The Indian mutual fund industry is steadily dialing down its exposure to one of the most bullish and money-making trades in the country’s stock market recently – ICICI Bank.
The private sector lending giant has a buy rating from nearly 100 percent of the 54 analysts that track the stock currently, according to data available on Bloomberg. The stock has been a rank outperformer, rising 19 percent in 2022 and over 100 percent in the past three years.
Last year, it overtook HDFC Bank to become the most owned scrip of Indian mutual funds, accounting for over 6 percent of the industry’s equity assets under management (AUM).
Growing optimism about a new corporate loan cycle, the bank’s efforts to turn around its loan book, and rising comfort on corporate governance standards after controversies surrounding former CEO Chanda Kochhar, have been among the leading factors behind the bullishness of investors on ICICI Bank.
Yet, India’s mutual funds are slowly looking to trim their exposure on possible concerns that the market may have become too optimistic about the lender’s prospects.
Over the past three months, domestic mutual funds have net sold shares of ICICI Bank worth nearly Rs 2,350 crore, indicating that fund managers are comfortable booking profits after getting in on the turnaround in the bank in early 2020, data compiled by Prime Database showed.
Leading the pack of mutual funds that have trimmed the allocation to ICICI Bank in September alone are the country’s top three mutual fund houses – SBI Mutual Fund, ICICI Prudential MF, and HDFC Mutual Fund, data compiled by IIFL Securities showed.
Abhay Agarwal, founder and MD, Piper Serica Advisors, believes that the reduction of stake by mutual funds could be a function of short-term reallocation of portfolios, a common process for fund managers, given the strong returns ICICI Bank has generated over the past three years.
Despite the profit-booking by mutual fund managers, the stock continues to enjoy the backing of sell-side analysts on Dalal Street.
The consensus among the analysts is that the bank will emerge as the best-in-class lender in both retail and corporate loan categories, aided by its investments in technology, improving underwriting standards, and improving margin profile.
“The bank’s market share in individual micro-markets is still not fully saturated, where it can pick up profitable growth,” brokerage firm Ashika Stock Broking said in a recent note.
Analysts foresee another 16 percent upside in the stock price from current levels, based on the consensus price target of Rs 1,022.4, as per Bloomberg data.
“I still don’t think ICICI Bank is a consensus buy in the market. In fact, the stock is still under-owned by domestic funds,” Agarwal said.(Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.)