Amidst growing investor inflows, mutual funds (MFs) are eyeing a larger slice of the banking sector.
In the past few years, few of the major fund houses have approached the Reserve Bank of India (RBI) seeking permission to hold more than a 5 per cent stake in banking sector stocks.
As of the end of August, three fund houses held over 5 per cent ownership in one or more banks.
SBI MF possessed more than 5 per cent in CSB Bank, Equitas Small Finance Bank (SFB), HDFC Bank, and ICICI Bank, with the highest holding being in CSB Bank at 9.17 per cent, according to data from PRIME Database.
Franklin Templeton and Tata were the other two fund houses. However, higher holdings in some stocks may be temporary due to their merger with another listed entity, as in the case of HDFC Bank.
Recently, India’s third-largest asset manager, HDFC Asset Management Company (AMC), received approval from the RBI to acquire up to 9.5 per cent in five banks: Karur Vysya Bank, DCB Bank, Equitas SFB, Federal Bank, and City Union Bank.
The AMC intends to increase its holdings in these smaller banks amid surging inflows into smallcap and midcap funds.
HDFC MF’s schemes are among the largest in these categories and already hold nearly a 5 per cent stake in these banks.
As of the end of August, HDFC MF held 4.96 per cent in Federal Bank, 4.69 per cent in Equitas SFB, 4.54 per cent in City Union Bank, 4.48 per cent in Karur Vysya Bank, and 4.47 per cent in DCB Bank. Most of these holdings are through smallcap and midcap schemes.
HDFC Mid-Cap Opportunities Fund manages over Rs 47,000 crore, while HDFC Small Cap Fund manages over Rs 22,600 crore.
MF regulations permit fund houses to hold up to 10 per cent of the paid-up capital of any listed company.
Recently, MF ownership has increased in select smallcap and midcap companies due to strong inflows.
For three consecutive months (June to August), smallcap schemes have attracted over Rs 4,000 crore.
Meanwhile, the two largest equity fund categories — largecap and flexicap — have experienced consistent outflows.
Lately, analysts have cautioned investors about the euphoria surrounding smallcap and midcap stocks.
Some fund managers have also encountered challenges in deploying substantial sums of money flowing into their schemes.
A couple of fund houses — Tata and Nippon India — have halted accepting lump-sum inflows into their small-cap schemes.
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