Fund managers bet big on financials: But why ditch banks for NBFCs?
Subscribe to enjoy similar stories. Fund managers are hailing financial stocks as their next big theme, but as the saying goes, “the proof is in the pudding". Despite the bold proclamations, the data paint a more cautious picture.
Foreign portfolio investors (FPIs) have shown erratic behaviour when it comes to investing in finance and banking stocks, with buying sprees frequently interrupted by periods of selling. After significant selling of financial stocks by FPIs in January and February, March saw renewed interest, only for the selling to resume in April and May. The pattern continued with a brief buying spree in June, followed by selling pressure in July and August.
As for domestic mutual funds, data reveals a month-on-month increase in fund allocation for non-banking financial companies (NBFCs) and a decline for private and public sector bank stocks, according to a report by Motilal Oswal Financial Services in September. Notably, the weight of private banks in mutual fund allocations hit a nearly six-year low of 15.9% in August, down 20 basis points from the month before and 330 basis points from a year earlier. Meanwhile, over the past three months, the Nifty Bank index gained only about 1% and the Nifty Private Bank index 1.5%, significantly lagging the Nifty 50’s 7% surge in the same period.
“Slowing credit growth, difficulty in raising deposits, and net interest margin (NIM) compression are some key issues, and that is one of the key reasons why we continue to maintain an underweight position in banks," said Manish Jain, head-fund management, at financial services firm Centrum. He, however, said this does not hold true for the entire banking, financial services, and insurance (BFSI) space. Jain finds NBFCs in
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