Mutual Funds

ICICI Prudential Banking Fund: Buy

RADHIKA MERWIN BL Research Bureau | Updated on March 17, 2014


If you’re betting on a pick-up in the economy after the elections, banking stocks are the best way to play it.

Banks lend to both the consumer and industrial segments of the economy and can benefit even from a selective recovery. Banking stocks are also not too expensive with the price-earnings multiple of the Bankex at 12.6, a discount to the market. With the ICICI Prudential Banking Fund you can diversify across a basket of bank stocks to reduce risk.

This fund is the top performing scheme in this space, managing a 29 per cent compounded annual return over the last five years and also beating its benchmark over one and three years. While banking stocks have seen a roller coaster ride, this fund has beaten the benchmark 60 per cent of the time.

ICICI Pru Banking Fund has made timely shifts between NBFCs, private banks and public sector banks to deliver consistent returns to investors.

The fund’s top holdings in two private sector banks with a retail focus and strong asset quality – HDFC Bank (18.5 per cent) and ICICI Bank (16.9 per cent) – contain risks to the portfolio. While half the portfolio is invested in private sector banks, the fund increased holdings in beaten-down PSUs such as Bank of Baroda and SBI in the last six months.

This shift has paid off with Bank of Baroda gaining 30 per cent in the last six months while SBI has returned 10 per cent. Both these banks are among the stronger PSUs in terms of capital adequacy.

ICICI Pru Banking Fund has managed the ups and downs in the banking sector quite well over the years. In 2009-10, when the economy recovered to grow at a healthy 8.6 per cent, the BSE Bankex shot up 121 per cent, while the fund generated a 112 per cent return, as it booked profits on some of its positions.

In 2012-13, as GDP growth slumped to 4.5 per cent, the Bankex rose a mere 10 per cent, but the fund outperformed significantly and delivered a 19 per cent return. The fund’s exposure to finance companies such as Mahindra & Mahindra Finance, Sundaram Finance and Max India helped. In the last one year, the divergence between private and public sector banks has widened in the stock market, with private banks trading at 2-3 times their book value, while many public sector banks languish at just half their book value.

Published on March 17, 2014

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor