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|
|city union bank||150.55||136.95|
|Federal Bthank you||80.9||91.75|
|First IDFC Bank||46.2||32|
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?
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.
First post: STI