Choosing between banks and information technology (IT) stocks could be the toughest choice facing domestic fund managers and the biggest factor behind alpha generation. Both sectors have a considerable weighting in the benchmark National Stock Exchange Nifty50 Index, are the largest contributors to India’s market capitalisation, and are hence pivotal to any India portfolio.
However, both move in opposite directions 70 per cent of the time.
“Put together, financials and IT account for about 40 per cent of Morgan Stanley Capital International India and 50 per cent of Nifty. Our analysis of the performance of the Nifty IT and the Nifty Bank since 2010 shows that the two indices tend to generally move in opposite directions. Compared to the Nifty, on a trailing three-month or six-month basis, the relative performance of the IT index and the bank index has been in the opposite direction 76 per cent and 70 per cent of the time, respecti
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