The exposure of domestic fund managers to private banks in May is 20-month low.

It is no secret that internal managers of investment funds (IFs) such as private banks. More than a fifth of every cent placed on the stock exchange came from private creditors. However, many large fund managers are in the process of taming their expectations of this space. In May, the volume of assets managed by private banks (assets under management, AUM) reached a 20-year low of 16.7%. According to Motilal Oswal Research, the weighting decreased by almost 440 basis points compared to the previous year.

There is no doubt that banking and finance remains the sector in which most IF assets have been deployed. However, dependence on this sector has increased dramatically this year and other sectors such as pharmaceuticals, automotive and telecommunications have increased in importance.

Although there has been a strong increase in bank assets in recent weeks, they remain low compared to the previous year. The BSE Bankx Index and the Nifty Private Bank Index both fell by 34% in 2020. In comparison, the Sensex has decreased by 15%.

These unsatisfactory indicators have also partly contributed to the reduction of exposure in the banking sector.

For the first time in recent years, the banking sector is going through a difficult period. Loans increased by six percent, which is also due to the economic stimulus package. And secondly, because of the moratorium, unpaid loans will increase. Emerging fundamentals advocate a shift away from private banks. At the same time, there are opportunities in other sectors. Pharmaceuticals and healthcare are important goods that are in high demand during this period of blockade. In the next three to six months we will be very cautious with private banks, said Mr. G. Chockalingam, Founder and Chief Information Officer of Equinomics.

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Many are reluctant to invest in bank bonds at this stage because of their close links to the economy. As the economy is expected to reduce this budget deficit, the financing of the banking sector is expected to suffer.

The banking sector will be affected by growth rates and asset quality while the economy is going through a period of slowdown, Mr Chockalinem added.

Overall, exposure to banking activities increased from 25.3% at the start of the year to 18.7% in May, according to data published on Sebi’s website. Over the same period, exposure to financial equities fell from 10.24% to 8.81%.

Fears of irrecoverable debts will reappear as a result of the economic downturn. And jobs are being eroded, which has had some impact on people’s ability to pay. Success can be achieved not only in terms of profit, but also in terms of asset quality. On the other hand, the pharmaceutical industry is doing well and in these circumstances, as a result of the pandemic, many fund managers are redirecting their allocations to the pharmaceutical industry, said Giotivardhan Jaipuriya, founder of Valentis Advisors.

If someone has the opportunity to wait for a painful moment, then according to experts the bank shares are still good investment prices.

We think that some large private banks will benefit from this problem because people now want to put their money into safe investments. Term deposits with private banks will increase. As they receive more deposits, their lending capacity will also increase, banks in the private sector are well capitalised and some of them have raised capital this season. The next two quarters will be challenging for the banking sector as a whole. But it will be all right in the next few years, Mr. Jaipuriya said.

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