mutual funds eyeing a thematic bet could put money in banking sector funds as cheaper valuations provide a higher margin of safety in an uncertain market. Wealth managers recommend investors allocate 5-10% of their overall portfolio to banking funds.
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«The Nifty Bank Index is trading below its historical P/B (Price to Book) average, with a trailing P/B of 2.2 times and a forward P/B of 1.9 times. These levels indicate attractive valuations, offering a potential entry point for long-term investors,» said Milind Agrawal, fund manager at SBI Mutual Fund.
The price-to-earnings (PE) ratio of the Nifty Bank Index is at a 32% discount to that of the Nifty Index, which is below the long-term average of 13%. The Nifty Bank Index is also currently trading below its historical average PE levels.
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Banking stocks have been underperformers in the past year with the Bank Nifty gaining 5.79% as against the 7.2% gains in the Nifty. In the past three years, the Nifty 50 gained 31.27% versus the bank Nifty 29.67%
The Nifty Bank Index has ended higher in 18 out of 25 calendar years, according to SBI Mutual Fund.
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