Mutual funds pared their holdings in bank stocks last month in tune with the market correction. The funds’ deployment to the segment declined by more than Rs 21,600 crore to Rs 1.88 lakh crore in September from Rs 2,10,251 crore in August, 2018.

The September holding was the lowest since June, when equity funds' exposure to bank stocks stood at Rs 1.87 lakh crore. In May, it was at Rs 1.89 lakh crore, shows data from the Securities and Exchange Board of India.

In percentage terms, exposure to banking stocks was at 19.78 per cent of equity AUM last month as against 20.21 per cent in August.

"The fall in mutual fund exposure to banks is more driven by market correction than by any significant reduction by mutual funds. In fact MFs have more or less maintained their exposure in banks compared with six months ago (19.78 per cent in April) adding select banks," said Viday Bala, head of mutual fund research at FundsIndia.Com.

"The reduced exposure is more driven by lower market value of their holdings due to the current market correction," she said.

The BSE Bankex slumped by 12 per cent during the six months while the Sensex witnessed a drop of a little over 6 per cent.

Despite the current decline in holdings, banking is the most preferred sector with fund mangers, as they cannot take a bearish call on bank stocks, given the high weightage attached to the index.

After banks, finance was the second-most preferred sector with fund mangers. Equity fund managers' deployment in finance stocks was at Rs 87,519 crore, followed by software (Rs 88,453 crore), consumer non-durables (Rs 71,072 crore) and auto (Rs 46,920 crore).