Bank stocks: Bold bets on banking could pay off, feel fund managers – The Economic Times

Clipped from: https://economictimes.indiatimes.com/markets/stocks/news/bold-bets-on-banking-couldpay-off-feel-fund-managers/articleshow/82750380.cmsSynopsis

Fund managers are bullish on the large private sector banks, such as HDFC Bank, ICICI Bank, Axis and Kotak. They believe their strong management teams will be able to manage the second wave of Covid-19. Many BFSI funds have concentrated portfolios and these stocks account for nearly half of the scheme.

Mumbai: The data set is decidedly mixed, and the odds don’t appear too bright — at least on paper. But analysts still believe BFSI must be in your portfolio — and not simply because it makes up the biggest chunk of the broadest indices of India.

Sample the stats first. Credit growth is at a six-decade low, and the Bank Nifty has been trailing the broader markets, especially with payment standstills continuing to weigh on asset quality. Evening that out, albeit partially, is the performance of top private-sector banks, which continue to shine in an economy usually starved of capital.

So, what’s the useful piece of advice? Load up on BFSI funds.

Fund managers are bullish on the large private sector banks, such as HDFC Bank, ICICI Bank, Axis and Kotak. They believe their strong management teams will be able to manage the second wave of Covid-19. Many BFSI funds have concentrated portfolios and these stocks account for nearly half of the scheme.

“The 25% credit growth during FY08 moderated to 11% in FY19, which has further decelerated to 5.56% in FY21, a 59-year low. This can be attributed to uncertainty in the economy due to intermittent lockdowns,” said Dhimant Kothari, fund manager, Invesco Mutual Fund.

“India’s low credit penetration, increasing financial inclusion, various government reforms and resumption of normal life post-Covid-19 should drive a cyclical rebound in credit growth,” said Kothari. If these banks could well withstand an unprecedented first wave of the Covid-19 crisis, there are expectations that the impact of the second wave on these businesses could be transitory, he said.

Bold Bets on Banking CouldPay Off, Feel Fund Managers

Despite slow credit growth, the top private banks — HDFC Bank, ICICI Bank and Axis Bank — have reported credit growth of 2-3x of the industry during FY21 at NPA levels that continue to be similar to those of last year.

“The top three private sector banks have raised capital, made strong provisions and there is new management at the top which makes one believe they are resilient, capable of dealing with the second wave and will get stronger from here,” said Mohit Nigam, Head-PMS, Hem Securities.

Distributors believe the Nifty Bank index’s underperformance to the Nifty50 index in the last month has created an opportunity for investors looking to enter the financial services sector.

Some financial planners believe interest rates are headed upwards, which will improve margins for banks. “Bond yields have bottomed out and within a few quarters interest rates are likely to inch up. Higher interest rates lead to higher NIMs for banks,” said Kirtan Shah CFP, Sykes and Rayes Equities. Kirtan recommends these funds for aggressive investors who can come with at least a three-year time frame and such thematic investments not to exceed 10% of the overall portfolio.

Over the last three months, the Bank Nifty is down 10.65%, while the Nifty 50 lost 2.5%

“It is expected that private sector banks with their strong management will only gain market share,” said Anup Bhaiya, CEO, Money Honey Financial Services. He recommends funds that are overweight private sector banks and low on PSUs, NBFCs and small finance banks. He recommends SBI Banking and Financial Services Fund and Invesco India Financial Services Fund, which have concentrated portfolios with a tilt to private sector banks.

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