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India’s central bank started reducing interest rates from this January after a long time.
Falling inflation, lower crude oil price, falling food price and better than expected monsoon are the various reasons that have kept the rates on a declining path. Banks were the obvious beneficiaries and for much of 2014, the stocks in this segment were on a roll.
However, after the strong and steady movements in the Bank Nifty during late 2013 and 2014, the index appears to have hit a barrier in January 2015.
While public sector banks are still to stem the tide of rising NPAs, the hitherto resilient private sector banks too do not seem to be well insulated. Barring very few exceptions, stocks across the banking segment have been sharply marked down over the past few months.
Funds outperformGiven the volatile nature of banking stocks, funds that invest solely in the sector have done better by juggling stocks well.
A few banking sector funds have managed to outperform the benchmark indices, Bank Nifty and BSE Bankex, over one and three-year timeframes. ICICI Pru Banking & Financial Services, Religare Invesco Banking and Birla Sun Life Banking & Financial Services have done well over the past one-year period.
Reliance Banking, the largest fund in this category with over ₹2,200 crore assets with good long-term record of outperforming its benchmark, has underperformed it over the last one year. The fund predominately invests in banking and financial services companies as well as NBFCs. The exposure to public sector banking stocks, which are currently underperforming, could have dragged returns.
HDFC Bank is the most preferred banking stock among the funds, which has rewarded well by gaining 32 per cent in the past one year. On the other hand, some stocks have delivered muted returns in this period.
SBI is generally regarded as a value buy and figures in most portfolios even if most other public sector banks do not find many takers.
Sahara Banking & Financial Services and Taurus Banking & Financial Services were the worst performing funds in this category over the past one year, delivering 14.6 per cent and 13.5 per cent, correspondingly.
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