If you think banking stocks have lost steam, think again. Banks have observed positive indications of credit growth, with retail loans continuing to be the primary driver. Customers are actively seeking loans and fulfilling their credit needs, contributing to this growth trend. Investors feared how rising interest rates would stagnate the growth of the banking sector though the same has subsided with both institutional and retail investors betting on banking stocks.
The optimism regarding banking stocks is still there. Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, “The global market construct continues to be favourable for the bulls. The declining dollar and the capital flows to emerging markets triggers can impart resilience to the market. However, high valuations and possible profit booking can restrain the rally. A healthy consolidation can be the near-term trend. Since the market has run up too much, too fast, a correction can happen at any time. Some profit booking at the present level can be considered. Good results from HDFC Bank augur well for Bank Nifty. More good results from banking stocks are likely.”
This apart, the Union Budget 2023 has served as a great enabler for the country’s banking sector. The banking sector is still evolving, which means that there is still enough hope for investors to latch on to it. A positive trend in the US markets is also contributing to the benchmark indices’ optimism.
With banking stocks still oozing oomph and optimism among investors, does it make sense to put your money in the recent new fund offers (NFOs) surrounding bank exchange-traded funds (ETFs)? Take, for example, the simultaneously launched DSP Nifty Private Bank ETF and DSP Nifty PSU Bank ETF launched by DSP Mutual Fund. Many investors are inclined to know if they must put their money in these investments containing banking stocks.
The DSP Nifty Private Bank ETF is an open-ended scheme that aims to replicate or track the performance of the Nifty Private Bank Index. This ETF invests in private bank stocks in proportions identical to those of the Nifty Private Bank Index. The scheme’s performance will be compared to the Nifty Private Bank TRI benchmark.
The DSP Nifty PSU Bank ETF is an open-ended scheme designed to replicate or track the performance of the Nifty PSU Bank Index. This ETF invests in Public Sector Undertaking (PSU) bank stocks in proportions that mirror those of the Nifty PSU Bank Index. The scheme’s performance will be measured against the Nifty PSU Bank TRI benchmark.
The asset allocation of each can be found in their respective Scheme Information Documents (SIDs).
With mutual fund houses launching NFOs every week, does it make sense to invest in any of them? Rising prices of bank stocks have been the driving force behind both Sensex and Nifty breaching new highs every day. However, this still may not be enough reason to invest in these NFOs.
To begin, ETFs are passive mutual funds that typically mirror benchmark indices such as Nifty or Sensex. The financial services sector accounts for approximately 37 per cent of the total weightage in the Nifty 50 index, with Bank Nifty playing a significant role within this sector. These stocks also carry major weight in the Sensex. So, if you have already invested in one or more than one index funds, putting money in these ETFs might not help.
Also, the nature of these ETFs is such that their performance depends on the performance of the banking sector, i.e., the frequency at which banking stocks would be bought or sold in the market. Tying up your money to a particular theme means that you are left dependent on the cyclical nature of these stocks.
Not that these stocks would continue to outperform investors’ expectations always; there would always be corrections when these banking stocks would be traded at overvalued prices. Over-the-top valuation due to momentum can be a cause for alarm as the market is forced to push down stock prices till they arrive at their correct valuations. This may trigger downfall, thus, leading to unforeseen losses.
The idea should be to wait and watch rather than just push your money into an NFO without realising the pros and cons of such an investment. In the end, it again depends on your view of the market, how you wish to structure your investment portfolio and how long you are willing to stay invested in the market.