Banking ETF is a sectoral theme and is meant for everyone who is looking at diversifying their portfolio over and above the traditional investment options between actively managed schemes such as large-cap to small-cap, A Balasubramanian, CEO, Aditya Birla Sun Life AMC, said in an interview with Moneycontrol’s Kshitij Anand.
Q) How was the response for your newly launched Banking ETF?
A) We collected close to Rs 125 crore during the NFO period (October 16 - 22, 2019). We noticed a good amount of interest from both the insurance companies, and other institutional customers as a proxy to the banking sector.
Q) What is the investment philosophy behind the launch of a thematic ETF? This product is suitable for which category of investors – risk/mild risk or risk-averse?
A) The banking and financial services sector forms a larger proportion of India's market cap and this sector can be considered as a proxy to the Indian economy.
Given the role that the sector is playing in channelling the savings to the Indian economy in the form of lending to both the retail and MSME sectors, it carries higher importance in the Indian economy.
On the basis of these factors, the banking ETF provides an opportunity for investors to choose these indices in order to have direct exposure to this sector through the ETF route.
Banking ETF is a sectoral theme and is meant for everyone who is looking at diversifying their portfolio over and above the traditional investment options between actively managed schemes such as large-cap to small-cap.
Given its concentration to a single sector, it carries relatively higher risk. However the reward is also higher given the large weight of this sector in the index.
Q) Do you think the NPA mess in the banking sector has bottomed out, or we could say that the worst may well be over for this sector?
A) While existing pre-identified and known NPAs have found its resolution under the current IBC process, it appears that new sectors get added to this NPA mess on the back of a general slowdown in the economy, and the risk that is associated with emerging regulatory .
Therefore, one has to assume for every resolution, something or the other will keep cropping up. It appears however that it is now getting to a manageable level.
Q) The recent package announced for the real estate sector may well be termed as a sentiment booster. Do you think the financial sector will also gain from the move?
A) It is no doubt a welcome move, and it should remove the logjam faced by the industry for quite some time.
The multiplier effect of the relief package is also high, and hopefully it will serve the real purpose of pulling up consumer demand and help in reviving growth.
From the banking system point of view, this may not have any major impact on either side as these are all backed by assets except the cash flow rotation, which may take some time to come by.
Q) What would investors invest in an ETF compared to, let’s say, a mutual fund?
A) Investors can consider the Nifty, Sensex and Banking ETF to complement their existing investment portfolio in actively managed equity funds.
I believe both types of products will co-exist, to get the cost-benefit and potential alpha generating capability, both can co-exist in a portfolio.
Q) What is the scale of ETF industry when compared to the Global ETF market? What is the potential for growth?
A) There is merit for ETF and index funds to co-exist with existing mutual fund products, and it will continue to gain popularity as we move forward.
When the broad market begins to pick up, one must keep in mind that the ETF may underperform actively managed funds as well. Therefore, asset allocation is key to success, it is not either this or that.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.