As banking stocks turn attractive, some financial planners advice an increased allocation towards banking sector funds; others maintain a neutral stand until there is clarity on policy rates by RBI
Mumbai: Banking stocks have taken a beating as the RBI continues its battle against inflation. Market experts believe that another rate hike is inevitable. Once the RBI’s focus shifts towards growth, easing interest rates would be high on its agenda in order to push growth. An ease in interest rates is thus likely to boost bank stocks which spells good news for banking sector funds.
We tried to find out if financial planners are recommending banking sector funds to investors at this juncture. Some analysts believe that the recent fuel price hike is likely to stoke inflation further and a rate hike is imminent.
“The fundamentals of banking stocks are good. However, they have come under pressure due to the high interest rate environment. Even though valuations may not be stretched, hardening of interest rates will put pressure on the net interest rate margins of banks. So, we are neutral on banking sector funds. It’s not a very positive environment in the short term but their fundamentals are good if you have a long term view. We are waiting for some clarity on interest rates. Although we are nearing the end of rate hike cycle, it’s still not over,” says Dhruva Raj Chatterji, Senior Research Analyst, Morningstar India. Others believe that investors can take an early exposure to cash in on the potential boost in banking funds, once policy rates smoothen.
The central bank has raised rates 10 times since March 2010 to tame inflation. India’s headline wholesale price index (WPI) stood at 9.06 per cent in May 2010 despite the RBI’s tough monetary stand.
|
Scheme Name |
6 month returns |
9 month returns |
1 year returns |
|
ICICI Pru Banking & Fin Serv-Ret(G) |
-7 |
-12 |
17 |
|
Reliance Banking(G) |
-12 |
-12 |
18 |
|
Religare Banking-Reg(G) |
-7 |
-10 |
17 |
|
Sahara Banking & Financial Services(G) |
-12 |
-15 |
12 |
|
Sundaram-Select Thematic Funds-Fin Serv Oppor(G) |
-12 |
-17 |
14 |
|
UTI Banking Sector(G) |
-8 |
-13 |
17 |
|
Source : Accord Fintech (As on - 30-Jun-2011) |
|||
In the last nine months period, banking funds have fallen as much as 17 per cent. The story is similar if we analyse the performance during the last six months. However, the returns over a one year period remain positive.
“Sector funds are tactical plays. Systematic investment is not recommended in such funds. Just when interest rates tend to fall, you will see banking stocks shooting up. Once interest rates go down, there will be a huge credit off take. Interest rates are almost peaking out. Investors can look at some allocation in banking funds,” says Rajesh Jha, CEO, Jain Investments.
“Within sector funds, banking can be one such sector that can be considered because it’s the core of the economy. Banking stocks have witnessed a correction. There is an opportunity. One can invest 30 per cent of their corpus lump sum. An event such as another rate hike is known and it is already factored in. But one should keep an eye on the level of exposure to sector funds,” Hemant Rustagi, CEO Wiseinvest.
The BSE Bankex index has slipped 6 per cent from its high of 13,618 in November 2010 to 12,821 as on 30 June 2011. The banking sector remains a favourite for a majority of equity funds. Equity diversified funds have the highest exposure of 9 per cent and 6 per cent exposure to private sector banks and public sector banks respectively, as on May 2011.
