BFSI may just be the theme to bank on for future upside
banking sector compared to the Nifty 50.
Strong bank balance sheets, a fresh start to the credit cycle, and reasonable valuations compared with the broader market present an opportunity for investors to allocate to this sector over the next six months, say wealth managers.
«Since the pre-Covid level, the BFSI sector has underperformed broader markets by 4%. Such massive underperformance was last seen during the Global Financial Crisis which may be justified due to many financial institutions collapsing globally,» said Sahil Kapoor, market strategist at DSP Mutual Fund.
Kapoor said that banks have strong balance sheets, reasonable valuations and exposure to these funds also gives access to high growth segments like insurance, asset management (mutual funds), wealth management, broking, depository and fintech.
The banking sector has lagged the benchmark indices over one- and three-year periods.
Over the last year, the Nifty Bank index gained 2.7% compared to the Nifty 50's gain of 9.4%. Even over a three-year period, the Nifty Bank gained 46% compared to the Nifty 50's 52.5% rise.
Fund managers believe this underperformance provides a good entry point to investors, who could use a mix of lump sum and systematic investment plan (SIP) for allocation.
«Banks are trading lower than their historical valuations as well as versus the rest of the market despite the fact that margins are higher than pre-Covid levels, credit growth is recovering steadily, their balance sheets are strong and there is no asset quality problem as such,» said Ashutosh Bhargava, fund manager at Nippon Life Asset Management.
