Banking funds top charts, outperform other sectoral plans

Banking funds have emerged as the top sectoral performers in the past one year, with the category giving returns in excess of 29%, outperforming other sectoral and thematic schemes.

In comparison, infrastructure funds gave returns of 21.6% while the performance of pharma and IT schemes remained abysmal with returns of 2.7% and 2.8%, respectively, data from Value Research shows.

Among thematic funds, PSU funds returned 24.7% and consumption-oriented schemes clocked returns of 15.8% during the period.

Tata Banking & Financial Services has returned 30.4%, Sundaram Finnacial Services Opportunities 32% and SBI Banking and Financial Services Fund 21.8%.

Two PSU Bank ETFs-Nippon Ind ETF Nifty PSU Bank BeES and Kotak Nifty PSU Bank ETF-have topped the charts with returns of over 64%.

The Nifty Bank index has gained 27% in the past year and is hovering near its all-time high of 43,677. Shares of banks came under pressure in late January after the publication of the Hindenburg report regarding the Adani Group.

State-owned lenders had a “material” exposure to the Adani Group at 30% of the group debt. For PSU banks, the exposure was more meaningful at 0.6% of loans and 5% of FY24 net worth, CLSA had said in a note.

Bank stocks have since stabilised. Foreign portfolio investors (FPIs) have  pumped in over $6.3 billion since March in Indian shares, which has also benefited financial stocks.

Banking funds invest not only in banks but the entire gamut of financial services entities-wealth management, housing finance, rating agencies, broking, non-banking financial companies (NBFCs) and micro finance institutions.

The banking sector reported strong financial performance during FY23, with a few banks clocking their decadal-best RoA, mainly aided by robust growth, margin delivery in a rising-rate cycle and improving asset quality in a post-Covid era, according to analysts.

State Bank of India, the country’s largest lender, reported healthy 80% yoy earnings growth for Q4FY23 on the back
of 25% yoy operating profit growth. Asset quality showed limited signs of stress, with negligible slippages and gross and net NPLs at historical lows.

“For FY24, credit growth/margins will moderate. However, treasury gains for PSBs and continued lower loan loss provision for most banks should keep net-earnings growth healthy. That said, we prefer to remain selective on banks amid the increasing risk of macro-dislocations, which carry a strong capital/provision buffer as well as return ratios,” said a recent note by Emkay Global Financial Services.  

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