HDFC, Kotak, ICICI Bank, AU SFB: MFs bought Rs 19,500 cr worth bank stocks in Jan; top picks

Mutual funds (MFs) picked private banks with both hands in January, monthly AMFI data compiled by JM Financial suggested. HDFC Bank Ltd, ICICI Bank Ltd, Kotak Mahindra Bank Ltd, AU Small Finance Bank Ltd and IDFC First Bank Ltd were among mutual funds’ top five picks for the month, data showed. The institutional category was net buyers of banking stocks to the tune of Rs 19,533 crore for the month. Axis Bank Ltd, The Federal Bank Ltd and Karur Vysya Bank Ltd were among the banking stocks that saw mutual fund selling during the period.

Indian banks delivered more positive surprises than negative in the December quarter. BNP Paribas said policy rate cuts appear to be in the rearview mirror for the foreseeable future, ensuring a shallower bottom and an earlier inflection point for bank margins.

"Incremental positive news flow on external sectors also bode well for flows outlook for the system. Policy support on liquidity remains and all recent changes in regulatory credit policy have been incrementally accommodative. System credit growth has now inched up above our 13 per cent FY26 target, and we expect balance sheet dry powder, recent fiscal stimuli, regulatory intent and policy push to support similar credit growth in FY27. Coupled with benign margin expansion, this delivers earnings growth of 20 per cent for our preferred large banks, in our estimation," it said.

BNP Paribas said valuations, relative to historical levels and current compounding realities, cement its preference for banks over NBFCs. Its top banking picks are HDFC Bank, ICICI Bank and Axis Bank, in that order. It is 'Underperform' on IndusInd Bank, City Union Bank and AU SFB.

In its Q3 earnings review this week, MOFSL said net interest margin (NIM)  for the sector remained broadly stable, with some banks showing healthy expansion. Slippages remained under control as most banks witnessed easing stress in unsecured portfolios, it said.

MOFSL is factoring in a calibrated expansion in margins over the coming quarters as it remains watchful of further cuts in repo rates.

"Credit costs have started to ease and are expected to fall further in 4Q, led by new MFIN guardrails, steady portfolio diversification and early signs of stabilization. Over FY26-28, we project an aggregate earnings CAGR of 21 per cent for private banks and 11 per cent for PSBs. For our overall coverage universe, we estimate a 16 per cent earnings CAGR. Our preferred picks are ICICI Bank, HDFC Bank, AU SFB and SBI," it said.

Meanwhile, the institutional class bought Rs 6,398 crore worth pharma & healthcare stocks including Biocon, Amagi Media Labs, Apollo Hospitals, Laurus Labs, Sun Pharma. This is even as they cut stakes to Cipla, Divi's Laboratories and Lupin. Swiggy, PB Fintech, Eternal, Nykaa and Groww saw MF buying while e-commerce companies such as Indiamart Intermesh, Pine Labs and RK Swamy saw MF selling. MFs were net buyers of Rs 4,558 crore in e-commerce sector.

In the auto and auto component space, Mahindra & Mahindra (M&M), Maruti Suzuki India Ltd, Bajaj Auto Ltd, Tube Investments of India and Tata Motors Ltd were top buys. Hero MotoCorp, Eicher Motors and Samvardhana Motherson International Ltd (SAMIL) were among top sells.