The Banking and Financial Services sector has been a structural growth story in India, which is evident in its outperformance over the broader Nifty 50 Index on all 10-year periods. The returns from the sector have also been more consistent across time periods compared to the broader Nifty 50 Index. However, the sector has been underperforming the Nifty 50 Index since September 2019. Hence, the possibility of a reversal in underperformance combined with reasonable valuations for the Banking and Financial Services sector along with their strong balance sheets present an interesting opportunity to investors.
DSP Mutual Fund announced the launch of DSP Banking & Financial Services Fund (DSP BFSF), an open-ended scheme that offers investors an opportunity to partake in the long term structural opportunity in the banking and financial services space. Apart from banks, the sector also encompasses major areas like NBFCs including Housing Finance Companies, Life Insurance, Non-Life Insurance, AMC, Exchanges & Depositories, which have all grown at a faster rate than the nominal GDP of India in the last 15 years. All these combined make up a profit opportunity of over $ 4 Trillion.
The Nifty Financial Services TRI has also delivered over 12% returns in 90% of times over a 7+ year timeframe compared to 52% for Nifty 50 TRI. Banking, Financial Services and Insurance (BFSI) forms 38% of the profit pool of the Top 500 companies in India, but is just 26% of the market cap. The last 10-year profit growth for BFSI was 17% compared to 10% among Top 500 companies excluding BFSI. Bank balance sheets have also grown stronger with lower NPAs. This could aid a sustained pick up in credit growth.
DSP BFSF follows a stock-specific approach that favors business fundamentals over market outlook and attempts to have a high active share compared to the benchmark. It also has the flexibility for Global Investments where the Fund Manager can invest in selective fundamentally sound businesses internationally which are not available in India.
Under normal circumstances, the asset allocation of DSP BFSF would be between minimum 80% to maximum 100% in equity and equity related securities of companies in the Banking and Financial services sector, up to 20% in equity and equity related securities of other companies, up to 20% in debt and money market instruments and up to 10% in units issued by REITs and InvITs.
The New Fund Offer for DSP BFSF will open for subscription on November 20th, 2023, and will close on December 4th, 2023.
"Companies in the BFSI sector have large profits compared to other sectors. The profit pool is also growing due to the addition of diverse businesses across insurance companies, mutual funds, wealth management firms, tech platforms supporting the industry, payments and fintech. We prefer to raise money in such sectors with long lasting growth when their prices are falling or consolidating. Lenders also have leverage as raw material and hence go through cycles of volatility. In recent years, stocks in the BFSI space have corrected, thus increasing the margin of safety for an investor. We are happy to launch the NFO when valuations are reasonable," says Kalpen Parekh, MD & CEO, DSP Mutual Fund. |
