personal finance

Banking sector funds returned 5.04% last month. Should you invest?


The banking sector funds are offering eye-popping returns in the short term. The banking sector category has returned 5.04 per cent returns in the last one month and 4.96 per cent in three months, making it the topper in the three-month horizon, followed by IT sector funds and the largecap funds category.

“As far as the results are concerned, they have been in line with the expectations, especially on the corporate banking side. The pricing and valuation of the corporate banks were significantly lower than the retail-oriented banks in the last quarters. There was a high level of slippages that we saw in Q4. From there, we have seen a sharp decline in slippage in corporate banks. This is an indication of a revision in the sector. This is by far the major reason keeping the banking sector up,” says Amit Premchandani, fund manager, UTI Banking Fund.

According to the Reserve Bank of India, the gross non-performing advances (NPAs) of all commercial banks stood at 11.6 per cent of gross advances. Mutual fund managers and advisors believe the results posted by the public sector banks were burdened by their bad loans in the beginning of 2018. On the other, most private sector banks have seen a sound recovery from bad loan accounts, which is a positive sign for the sector.

“From a long-term perspective the sector looks good. The market cap of the sector is largely in private banks and they are well capitalised. The multiples remain okay,” says Premchandani. He adds, “We think there is enough scope to generate returns in the corporate banking side. Especially on the corporate banking side, things are looking much better than how they were a couple of months back. So in a five-year time horizon, we expect the sector to generate good returns.”

However, mutual fund advisors believe that retail investors shouldn’t go overboard with banking sector schemes. “Sector schemes, be it any sector, are not meant for more than diversification for the retail investors. Banking sector is posing great returns but investors should not go overboard with their investments in sector-specific schemes,” says Pankaj Gera, a certified financial planner, based in Delhi.

Mutual fund experts suggest that one should invest in sector schemes only if they are well-versed with the sector. High net worth individuals can also bet on sector schemes to diversify their portfolio and maximise wealth. However, small investors should tread carefully as these schemes can be risky and cyclical.

“If you are invested in a banking sector fund, stay invested. If you want to invest, don’t invest more than 5-10 per cent in sector-specific schemes. And make sure you invest for a minimum of five years,” suggests Gera.





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