Mutual funds take Rs 10,000 crore contra bet on sleeping giants Kotak, HDFC Bank

Braving all the bear howling, mutual funds spent close to Rs 10,000 crore to buy shares of Kotak Mahindra Bank and HDFC Bank in April. The two biggest wealth creators in the history of Dalal Street are now among the biggest Nifty losers in 2024.

Mutual funds took advantage of the 9% dip in Kotak shares last month to buy 4.65 crore shares, estimated to be worth about Rs 7,884 crore, shows data from Prime Database. In the case of HDFC Bank, mutual funds bought 1.22 crore shares worth Rs 1,859 crore of the lender.

Fund houses that raised the bet on HDFC Bank include HDFC Mutual Fund, SBI Mutual Fund, Axis MF, Nippon India, Franklin Templeton and Kotak MF.

Kotak Mahindra, whose shares ended April with a 9% cut following RBI’s ban on onboarding new customers through online and mobile banking channels and issuance of fresh credit cards, saw buying from Nippon India MF, Quant MF, Aditya Birla Sunlife MF, HDFC AMC, Kotak AMC and SBI MF.

On the other hand, mutual funds were seen booking profits in SBI where the selling was estimated to be worth about Rs 1,634 crore and in Jio Financial (Rs 1,271 crore). Bajaj Finance too saw MF paring stake worth about Rs 1,140 crore.Also read | FIIs withdraw Rs 46,000 crore from financial stocks in 2024. Is RBI the deal-breaker?Following a bad spell of negative news flow in the last 2-3 years, both HDFC Bank and Kotak Bank have lost the valuation premium that they used to enjoy against peers. Analysts note that the valuations of all large private sector banks have converged with ICICI Bank now trading at a premium to other banks.”We believe one of the reasons for significant valuation differential during the previous cycle was the material gap in performance of these banks in a tough macro environment. There were relatively few investment options within BFSI space which were delivering predictable performance thereby resulting in premium valuations. With a reasonably benign macro environment as well as process improvements in peer banks, the performance differential has narrowed thereby increasing the overall investible universe,” Franklin Templeton’s Akhil Kalluri told ET Markets.

The fund manager is of the opinion that patience in some of the underperforming financial stocks can pay off well if held for the next 2-3 years as favourable macro cycle for the banking sector is likely to last for the next few years.

Quantum Mutual Fund’s George Thomas had also recently admitted to buying some of the underperforming financial stocks which are run by efficient managements capable of navigating near-term headwinds.

“Investors need to be cautious about some of the consensus buy calls like PSU banks where the market has turned overly optimistic,” he says.

In the last 3 years, shares of Kotak Mahindra Bank are down about 3% while those of HDFC Bank have grown by merely 4% as against a 50% jump seen in Sensex.

Also read | Why Saurabh Mukherjea isn’t losing sleep over stress in HDFC Bank, Kotak and Bajaj Finance

Emkay’s Gordon Growth model analysis indicates that the intrinsic multiples for private banks have collapsed by 4-63% over the last 10 years.

“Lower growth and moderating ROEs have depressed fair values, and we find that the near-halving of multiples for some leading banks (HDFC Bank, Kotak and IndusInd), is supported by the deterioration of underlying fundamentals. Historical P/BV ranges for private banks now have little predictive value. The derating should continue, in our view, and the valuation ranges for private banks would now settle at 1.5-1.7x (P/BV) with further time correction,” says Emkay’s Seshadri Sen.

The brokerage has slashed weightage on financials to 15% from 30%, with deep cuts in index heavyweights HDFC Bank, ICICI Bank and SBI.

In the first four months of 2024, FIIs have pulled out nearly Rs 46,000 crore from financial stocks. In the March quarter, HDFC Bank saw the highest selling by FIIs as they offloaded 29 crore shares of India’s largest private sector lender. FIIs also sold 4.26 crore shares of Kotak Mahindra Bank and 2.8 crore shares of Axis Bank.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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