#MutualFunds #PrivateBanks #MOFSLReport #BankingSector #EquityMarkets #PortfolioAllocation #FinancialServices
Chandigarh: After hitting a 20-month high in April 2025, private banks’ share in domestic mutual fund (MF) portfolios has declined for the second consecutive month. According to the latest Motilal Oswal Financial Services (MOFSL) Fund Folio report, the sector’s allocation in June slipped to 17.9 percent, down 50 basis points (bps) from May. Despite this dip, private bank exposure remains 70 bps higher year-on-year (YoY), indicating that the broader long-term view on the sector remains intact.
Fund managers attribute the recent decline not to a structural shift but to tactical, short-term reallocations aimed at capitalizing on opportunities in other sectors. The consensus remains that private banks continue to offer a strong long-term growth story, supported by stable asset quality, improved liquidity, and attractive valuations.
Not a Structural Shift
Several large Asset Management Companies (AMCs) have trimmed their private bank holdings in June. According to Elara Securities’ domestic liquidity tracker, HDFC AMC was 8.4 percent overweight on private banks, while Quant AMC remained underweight by 7.7 percent.
Other leading fund houses such as ICICI Prudential, Kotak, Axis, and Nippon also reduced their exposure during the month. In contrast, Franklin Templeton and Mirae Asset marginally increased their allocations to the sector, signaling that fund strategies remain divergent.
Meanwhile, public sector bank (PSU bank) weightages either stayed stable or declined across most AMCs, suggesting that fund managers are selectively positioning portfolios amid the evolving liquidity landscape.
Liquidity and Credit Growth Dynamics
Experts point to changes in liquidity conditions and credit growth trends as key factors influencing allocations.
Harshvardhan Agrawal, Vice President – Equity at Bandhan AMC, noted:
“Over the last 12–15 months, private banks dealt with liquidity constraints. They operate with high credit-deposit ratios, and deposit growth wasn’t keeping up. Now that liquidity has improved post-rate cuts, pressure on deposits is easing, but credit growth has moderated to around 10 percent system-wide.”
Agrawal further added that Bandhan AMC has mostly maintained its private bank holdings, underscoring the view that the current rebalancing is tactical rather than reflective of weakening fundamentals.
The Bigger Picture
Private banks have historically enjoyed a strong presence in MF portfolios due to their consistent earnings, healthy return ratios, and leadership in retail and corporate lending. The sector was one of the early beneficiaries of India’s economic recovery post-pandemic, with several banks reporting record low NPAs (non-performing assets) and strong digital lending growth.
However, near-term reallocation trends have emerged as fund managers scout for opportunities in sectors such as capital goods, manufacturing, and technology, which have been buoyed by strong government capital expenditure and private sector investment cycles.
Valuations and Asset Quality Remain Supportive
Despite the recent trimming, analysts argue that private banks still offer reasonable valuations compared to other financial segments. With asset quality stable and credit costs well under control, the sector continues to provide an attractive risk-reward profile.
Industry experts also note that deposit mobilization, which was a key challenge for private banks in 2023 and early 2024, is now improving due to rate cuts and stable macroeconomic conditions. This is expected to support margin stability and moderate but healthy loan growth in the coming quarters.
AMC-Specific Trends
The MOFSL Fund Folio data highlights how individual AMC strategies vary:
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HDFC AMC’s overweight stance indicates continued faith in the sector’s growth potential, supported by its focus on private sector lenders with strong balance sheets.
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Quant AMC’s underweight position suggests a preference for tactical plays in other high-growth sectors.
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Franklin Templeton and Mirae Asset, while increasing allocations marginally, appear to be taking advantage of favorable valuations in select private banks.
What Lies Ahead?
Market experts believe that private banks are likely to remain a core component of MF portfolios due to their robust fundamentals and long-term growth drivers. Moderate credit growth, expected to hover around 10-11 percent in FY26, combined with digital banking expansion and improved liquidity, positions the sector well for sustained performance.
The next few quarters will be key as AMCs assess macroeconomic conditions, including the impact of global interest rate trends, domestic liquidity flows, and corporate credit demand. Any sustained improvement in loan growth and deposit momentum could see fund managers increasing exposure once again.
Key Highlights:
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Private banks’ weightage in MF portfolios fell to 17.9% in June, down 50 bps from May.
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Allocation remains 70 bps higher YoY, signaling continued long-term confidence.
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HDFC AMC was 8.4% overweight, while Quant AMC was 7.7% underweight in June.
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PSU bank weightages were stable or declined across most AMCs.
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Improved liquidity post-rate cuts is easing deposit pressures, but system-wide credit growth is at ~10%.
#MutualFunds #PrivateBanks #MOFSLReport #BankingSector #EquityMarkets #PortfolioAllocation #FinancialServices
