption-based sector," a fund manager said.
Mutual funds are positive on the banking and financial services
sector because of rising domestic consumption, increased corporate
capital expenditure requirements, huge infrastructure spending, and
robust economic growth, fund managers said.
"The overall sector looks interesting, linking it with the growth
plans of the country. Most of the state-run banks are available at
valuations. We will remain overweight on this (banking) sector," said
a fund manager at a bank-promoted mutual fund.
Banking and financial services sector stocks are fast emerging as
the preferred choice of asset managers, who believe that rising income
will boost the demand for financial products.
Also, fund managers foresee a huge potential in the sector with
likely listing of insurance companies and asset management companies.
In order to tap the potential in banking and financial services
many mutual funds like LIC Mutual Fund, Kotak Mahindra Mutual Fund,
Lotus India Mutual Fund, Sundaram BNP Paribas Mutual Fund, HSBC Mutual
Fund, Principal Mutual Fund, Reliance Mutual Fund, Sahara Mutual Fund,
and Tata Mutual fund have lined up sector-dedicated funds.