Mutual fund managers seem to be bullish on bank shares as they raised their allocation in the sector to an all-time high of over Rs 1.2 lakh crore at the end of February, primarily on account of cheaper valuations.

In comparison, fund managers had allocated Rs 71,864 crore for bank shares in the year-ago period.

“We could be getting close to the bottom of the NPAs (non-performing assets) cycle, valuations were not that expensive, hence funds could have preferred buying into the sector,” Quantum Mutual Fund Associate Fund Manager Equity Nilesh Shetty said.

In percentage terms, exposure to banking stocks was at 20.59 per cent of equity assets under management last month against 20.91 per cent in January-end.

Overall, deployment of equity funds in bank stocks stood at Rs 1,19,796 crore at the end of February compared to the previous high of Rs 1,16,002 crore in the preceding month, as per the latest data available from the Securities and Exchange Board of India (SEBI).

Fund managers have been increasing their allocation to banking stocks for quite some time due to an ongoing clean-up exercise of the Indian banking system initiated by the Reserve Bank of India by keeping a tab on NPAs.

Banking continues to be the most preferred sector with fund managers as they cannot afford to take a bearish call on the banking stocks, given the high weightage attached to the index.

After banks, IT was the second-most preferred sector with fund mangers.

Equity fund managers’ deployment to software stocks was at Rs 46,797 crore, followed by finance (Rs 43,722 crore), pharma (Rs 41,690 crore) and auto (Rs 37,510 crore).

Mutual funds are investment vehicles made up of a pool of funds collected from a large number of investors. They invest in stocks, bonds, money market instruments and similar assets.

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