Mutual Fund Managers’ Top 3 Buys from the Banking Space

The month of May was nothing short of a roller coaster ride for the Indian equity markets. The volatility was driven by the general elections in the world’s largest democracy and persistent global issues like inflation and geopolitical tensions. As a result, the NSE benchmark Nifty50 index ended May down by 0.33%. On the monthly chart, the index formed a small-bodied candle with shadows on both sides, clearly reflecting the market’s volatility. In contrast, the Bank Nifty underperformed, declining by 0.84% in May.

Despite the underperformance of Bank Nifty, mutual fund managers showed significant interest in 3 large-cap banking stocks. 

Here’s a closer look at their picks:

Canara Bank: A Public Sector Favorite

Mutual fund managers bought shares worth Rs 8,615.24 crore of Canara Bank in May. This public sector giant saw renewed interest, partly due to Moody’s Ratings affirming its Baa3 long-term local and foreign currency bank deposit ratings and upgrading its Baseline Credit Assessments (BCAs) to ba2 from ba3. Moody’s highlighted the bank’s declining non-performing loan (NPL) ratios, supported by manageable household leverage and healthy corporate balance sheets. Canara Bank’s improving profitability is expected to support capitalization despite strong loan growth and higher risk weight requirements for unsecured lending. Notably, Canara Bank’s stock has gained about 38% in 2024. Kotak Quant Regular Growth Fund bought 18,49,749 shares in the month of May, which is 2.98% of its total AUM. This was followed by ICICI Prudential Nifty Next 50 Index Fund Growth and Mahindra Manulife Flexi Cap Fund Regular Growth, which bought 3,10,904 and 2,32,500 shares, respectively.

HDFC Bank: A Private Sector Giant with Challenges

HDFC Bank, a major private sector lender, saw mutual fund managers purchase shares worth Rs 7,606.5 crore in May. However, the bank’s stock has underperformed, declining by 6.57% in 2024. Despite this, HDFC Bank reported a 37.1% growth in net profit for the quarter ended March 31, 2024, amounting to Rs 16,512 crore compared to Rs 12,047 crore during the same period last year. The bank’s net interest income grew by 24.5% to Rs 29,080 crore, with a core net interest margin of 3.44% on total assets. Operating expenses for the quarter included a staff ex-gratia provision of Rs 1,500 crore. Quant ELSS Tax Saver Growth, ICICI Prudential Blue-chip Fund Growth, and Quant Small Cap Fund Growth were buyers in the private lender.

Kotak Mahindra Bank: Recovering from Regulatory Setbacks

Kotak Mahindra Bank faced a challenging April, with its shares plummeting by 9% after the Reserve Bank of India (RBI) took strict action against the lender, halting new customer onboarding through online and mobile banking channels, including issuing fresh credit cards. However, the stock recovered, advancing by 3.5% in May. Mutual fund managers bought 2.03 crore shares, valued at approximately Rs 3,364.73 crore. Post-pandemic, the bank’s gross fresh NPA generation rate increased but has since moderated. The asset quality metrics remain satisfactory, with gross NPAs at 1.4% and net NPAs at 0.3% as of March 31, 2024.SBI Equity Hybrid Fund Regular Payout Inc Dist cum Cap Wdrl, HDFC Flexi Cap Fund Growth, and Nippon India Focused Equity Fund – Growth were the top buyers in this stock.

Conclusion

The month of May highlighted the volatility in the Indian equity markets due to various domestic and global factors. Despite the underperformance of Bank Nifty, mutual fund managers showed confidence in select large-cap banking stocks, indicating their belief in the long-term potential of these financial giants. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.