Banks Topple Engineering As Top Pick Of Mutual Funds - Oct 25, 2008

Financial services stocks have displaced engineering shares as the top pick of Indian mutual funds for a first time this year in September as a steep fall in their prices attracted asset managers. Nearly 200 diversified equity funds invested 15 percent of their collective equity assets in financial services, the highest this year, compared with 13.9 percent invested in engineering shares, according to data from fund tracker ICRA.

They are betting slowing inflation and growth will encourage policymakers to cut interest rates, helping domestic banks, which are also largely shielded from the global credit crunch. If you want to play the interest rate cycle and if you expect interest rates to come down, then financials is the best place to be, J. Venkatesan, who manages about 12 billion rupees for Sundaram BNP Paribas Asset Management, said. Stocks such as Housing Development Finance Corp, HDFC Bank and Kotak Mahindra Bank found favour with mutual funds in September.

Forty new funds added ICICI Bank, taking advantage of the 20 percent slump in its price, making it the second most preferred stock of the industry.India's bank index plunged more than 52 percent this year, steeper than the 50 percent fall in the benchmark index, slammed by monetary tightening to tame inflation and concerns about their exposure to the global crisis.