The shares of ICICI Bank fell amid reports about the alleged involvement of MD & CEO Ms Chanda Kochhar and her family members in a Rs 3,250 crore loan provided to Videocon Group on ‘quid pro quo’ basis.

The market regulator is considering a forensic examination on the financial statements and disclosures made by ICICI Bank in the last few years pertaining to this controversy over an alleged conflict of interest.

Axis Bank, on the other hand, came under scrutiny after the Reserve Bank of India asked the company's board to re-consider the decision to re-appoint Ms Shikha Sharma as its MD and CEO for a fourth term in the wake of concerns over rising bad loans at the country's third largest private sector lender. Later, Ms Sharma announced that she was cutting short her tenure by over two years.

ICICI Bank and Axis Bank are among the six banks where the mutual fund houses have invested over Rs 10,000 crore in each. HDFC Bank, State Bank of India, Kotak Mahindra Bank, and IndusInd Bank are among the other holdings.

Have a look at these banks and their market value in the data table below:

Top Bought Stocks of Mutual Funds

Company Name	Market Value – March 2018 (Rs Crore)
HDFC Bank	48,636
ICICI Bank	31,013
Infosys	26,211
Larsen & Toubro	25,209
State Bank Of India	24,236
ITC	19,896
HDFC	18,679
Reliance Industries	15,549
Maruti Suzuki India	14,998
Kotak Mahindra Bank	14,506
NTPC	12,260
TCS	11,992
Axis Bank	11,006
Bharti Airtel	10,631
IndusInd Bank	10,140

Data as on March 31, 2018
(Source: ACE MF, PersonalFN Research)

ICICI Bank, along with HDFC Bank is also among the top two most bought stocks by mutual funds, from around 900 stocks on the list. HDFC Bank accounts for nearly 6% of the total equity assets, while ICICI Bank takes second place, accounting for nearly 4% of the total assets.

ICICI Bank and Axis Bank Hurting Mutual Fund Returns?

Data as on April 26, 2018
(Source: ACE MF, PersonalFN Research)

Based on their stock performance in the past two months, ICICI Bank and Axis Bank are among the three stocks that declined the most. State Bank of India was the third, falling by nearly 25%. Kotak Mahindra Bank and IndusInd Bank were the two gainers, returning around 5% each. The S&P BSE Sensex declined by 3% over the same period.

As mutual funds hold shares of ICICI Bank worth north of Rs 30,000 crore, they are bound to be concerned when the company faces turbulence. The fund houses held Rs 38,000 crore of ICICI Bank stock as on January 31, 2018. A drop of 20% in the stock’s value resulted in an erosion of over Rs 7,000 crore in assets.

Unsurprisingly, the harried fund houses rushed ahead to meet ICICI Bank’s on-executive chair Mr M. K. Sharma after allegations surfaced against the lender’s MD & CEO Ms Chanda Kochhar.

As per news sources,  mutual fund head honchos raised questions over the bank’s succession plan in case Ms Kochhar steps down in face of the allegations. The fund houses wanted clarity from the bank on the risks involved. The Chairman is said to have allayed the fears of the asset managers saying the bank has a strong pool of second-rung leaders after Ms Kochhar.

Axis Bank, on the other hand, posted its first quarterly loss of Rs 2,188 crore for the March 2018 quarter. Last year, the bank has posted a profit of Rs 1,225 crore in the same quarter. The provisions and contingencies of the lender spiked nearly three times to Rs 7,179 crore as compared to Rs 2,581 crore a year ago.

“The results this quarter are a reflection of the bank’s desire to accelerate NPA recognition, and get past the asset quality issues as soon as possible,” said Ms Sharma. CFO, Mr Jairam Sridharan added that the Bank expects the new NPA formation to decline significantly in 2018-19.

While it is not clear what mutual fund players, have decided about their holdings in the two banks for the current month. However, over the quarter that ended on March 2018, they have expressed caution towards both banks.

Mutual Funds Shunning Top Bank Stocks?

