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Last Updated : Jun 03, 2019 07:48 PM IST | Source: Moneycontrol.com

Bank funds gave highest avg return in May; will the positive trend continue?

Among the top three funds in May, Reliance Banking Fund gave returns of 6.95 percent, Sundaram Financial Services Opportunities Fund gave returns of 6.32 percent and LIC MF Banking & Financial Services Fund delivered 6.29 percent returns.

Himadri Buch @himadribuch

Mutual Fund schemes invested in bank stocks delivered the highest average return of 5.81 percent across all categories in the month ended May 31, as per Value Research, a mutual fund research firm.

BSE Bankex rose 7.21 percent during the review period.

Among the top three funds in May, Reliance Banking Fund gave returns of 6.95 percent, Sundaram Financial Services Opportunities Fund gave returns of 6.32 percent and LIC MF Banking & Financial Services Fund delivered 6.29 percent returns.

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Bank stocks rose last month on expectations of a stable government at the Centre. Among the banking pack, shares of Federal Bank rose 16 percent, while those of State Bank of India and Bank of Baroda went up 14 percent. Private sector banks such as ICICI Bank and HDFC Bank rose 4 percent and 5 percent, respectively.

In the last year, the category has delivered 12.10 percent average returns.

Bank Stocks Outlook

The profitability of private banks is expected to improve given that the resolution of non-performing assets (NPAs) is progressing, albeit slowly and the banks have made requisite provisioning, asset managers say. Incremental slippages are contained as asset quality improves.

Further, with a stable government at the Centre and if the monsoon is 'normal', the economic engine is likely to roll faster creating an improved demand environment and better capacity utilisation.

"Private Banks within financials have been gradually gaining market share from PSU banks over the last two decades, which is a structural trend that is likely to continue going forward as well," Karthikraj Lakshmanan, Senior Fund Manager-Equities at BNP Paribas Asset Management India said.

Private banks are equipped with capital and better access to the markets for additional capital if needed, besides stable management, focus on retail business and fee income leading to better return ratios, Lakshmanan added.

Fund managers also pointed out that the banking space has the potential for high growth for the next three to five years as well. This is due to the lower credit costs for corporate banks and higher retail growth, but only as long as the retail credit cycle continues to on the good wicket it has been in the last many years.

While private banks valuations have moved up, they are not too expensive from the past average basis considering the strong growth potential in the next few years.

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First Published on Jun 3, 2019 07:48 pm
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