Funds chasing finance stocks!!

An interesting article on the Economic Times website..

Financial stocks and funds are fast emerging as the preferred choice of
asset managers and investors who believe rising income in the world's second
fastest growing major economy will boost demand for financial products.

Diversified equity funds have nearly tripled allocation to finance stocks
in the past year to about Rs 247 billion, making it their second favourite
sector after engineering, data fund tracking firm ICRA showed. ICICI Bank Ltd
and State Bank of India were among the top-three preferred stocks by value in
the Rs 5.5 billion in Indian mutual fund industry at end-January. Banking funds
have risen 56.1 per cent on an average in one-year period ending February 13,
comprehensively outperforming the 20.3 per cent gain in India's benchmark index
and have seen assets under management surge more than five times.

"The sector as a whole is beginning to look interesting given the linkage
it has with the overall growth plans of the country," T. P. Raman, managing
director of Sundaram BNP Paribas Asset Management, said. Financial Services
consulting firm Celent expects that 8 percent plus economic growth in India will
turn 42 million households into consumers of wealth management products in the
next five years, as compared to around 13 million households now.

In a report released in December, Celent said India's wealth management
space would see assets quadruple to about $1 trillion by 2012, channelling huge
amount of money into financial sector and spurting demand for products giving
access to the segment. Two exchange traded funds launched in the last five
months track the banking index, while three more are awaiting the regulator's
nod to launch finance sector funds. Raman, whose proposed fund is awaiting
approval, said earnings of India's financial firms were likely to remain robust
as interest rates were stabilising and they remained untouched by the crisis in
global financial firms. "They have got their acts together very well and they
don't have this kind of subprime woes and other things that international banks
have," he said.

India's five-year bull run, that helped the BSE Bankexrise 47.7 per cent
annually in the last five years beating the benchmark index's 39 per cent gain,
paused last month, making valuations softer and attracting more investments.
Diversified equity funds used a 6.2 per cent slide in the banking index in
January to raise exposure to the financial sector to 16.13 per cent of their
equity assets as compared to 13.59 per cent a month earlier, data from ICRA
showed.

R. Rajagopal, chief investment officer of DBS Cholamandalam Asset
Management, said most of the state-run banks were available at price to adjusted
book value of 1-2 and private bank at 2-4, making them more attractive than the
BSE index's 5.8. "We will remain overweight," he said, adding there were signs
of improvement in credit growth and moderating interest rates would further
assist it, boosting outlook for banking stocks.