Investing in mutual funds: Banking and IT stocks have always remained one of the favorite segments of the fund managers of Asset Management Company (AMC). This has led to higher returns from post-Covid mutual fund plans, as a good number of IT and banking stocks have managed to generate alpha returns in the post-Covid rally. But, ahead of the new year 2022, banking and IT stocks are under selling stress. In fact, major IT companies have returned zero in 2022. Similarly, banking stocks are unable to gain momentum.

Investment experts and some fund managers are of the opinion that the trend in the IT and banking sector is likely to continue in the short to medium term and therefore AMC managers are bound to look at another segment like the energy, infrastructure, capital goods, metals and other raw materials. sectors. They said these segments are better positioned to outperform major benchmarks. Thus, diversifying the portfolio by investing in these sector stocks can help AMC managers generate an alpha return.

Speaking on the exposure of mutual funds to banking and IT stocks; Vinit Khandare, CEO and Founder of MyFundBazaar India Private Limited, said, “As the banking segment has seen headwinds lately, this segment alone yielded 5.96% and 7.9% respectively, compared to 14.14%. % and 13.35% posted gains Furthermore, among large cap plans, the banking and finance segments have the largest allocation of 25% on average as of March 31, 2022, meaning that 83% of plan managers AMC are bullish on the banking sector.”

“Furthermore, IT segment stocks have been one of the biggest beneficiaries of the lockdown measures imposed to contain the spread of COVID-19. The process of digitization, technology adoption and growing demand for related services to technology in various segments of the economy have made these The IT segment has been the best performer over the past three and five years, delivering returns of 30.79% and 28.30% respectively,” added the expert of MyFundBazaar India.

On why mutual fund or AMC managers need a course correction now and look beyond IT and banking stocks; Siddhartha Bhaiya, MD and fund manager of Aequitas Investment Consultancy, said: “Fund managers are forced to follow benchmarks, perhaps due to pressure to show daily NAVs to their investors. He listed significant headwinds for a few sectors that are widely represented in benchmarks:

1]Financials: Due to rising yields impacting treasury revenues and an emphasis on retail over the past 5-6 years (where household inflation could put pressure on the ability to pay EMIs on time), the banking and financial sector may come under some pressure on its price actions.

2]Consumer-focused stocks are facing input price issues, which has squeezed their margins. With the relatively high P/E multiple given to consumer-focused stocks they are currently priced perfectly, any unfavorable news could negatively impact valuations.

3]The IT department is experiencing massive attrition (between 25 and 36%). Rehires lead to a massive repricing of their teams. With the COVID-induced WFH and restricted travel finishing, we believe the IT segment, despite good growth, could see margin contraction.

On the adjustments that mutual fund managers must adopt in the short and medium term; Siddhartha Bhaiya of Aequitas Investment Consultancy said: “History suggests that AMC managers don’t look much at sectors like materials, energy, capital goods, etc. However, these sectors are expected to outperform. key benchmarks, even if these sector stocks are listed at AMC officials should look at the segments of sugar, paper, energy, metals, etc., where short and medium term investments should be much higher than IT and banking stocks.”

Warning: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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