Mutual Funds

Banking funds shine

Yoganand D. | Updated on March 10, 2018

IW_26_MF_Banking fund.eps

Banking stocks had an excellent rally in the past one year with many private sector banking stocks registering new highs.

Banking funds too managed sound returns in the past one year, outperforming benchmark indices such as Nifty and Sensex.

Nevertheless, some of the funds have under-performed the banking indices, BSE Bankex and CNX Bank Index.Here we look at the performance of banking funds over the past few years

Of the seven banking sector funds, only Reliance Banking and UTI-Banking Sector have a five-year track record. These two funds have out-performed both BSE Bankex and CNX Bank Index in the past five years. Sahara Banking & Financial Services was the under-performer, giving 27.5 per cent returns as against 37.2 per cent of CNX Bank Index in the last one year.

Private banks outperform

Some of the private sector banking stocks performed remarkably well, out-performing the indices; on the other hand, public sector banking stocks were under-performers.

Some of the public sector banking stocks are still struggling to recover from their 2011 fall, whereas the private sector stocks were resilient during 2011 by consolidating sideways.

With interest rates expected to go on a downward trajectory, banks may be expected to have better loan growth and a stable business cycle making investments in this segment attractive over the long term.

Exposure in banking funds will be suitable for high-risk appetite investors.

Major exposure in large private sector banks such as HDFC Bank and ICICI Bank would have helped the funds perform exceedingly well, as these stock delivered 46 per cent and 40 per cent returns respectively in the past one year.

Promising pick

Among the funds, only ICICI Pru Banking & Financial Services has outpaced the benchmark indices in the one- and three-year periods by delivering 40.8 per cent and 13.4 per cent returns . But others such as Religare Invesco Banking and Reliance Banking have delivered good returns in the three-year period but have slightly under-performed in the one-year period. With a dependable long-term track record of over 10 years in delivering excellent returns, Reliance Banking remains the best scheme to bet on. ICICI Pru Banking & Financial Services too appears promising with a good track record in recent years.

CNX Bank Index or Bank Nifty has been on a long-term uptrend since bottoming out in a late 2011 low of 7766 levels.

Nevertheless, the index encountered its key long-term resistance (November 2010 peak at around 13,300) in the previous week and started to decline. Last week, the index tumbled 4 per cent. The index has immediate key support at 12000 levels.

A conclusive fall below this level will pull the index down to 11000 in the medium-term.

On the upside, an emphatic breakthrough of its key resistance at 13,300 can push the index northwards to 14,000 in the same time period.

Published on May 25, 2013

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