Investment

Mutual Funds increase bets on banks with corporate lending focus

Mumbai: Fund managers are increasing their bets on banks with a bulky corporate lending book that have been largely ignored because of bad loan worries. Equity schemes of top mutual funds lapped up shares of select private and public sector lenders in April as banks with strength in retail lending are considered expensive after their recent run-up.

ICICI Prudential Mutual picked IDFC Bank and ICICI Bank. Reliance Mutual bought Bank of India, Birla Sun Life Mutual bought Andhra Bank and DSP Blackrock was a buyer in Bank of Baroda, Punjab National Bank (PNB).

“Valuations of corporate banks are looking attractive compared to many other frontline retail banking stocks,” says Dhaval Kapadia, director ­ portfolio specialist, Mor ningstar Investment Adviser India.

Several PSU banks (PSBs) trade at a price-to-book value (PBV) that is far lower than their 10-year averages. For example, Bank of Baroda and PNB trade at a PBV of 1.05 times and 0.59 times compared to their 10-year averages of 1.16 and 1.19, respectively . In comparison, private banks are trad ing at a PBV of 3-5 times.

Till now, investors shunned corporate banks as high bad loan levels delayed their turnaround and the economy continued to slow down. High leverage among large corporate houses and limited capex from the private sector led to weak borrowing demand.

In addition to cheaper valuations, fund managers believe lower interest rates are likely to bode well for India Inc as and when the capex cycle kicks in.

“Cyclically , we are quite close to the bottom of the cycle and things could start looking up in a few quarters for corporate banking business,“ says Vinay Sharma, fund manager, ICICI Prudential MF . He believes corporates have begun the journey of deleveraging and the process could accelerate in the next few quarters. As demand picks up, capacity utilisisation of some industries is likely to inch up requiring fresh capacity building leading to higher growth for banks.

“The government and the RBI have taken several steps to resolve the NPA issue. Due to this corporate banks’ balance sheets will be healhier,“ says Alok Ranjan, head of research, Way2Wealth.

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Invest-Wealth-The Economic Times

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