The government announced a mega recapitalization plan for public sector banks (PSBs) on Tuesday, which investors saw as a win-win for all. Scrips of PSBs rose exponentially on Wednesday, a day after the government announced a massive recapitalization scheme. Major PSBs like State Bank of India, Punjab National Bank and Bank of Baroda rose in the band of 20%-40%, to touch their new 52-week highs. Many of them had hit 52-week lows just a few days ago.

 

PSBs were sitting on a bad loan pile of at least Rs7 lakh crore as of June and this would have swelled further as of September. You would think that the dramatic rally in PSBs would have jerked up the NAVs of mutual funds. However, very few mutual funds had PSBs in their portfolio. Just about 14 schemes went up by more than 3% on Wednesday when each of the banks had gone up 20-40%. Remember Punjab National Bank was up by 45%, State Bank of India by 24%, Bank of Baroda by 31% and Union bank by 32%, among many others. Clearly, even those that had PSBs, had small exposures.

 

 

Indeed, only one fund had house had really bet big on PSBs and that is HDFC Mutual Fund; Six out of 14 top NAV gainers were from HDFC. The highest exposure was in HDFC Infrastructure Fund which had around 10% of its assets invested in SBI, 4% in Bank of Baroda and 3% in Punjab National Bank and the rest in other PSU banks. Fortunately, for HDFC Infrastructure investors, the government also announced huge spending on Infrastructure projects. PNB soared the highest, and the scheme which had the highest allocation to this stock was LIC’s B&FS scheme which had a total of 8% of its assets in the stock.