By Anshul STI (Update)

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How have bank funds performed recently and should you invest in them? CNBC-TV18.com spoke to experts to get an answer to this question

Banking stocks have outperformed in recent months on strong credit demand and a decline in non-performing asset (NPA) write-offs. They’ve topped Nifty since late June, when the market hit its 52-week low and turned.

Against this backdrop, mutual fund investors need to consider whether they should dive into bank funds?

For the uninitiated, bank funds are open-ended investment funds that only invest in the banking sector. The portfolio of these funds is made up of private and public sector banks. Private sector banks such as ICICI, HDFC, Kotak, Yes, IDFC, IndusInd, etc. are part of the portfolio.

A look at recent bank performance

Public Sector Enterprises (PSUs) and Private Banks have relatively outperformed Nifty in each of the past three months, i.e. July through September.

Even on a year-to-date basis, while Nifty is down 4%, the banking sector has gained 4%, said Sneha Poddar, AVP Research, Broking & Distribution at Motilal Oswal Financial Services in an interview with CNBC-TV18.com.

Although PSU and Private Banks both beat Nifty, among them, PSU Banks eclipsed with gains of 11% versus 3% gains in the case of Private Banks.

Here is a table showing the 3-month and 1-year return of private banks:

Company Name 1 year 3 months
UA Small Finance 563.8 621.9
3.68% -6.01%
Axis Bank 796.55 637
-10.07% 12.46%
Bandhan Bank 286.6 276.45
-11.37% -8.12%
city ​​union bank 150.55 136.95
12.92% 24.13%
CSB Bank 305.6 199.9
-28.08% 9.95%
DCB Bank 91.8 76.9
12.42% 34.20%
Dhanlaxmi Bank 15.8 11.7
-25.19% 1.03%
Equitas Bank 61.1 39.55
-22.34% 19.97%
Federal Bthank you 80.9 91.75
38.32% 21.96%
HDFC Bank 1615.95 1345.65
-14.09% 3.17%
ICICI Bank 717 710
18.44% 19.61%
IDBI Bank 44.55 31.25
-10.10% 28.16%
First IDFC Bank 46.2 32
0.54% 45.16%

(Source: Moneycontrol)

And, how have bank funds performed recently?

Here are the returns for some of the major banks (as of September 12, 2022):

So, should you invest?

The banking system is experiencing a healthy recovery in loan growth, driven by a recovery in the corporate segment, while growth in the retail and SME segments remains robust.

According to Poddar, systemic lending growth hit a 9-year high of 16.2% YoY for the fortnight ending September 9, 2022. The last time systemic lending reported growth was around 16.2 % year-over-year, this was November 2013. In FY23 to date, loans increased by 5.5%. percent.

Although the macro environment is challenging and needs to be monitored, Poddar said it expects systemic credit to grow around 12.5%/13.8% year-on-year in the fiscal year. 23/24. Banks with higher CASAs and floating rate loans are likely to be better positioned in a rising rate environment.

Therefore, she thinks investors can consider adding banking services to their portfolio ahead of this new growth cycle.

However, they should be careful to only buy bank stocks that have a track record of good asset quality across interest rate cycles, said Tanushree Banerjee, co-head of research at Equitymaster.

Indeed, both credit demand and NPA provisions would depend on the level of interest rates.

Recently, banks have hiked rates in the wake of the Reserve Bank of India’s repo rate hike. After a small jump of 40 basis points in May, RBI raised the interest rate another 50 basis points in August. According to a Reuters poll, there is broad consensus that the RBI will also raise rates at the September 30 meeting.