Banking funds have emerged as sectoral outperformers in CY12 as hopes of an economic revival and anticipation of interest rate cuts in 2013 fuelled a rally in banking stocks in the past few months.
Banking funds have given average category returns of 47.1%, outperforming defensive sectors, such as FMCG, which have given average category returns of 46.7%, and pharma (32.2%). Banking funds have also comfortably beaten sectors such as Technology (7.5%), which includes IT stocks, and Infrastructure (21.6%).
The BSE Bankex has given returns of nearly 57% this year compared with negative returns of 31.6% in CY11.
ICICI Prudential Banking and Financial Services emerged as the best performing scheme among banking funds with one-year returns of 63.8%. Reliance Banking, Religare Banking, Sahara Banking and Financial Services and UTI Banking Sector Regular were the other top performers with returns in excess of 50%.
All of the 11 funds that make up the banking fund universe comfortably outpaced returns given by the benchmark BSE Sensex, which has clocked returns of about 25% this year.
According to analysts, hopes of an economic revival and the anticipation of interest rate cuts fuelled the rally in banking stocks this year. “The hope that the tightening cycle will end and interest rates may soften sooner than later boost the prospects of banking shares,” said Sunil Singhania, head, equities, Reliance MF.
The government’s push towards reforms since September has also helped the cause of banking shares. Experts now widely believe that earnings downgrades have bottomed out and earnings growth will pick up in 2013, especially if interest rates decline.
“Hopes of an economic revival have boosted banking scrips as banks are a direct beneficiary of a country’s overall economic health,” said Sadanand Shetty, VP & senior fund manager, Taurus AMC.
Low valuations also made banking scrips attractive. “Earlier in the year, many banks were trading at historically low valuations, with a price to book value of less than one,” said Shetty. “Even now, valuations look reasonable expect for a few private sector banks such as HDFC Bank,” added the equity head of a large fund house, who didn't want to be quoted. Banking funds are expected to do well next year as well as GDP growth rates improve. And although public sector banks are still grappling with NPAs, the improvement in overall sentiment will help their cause in 2013, experts said. However, they caution that banking or