Mutual funds rejig portfolio, IT stocks gain and banks lose

In May, mutual Funds divested shares worth Rs 5,100 crore in Kotak Mahindra Bank and Rs 3,000 crore in HDFC Bank among others. Infosys, which has lost 15 percent this year, is the pick of the IT pack

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Investor sentiment shifted in May, with red-hot banking stocks being dumped and information technology firms, which were being sold in the face of an uncertain economic global climate, gaining favour again.

Mutual Funds sold banking stocks worth Rs 11,000 crore during the month, Prime Database’s data reveals. Key holdings in Kotak Mahindra Bank, HDFCBank, Axis Bank, ICICI Bank, State Bank of India, and Bajaj Finance have see significant reductions in holdings.

Mutual funds purchased IT stocks worth Rs 4,500 crore. This includes notable investments in Infosys, Coforge, Tata Consultancy Services Ltd, LTIMindtree, Tech Mahindra Ltd, HCL Technologies and L&T Technology Services Ltd, the data shows.

Among banking stocks, mutual funds divested Rs 5,100 crore worth of shares in Kotak Mahindra Bank. Similarly, HDFC Bank witnessed selling of Rs 3,000 crore, Axis Bank Rs 970 crore, while Rs 670 crore worth of shares each in ICICI Bank and State Bank of India were also sold.

Mutual funds sold Rs 440 crore worth of shares in Bajaj Finance, India’s biggest non-banking finance company.

Infosys, which has been hammered in recent months and lost 15 percent this year, seems to be the pick of the IT pack, with mutual funds buying Rs 1,545 crore worth of shares in the IT services company.

Coforge saw buying worth Rs 960 crore, while Tata Consultancy Services Ltd, India’s biggest IT firm, saw buying of Rs 608 crore.

Shares worth Rs 340 crore were bought in LTIMindtree, while rivals Tech Mahindra and HCL Tech saw buying worth Rs 260 crore and Rs 57 crore, respectively, in May.

The switch

The banking sector has been rallying for the past year, with Nifty Bank up over 35 percent during the period. The gains have been due to strong earnings driven by higher net interest income and improvements in asset quality.

A recent S&P Global Ratings report highlighted the strong recovery in the sector, with lenders reporting their best results in a decade. The rating agency foresees the sector’s profitability stabilising at a healthy level and further improvements in asset quality.

IT stocks have been under selling pressure due to weak earnings, subdued commentary and lower guidance from major companies like TCS and Infosys, influenced by the US banking crisis. The US is among the biggest markets for Indian IT services firms.

In a recent note, brokerage firm JP Morgan downgraded the Indian IT sector from “neutral” to “underweight”, citing a persistently weak demand environment.

The firm expresses concerns about disappointing performance from companies in the sector, particularly Infosys, TCS, and MphasiS, placing them on its “negative catalyst watch list”.

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