Amid continuing weakness in banking stocks, fund managers' exposure to the sector has dropped to lowest level in 10 months and stood at Rs 35,442 crore at the end of June.
According to latest data available with the Sebi, Mutual Fund (MF) industry's investment in banking stocks stood at Rs 35,442 crore as on June 30, accounting for 19.63 per cent of their total equity assets under management (AUM) of Rs 1.80 lakh crore.
This was their lowest exposure in the banking shares since August, when the total value of mutual fund investments in banking sector stood at Rs 32,970 crore.
The mutual fund exposure to banking stocks had rose to as high as Rs 43,659 crore in December 2012.
Market participants attributed the decline in investment in banking shares to overall volatility in equity market.
Banks stocks are also under-performing because of liquidity pressure due to various steps announced by the RBI and deteriorating asset quality of public sector banks, an analyst said.
Besides, bottomline of various public sector banks have also declined substantially because of higher provisioning.
However, banking stocks continue to remain the most preferred sector for mutual funds, followed by software (10.21 per cent exposure), consumer non-durables (7.79 per cent), pharmaceuticals (7.56 percent) and non-banking financial services (5.93 per cent).
Mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
In 2012, there was a consistent growth in investment in banking stocks by the industry's equity fund managers and their exposure has risen from 17.23 per cent of total AUM in January 2012 to 21.15 percent in December.
The increase in allocation of funds to banking stocks in 2012 was largely attributed to declining interest rates.
In June, banking was followed by software space where the mutual funds' investment stood at Rs 18,430 crore, while pharma sector accounted for Rs 14,064 crore, consumer non-durables Rs 13,645 crore and non-banking finance Rs 10,708 crore.