Mutual funds ramped up their allocation for bank stocks to a record high of nearly Rs 94,000 crore by June-end, primarily on account of steps taken by the government and RBI to clean up the banking system.

Fund managers have been raising their allocation for bank stocks since February. Prior to that, they had trimmed exposure to the sector between November and January due to higher bad loans.

The recent focus on clean-up of the Indian banking system by RBI and the government by rightly recognising NPAs (non-performing assets) has helped fund managers raise their allocation for bank stocks, Wealthforce.com founder Siddhant Jain said.

Besides, the government’s announcement of capital infusion in public lenders too has a positive impact.

In percentage terms, exposure to banking stocks was at 20.4 per cent of equity AUM in June against 20.28 per cent in May.

The overall deployment of equity funds in bank stocks stood at Rs 93,885 crore at the end of June compared with Rs 90,014 crore at May-end, as per SEBI data.

The industry’s exposure to banking sector was at Rs 78,644 crore, Rs 71,864 crore, Rs 82,196 crore, Rs 85,330 crore in January, February, March and April, respectively.

Banking continues to be the most preferred sector with fund managers as they cannot take a bearish call, given the high weightage attached to the index. IT comes in next.

Equity fund managers’ deployment in software stocks stood at Rs 41,079 crore, followed by pharma (Rs 34,768 crore), finance (Rs 31,493 crore) and consumer non-durables (Rs 27,155 crore).

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

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