Ironically through out the world banks are the villains- views invited MUMBAI: Financial services stocks have displaced engineering shares as the top pick of Indian mutual funds for a first time this year in September as a steep fall in their prices attracted asset managers.
Nearly 200 diversified equity funds invested 15 percent of their collective equity assets in financial services, the highest this year, compared with 13.9 percent invested in engineering shares, according to data from fund tracker ICRA. They are betting slowing inflation and growth will encourage policymakers to cut interest rates, helping domestic banks, which are also largely shielded from the global credit crunch. "If you want to play the interest rate cycle and if you expect interest rates to come down, then financials is the best place to be," J. Venkatesan, who manages about 12 billion rupees for Sundaram BNP Paribas Asset Management, said. Stocks such as Housing Development Finance Corp, HDFC Bank and Kotak Mahindra Bank found favour with mutual funds in September. Forty new funds added ICICI Bank, taking advantage of the 20 percent slump in its price, making it the second most preferred stock of the industry. India's bank index plunged more than 52 percent this year, steeper than the 50 percent fall in the benchmark index, slammed by monetary tightening to tame inflation and concerns about their exposure to the global crisis. But, with moderating inflation, a larger-than-expected 250 basis point cut in the cash reserve ratio as well as a surprise 100 basis point cut in the repo rate this month, more funds are expected to raise exposure to financials. More than 60 percent of the respondents in a Reuters poll conducted on Oct 21 said they would raise exposure to financial services shares in three months. "The important point is you have reached the peak of the interest rate cycle," said Tridib Pathak, chief investment officer at Lotus India Asset Management. "We are basically going to see lower inflation, lower interest rates." NO SOLVENCY PROBLEMS Also, Indian banks had no solvency problems like in the western markets and remain attractively valued as they traded at one time price to book ratio and had a sustainable return on equity of anywhere from 15-20 percent, Tridib said. Their collective exposure to failed Western banks totalled about $1 billion at September-end, a fraction of their total loan book of $510 billion, according to central bank data. But tighter liquidity and high interest rates pose risks. Domestic banks may face rising defaults as interest rates have risen by 300-400 basis points in the last four years and the economy is seen slowing to around 8 percent by the central bank in 2008/09 from 9 percent in the previous year. "The valuations look attractive but the asset quality could still be a problem for many banks," said I.V. Subramaniam, chief investment officer of Quantum Advisors Pvt Ltd. However, Venkatesan of Sundaram BNP Paribas said he saw no signs of a significant rise in defaults as banks had been cutting their retail lending and a small cyclical slowdown might not impact the financial services sector. Moreover, risk has been priced in the current valuations, Tridib of Lotus said, adding he was overweight on financials. http://economictimes.indiatimes.com/Banks_topple_engineering_as_top_pick_of_MFs/articleshow/3633316.cms?from_et_mkt_newsltr=1 Fear is not the natural state of civilized people. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
