Mutual funds sell banking shares looking to cut risk, while investment in defensives rides to an all-time high

As risk-averse investors continued to stay at a distance from the risk-averse banking sector, pushing shares of lenders down, mutual funds were also shedding the weightage of private banks in the portfolios. Data showed private bank weightage among mutual funds is now at a 20-month low. In December 2019, mutual funds had allocated a combined weightage of 21.1% to private banks, which has since then been falling to now sit at 16.7%. While private banks were being deserted by fund houses, defensive stocks were back in focus increasing their weightage to an all-time high of 35.5% in the month of May. 

Equity mutual funds saw inflows worth Rs 5,000 crore in the month of May, down 15% from April. A report by brokerage and research firm Motilal Oswal highlighted that mutual funds did not just increase weightage to defensives but also to consumers and the telecom sector. Telecom sector weightage is now at a seven-month high of 3.9%. The declining weightage of private banks was evident as among the top 10 stocks to see value decline on-month basis, 8 were from the financial sector while of these 8, as many as 4 were private banks. Namely, ICICI Bank, Axis Bank, HDFC Bank, and Kotak Mahindra Bank were the bank stocks that saw the most value decline. 

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SBI mutual fund was seen trimming its holdings in private banks by 2 percentage points in the month of May. The fund house sold a part of HDFC Bank, ICICI Bank, and Kotak Mahindra Bank, some of its biggest holdings. Similarly, HDFC AMC reduced weightage in private lenders by 0.8 percentage points. A similar size change was seen in ICICI Prudential mutual funds as well. Interestingly despite the trimming in private bank weightage, the sector remains the top sector holding among the mutual funds. Other top sectors by allocation include; consumer, technology, and oil & gas. In May, mutual funds showed interest in Consumer, Telecom, Automobiles, Healthcare, Cement, Technology, Metals and Utilities, which led to an on-month increase in their weights, Motilal Oswal said. 

Shifting focus from private banks, the mutual funds were seen buying Hindustan Unilever stocks the most in May, causing a change in value of close to Rs 6,580 crore. Bharti Airtel figured as the second favourite stock as telecom sector weightage increased with a 71% on-month change in shares of the telco resting with fund houses. Among the bottom 10 stocks that saw their holding decrease were ICICI Bank, SBI, Axis Bank, HDFC Bank, and Kotak Mahindra Bank.

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