Fund managers raised their exposure in bank stocks to a 15-month high of over ₹41,100 crore in April on hopes of an improvement in the economy and a stable Government at the Centre.

According to the latest data with market regulator SEBI, mutual fund (MF) investments in banking stocks reached ₹41,104 crore as on April 30, 2014, accounting for 20.13 per cent of their total equity assets under management (AUM) of ₹2.04 lakh crore.

This was the highest level since January 2013, when fund managers had shored up investments in banking shares to ₹42,760 crore. This was also the third consecutive monthly rise in exposure.

The investment in the sector had risen to a record high of ₹43,659 crore in December 2012.

Mutual funds are investment vehicles made up of a pool of funds collected from a large number of investors. MFs invest in stocks, bonds, money market instruments and similar assets.

Market participants said mutual funds have been showing interest in banking shares mainly on hopes of an improvement in the economy and a stable Government at the Centre.

They believe the banking sector would be one of the biggest beneficiaries of an economic recovery.

According to a report by Morningstar, an MF data firm, fund managers seem to have accumulated banking shares as data released by the Government showed that inflation based on both the consumer price index and the wholesale price index eased.

Overall, mutual funds shored-up their exposure to the financial services sector mainly due to “declining inflation levels, improving asset quality and signs of economic recovery”, it said.

Mutual funds have been consistently increasing their investment in bank shares in 2014. MFs’ exposure to bank stocks stood at ₹30,339 crore in January and it grew to ₹32,225 crore in February, ₹40,293 crore in March and ₹41,104 crore in April.

Meanwhile, the banking index (bankex) surged by around one per cent last month, while the BSE 30-scrip sensitive index Sensex grew just by 0.14 per cent.

Banking was followed by the software sector, where MF investments stood at ₹24,438 crore. Pharma stocks accounted for ₹16,877 crore, while consumer non-durables attracted ₹12,499 crore and petroleum products at ₹10,039 crore.

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