First the farm loan waiver in the recent budget caused a steep fall of bank stocks. And yesterday news of ICICI Bank taking a $264.3 million (Rs 1,056 crore) hit due to overseas credit derivatives and investments in fixed income assets is bound to cast its shadow on the already battered mutual funds too.
On March 3, the Bankex fell 6.7 per cent led by State Bank and on March 4 it fell another 4 per cent led by ICICI Bank's fall of 5.16 per cent.
ICICI Bank and State Bank of India are dominant position in most fund portfolios. According to the January 2008 portfolios, ICICI Bank was the top holding of 15 equity diversified funds. ICICI Bank, which is the largest private sector bank in the country, is among the top five holdings of as many as 59 equity diversified funds. In December 2007, it was among the top five constituents of the 36 diversified equity funds.
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During the past year, financial services and banking sector stocks have emerged as the preferred choices of fund managers. The category of diversified equity funds has doubled its exposure to the sector during the last one year and has now made it the top sector holding of the category. The category has increased its exposure to the financial services from 8 per cent in February 2007 to over 15 per cent in January 2008.
This sub-prime hit and the confusion caused by farmer's loan waiver can cause a change of heart for most fund manager's preference for banking stocks. ICICI Bank was also among the most bought stocks by mutual funds in January. Mutual funds bought 75.16 lakh shares of the bank worth Rs 514 crore in January this year. Over all, as many as 189 mutual funds own the stock.
This article was originally published on March 05, 2008.
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