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.