Company Name	No. Of Schemes (Mar-17)	No. Of Schemes (Mar-18)	Inc/Dec
ICICI Bank	552	503	-49
HDFC Bank	537	535	-2
State Bank Of India	435	400	-35
IndusInd Bank	326	271	-55
Axis Bank	325	251	-74
Kotak Mahindra Bank	314	338	24

Data as on March 31, 2018
(Source: ACE MF, PersonalFN Research)

A year ago, ICICI Bank was the most favourite stock of mutual funds, being in the portfolio of nearly 552 schemes. HDFC Bank trailed behind, being present in 537 fund portfolios at the time.

However, a year later, the tables have turned. The number of schemes investing in ICICI Bank has reduced to nearly 500. For HDFC Bank, it remained around 535.

Axis Bank seems like the most shunned bank stock on the list. It was present in 325 schemes a year ago, and currently finds place in only 251 schemes.

We now check any changes there might be in the number of shares held by mutual funds over the quarter ended March 31, 2018.

Mutual Funds Buying or Selling Top Bank Holdings?

Company Name	No. Of Shares (Dec-17)	No. Of Shares (Mar-18)	Percent Increase
IndusInd Bank	65,783,019	56,437,278	-14.21%
Axis Bank	234,552,783	215,629,863	-8.07%
ICICI Bank	1,114,752,840	1,114,162,955	-0.05%
HDFC Bank	253,350,758	257,834,229	1.77%
Kotak Mahindra Bank	133,225,027	138,438,097	3.91%
State Bank Of India	854,982,726	969,777,794	13.43%

Data as on March 31, 2018
(Source: ACE MF, PersonalFN Research)

Do note:  This is based on month-end holdings. The buying and selling varies on a month-on-month basis, hence, this does not signify that mutual funds gradually increased or decreased their shareholding over the period.

While IndusInd Bank has been the most sold stock, fund houses were seen reducing their exposure to Axis Bank as well. The exposure to Axis Bank, based on number of shares held, dropped by 8%.

Mutual Funds reported buying shares of HDFC Bank, Kotak Mahindra Bank, and State Bank of India over the past quarter. However, the holdings in ICICI Bank remained broadly unchanged.

Though the stock of State Bank of India declined the most over the period, fund houses rushed in to pick it up as a probable value buying opportunity.

The holdings of mutual funds over the next few months will give a clearer picture of their long-term view on Axis Bank and ICICI Bank.

Should you be worried as an investor?

(Source: Unsplash.com)

How mutual funds manage their money does impact you as an investor in the form of returns. Fund houses have not ignored the risks and have proactively taken a step in the right direction by meeting ICICI Bank chairman. This should give investors’ some confidence that their asset managers are taking active responsibility.

As an investor, it is best to pick the top mutual funds that have proven their ability of picking superior stocks, delivering superior risk-adjusted returns across market cycles. If you have invested in such funds that have a high exposure to ICICI Bank or Axis Bank, it should not worry you.

Continue investing or remain invested in such funds. It is the fund managers’ job to decide the best course of action when it comes to your investment.

You should remain focussed on your financial plan and do not let this to hamper your investment goals.

Editor’s note: PersonalFN has a long track record of offering unbiased mutual fund research services. It analyses thousands of data points to shortlist schemes and also applies a whole host of qualitative parameters to select only a handful schemes for your portfolio.  Want to try PersonalFN’s Premium Mutual Fund Research service ‘FundSelect’? Every month, our FundSelect service will provide you with an insightful and practical guidance on which mutual fund schemes to buy, hold or sell, which will assist in creating the ultimate portfolio that has the potential to beat the market. Currently, we are offering OVER 50 PERCENT DISCOUNT on fresh subscriptions to FundSelect. So, instead of the regular price of Rs 5,000, you will pay Rs 2,450 only for the first year of subscription. What’s more? You will FREE access to our premium report, ‘The Super Investment Portfolio’ So, hurry and subscribe to PersonalFN’s FundSelect NOW! We will share with you the 6 Ultimate Secrets that Helped Beat the Market By A Whopping 75%!

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