AgenciesAfter offering negative returns in the one-year time frame, banking sector funds are offering eye-popping 26% returns in three months on the back of signs of economic recovery and expectations of stronger growth. Banking sector category is offering 18.16% returns in one month. The toppers in the category are offering 30% plus returns in the three-month period.
“The economy is back to the 100% pre-covid levels. Various indicators are showing some sectors doing really well. So, on the ground, activity levels is getting better, that’s reflected in the banking sector. Banks have become quite attractive, especially the leading private banks and top NBFCs have done well and raised capital,” says S Krishna Kumar, CIO-Equities, Sundaram Mutual.
Fund managers also point out that the near-term returns should be seen in the context of sharp correction in the sector during the early part of the pandemic. “Valuations had corrected sharply in March-May 2020, which has got normalised in the current rally. Fear of unknown and extent of lockdown had led to expectation of sharp deterioration in asset quality, recent commentary by management suggest than collection efficiency have been better than expected, job losses have been limited and Govt guarantee scheme have been effective,” says Amit Premchandani, Senior Vice President & Fund Manager – Equity, UTI Mutual Fund.
List of top 5 performers in banking category (short-term):
Fund managers also believe that the rally in banking sector might continue for some time. However, investors should be aware of the volatility involved, they say.
“Our view is that banks will do well in the next 12-24 months. I have confidence in the banking sector. If there is a reversal in the growth, then banking might be hit. But other than that, the sector looks good. Investors should remember that volatility will be there because of profit taking,” says S Krishna Kumar.
Reasonable valuation in the sector might lead to good returns in the near future. Small and mid cap banks are trading at significant discount to their long-term averages. “The market share gains of well managed bank will get accelerated post pandemic, margins are likely to be stable and regulatory regime has been supportive. There is still risk of a second wave. I believe retail investors should allocate small part of their funds to sectoral funds based on individual risk profiles. Don’t go overboard,” says Amit Premchandani.
“The economy is back to the 100% pre-covid levels. Various indicators are showing some sectors doing really well. So, on the ground, activity levels is getting better, that’s reflected in the banking sector. Banks have become quite attractive, especially the leading private banks and top NBFCs have done well and raised capital,” says S Krishna Kumar, CIO-Equities, Sundaram Mutual.
Fund managers also point out that the near-term returns should be seen in the context of sharp correction in the sector during the early part of the pandemic. “Valuations had corrected sharply in March-May 2020, which has got normalised in the current rally. Fear of unknown and extent of lockdown had led to expectation of sharp deterioration in asset quality, recent commentary by management suggest than collection efficiency have been better than expected, job losses have been limited and Govt guarantee scheme have been effective,” says Amit Premchandani, Senior Vice President & Fund Manager – Equity, UTI Mutual Fund.
List of top 5 performers in banking category (short-term):
| Scheme name |
1-month returns (%) |
3-month returns (%) |
1-year returns (%) |
| SBI Banking & Fin Services |
27.27 |
57.22 |
1.84 |
| Tata Banking & Fin Services |
24.69 |
48.22 |
|
| Sundaram Fin Services Opp |
28.21 |
55.77 |
0.79 |
| Invesco India Financial Services |
24.67 |
51.64 |
0.44 |
| Taurus Banking & Financial Srvcs |
27.82 |
52.77 |
-0.69 |
Fund managers also believe that the rally in banking sector might continue for some time. However, investors should be aware of the volatility involved, they say.
“Our view is that banks will do well in the next 12-24 months. I have confidence in the banking sector. If there is a reversal in the growth, then banking might be hit. But other than that, the sector looks good. Investors should remember that volatility will be there because of profit taking,” says S Krishna Kumar.
Reasonable valuation in the sector might lead to good returns in the near future. Small and mid cap banks are trading at significant discount to their long-term averages. “The market share gains of well managed bank will get accelerated post pandemic, margins are likely to be stable and regulatory regime has been supportive. There is still risk of a second wave. I believe retail investors should allocate small part of their funds to sectoral funds based on individual risk profiles. Don’t go overboard,” says Amit Premchandani.