Mutual funds have loaded up on ICICI Bank shares when the bank went through a slew of bad news with its CEO Chanda Kochar in the limelight on the Videocon loan default and kickbacks received by her husband Deepak Kochar in the form of loans which further got converted into Equity to his company Nu Power. Money got routed through Mauritius.
Funds have taken a technical bet, where there is an expectation of a bounce back from the bottom which will provide an opportunity for short term gains. In such a situation, there is not much that can come from ICICI Bank as there was an article in the ET stating that, ICICI Bank is one of the lowest performing banks among its private counterparts. Its NPA’s are seriously high, though not to the extent of their PSU counterparts.
Banking sector on the whole has gone into underperformance haunted by increasing NPA’s and managements which was so far the PSU’s, now even the private sector has shown poor governance. These developments have made the Banking Sector not a favourable investor’s choice. In such a scenario, taking exposure to a stock that is fundamentally weak is not a good sign. It feels to think that, even fund managers have begun to behave like immature investors.
There is a potential for short term gains as ICICI Bank’s asset quality is not so deteriorated like that of the PSU’s, which will help the stock to make a rebound. For those who take investments based on this development, need to be pretty clear on their exits. Once the stock begins to show weakness on its price, it is time to exit those funds.
Investing in a beaten down sector when it is about to turn around is a very good investment strategy, while that should be done in the right sector. For example in 2016 when metals turned around, those funds that had high exposure to metals sector were the biggest gainers in the 2016-17 rally. The next such opportunity is likely to come in the Pharma sector sometime in the near future. It is not going to be frontline Pharma companies that will lead the rally. At this time it is too early to spot the leaders, while when there is one, leaders will show up bright.
At that time take exposure to mutual fund schemes that have higher exposure to those strong leaders in Pharma and your investment will beat all the benchmarks and give your saving a bumper profit.