Banking on economic revival…
Banking sector is considered to be the barometer of economy and has the highest weightage in the Sensex. Hence it generally outperforms whenever the economy is improving and the equity market is in an upturn. However, this sector has underperformed since the General Election results in May 2014 on concerns over NPAs and high interest rates. Given the confidence built by the new government and expectations of improvement in the overall economy, we believe the banking sector and in turn banking funds are bound to outperform in the next two or three years.
We, therefore, believe as the economy revives much of the impediments faced by the banking sector slower credit pick-up, deteriorating asset quality and a fall in profitability may all come to an end. In the past, the banking sector has outperformed the BSE Sensex in a growing market. I believe the same may happen over the next two to three years. Aggressive investors can, therefore, consider allocation of some part of their overall equity portfolio to banking funds.
I believe much of the impediments faced by the banking sector - slower
credit pick-up, deteriorating asset quality and fall in profitability may all
abate as the economy turns around. With the formation of a reform
oriented government at the Centre, policy logjam is getting cleared fuelling
growth. Inflation has also softened from over 9% in the previous year to
6.4% in September 2014, as a result of efforts put in by the central
government and the RBI. Inflationary expectations have also come down
on the back of a decline in global crude oil prices and reduced currency
volatility. Although markets have started to factor in an improvement in the
economy and resulting corporate profitability, there still remains significant
potential given the positive economic outlook over the next three or four
years. The banking sector being the barometer of the economy and having
the highest weightage in headline indices, historically, has outperformed
during improving economic activity and rising equity markets. Given the
confidence engendered by the new government and expectations of an
improvement in the overall economy, I believe the banking sector and
banking funds are poised to outperform in the next two or three years.
Banking sector outperforms in improving economic environment
The banking sector is the barometer of the economy and reflects its
economic health. Banking, being a relatively high beta sector, has
delivered higher returns vis-à-vis the broader market in the upturns. As
seen in the table alongside, every time the market has gone up the Bankex
has delivered higher returns. Entry into banking funds during an improving
economy and rising equity markets delivers alpha over other diversified
funds. I, therefore, advise that aggressive investors start accumulating
banking funds on every market decline.
Further I strongly recommend you to continue with your currently active SIP/TIPs. SIP/TIPs by design help you take advantage of the market volatility. This would also help you in getting the maximum advantage of the changing market scenario.
Investing regularly through SIP and TIP is one of the best ways to invest. You could start a SIP and/or TIP in our recommended SIP funds viz., UTI Opportunities, ICICI Prudential Focused Bluechip Equity, Franklin India Prima Plus and Birla Sun Life Frontline Equity.
Banking sector is considered to be the barometer of economy and has the highest weightage in the Sensex. Hence it generally outperforms whenever the economy is improving and the equity market is in an upturn. However, this sector has underperformed since the General Election results in May 2014 on concerns over NPAs and high interest rates. Given the confidence built by the new government and expectations of improvement in the overall economy, we believe the banking sector and in turn banking funds are bound to outperform in the next two or three years.
We, therefore, believe as the economy revives much of the impediments faced by the banking sector slower credit pick-up, deteriorating asset quality and a fall in profitability may all come to an end. In the past, the banking sector has outperformed the BSE Sensex in a growing market. I believe the same may happen over the next two to three years. Aggressive investors can, therefore, consider allocation of some part of their overall equity portfolio to banking funds.
I believe much of the impediments faced by the banking sector - slower
credit pick-up, deteriorating asset quality and fall in profitability may all
abate as the economy turns around. With the formation of a reform
oriented government at the Centre, policy logjam is getting cleared fuelling
growth. Inflation has also softened from over 9% in the previous year to
6.4% in September 2014, as a result of efforts put in by the central
government and the RBI. Inflationary expectations have also come down
on the back of a decline in global crude oil prices and reduced currency
volatility. Although markets have started to factor in an improvement in the
economy and resulting corporate profitability, there still remains significant
potential given the positive economic outlook over the next three or four
years. The banking sector being the barometer of the economy and having
the highest weightage in headline indices, historically, has outperformed
during improving economic activity and rising equity markets. Given the
confidence engendered by the new government and expectations of an
improvement in the overall economy, I believe the banking sector and
banking funds are poised to outperform in the next two or three years.
Banking sector outperforms in improving economic environment
The banking sector is the barometer of the economy and reflects its
economic health. Banking, being a relatively high beta sector, has
delivered higher returns vis-à-vis the broader market in the upturns. As
seen in the table alongside, every time the market has gone up the Bankex
has delivered higher returns. Entry into banking funds during an improving
economy and rising equity markets delivers alpha over other diversified
funds. I, therefore, advise that aggressive investors start accumulating
banking funds on every market decline.
Further I strongly recommend you to continue with your currently active SIP/TIPs. SIP/TIPs by design help you take advantage of the market volatility. This would also help you in getting the maximum advantage of the changing market scenario.
Investing regularly through SIP and TIP is one of the best ways to invest. You could start a SIP and/or TIP in our recommended SIP funds viz., UTI Opportunities, ICICI Prudential Focused Bluechip Equity, Franklin India Prima Plus and Birla Sun Life Frontline Equity.
Happy Investing
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