True to the hackneyed phrase, investors with an exposure to the banking sector are ‘laughing all the way to the bank’. With banks leading the market rally in the past couple of months, investors in bank stocks, bank-focused mutual fund schemes and bank ETFs have made eye-popping returns on their investments. The million-dollar question now is should investors continue riding the market tide on the banking surfboard or book profits and wait for tide to subside.
Many are quick to point out that bank stocks have run up too fast and a mild correction is inevitable. Then, there are others who believe there is some more steam left in banking stocks and investors should stay put in bank stocks, banking funds and bank ETFs for some more time.
“The outlook on banking stocks remains positive, as of now. We are starting to see macro-economic indicators turning positive; normal monsoon (resulting in good crops) will help rural economy grow. These factors will have positive impact on banks,” said Rajat Rajgarhia, director-research, Motilal Oswal Financial Services.
“We’ve come close to the monetary tightening cycle; investor sentiment would be favourable towards banks from hereon. Banking stocks will be volatile, as they will chase earnings in the coming quarters. Investors should invest in banks,” Mr Rajgarhia added.
To get an idea of the rally, the BSE Bankex index has risen 51% over the past one year; the broader Sensex has gained just about 17% during the same period. As on Monday, retail investors hold `63,524 crore of banking shares.
“There is an expectation that bank portfolios will fare better once there is pause in the ongoing monetary tightening. Considering India’s economic growth, the outlook on the banking sector is positive. But then, bank stocks have run up and it’s time to take some money off the table,” said Lakshmi Iyer, head-fixed income & product, Kotak Mutual Fund. “From a fund’s point of view, we’re not buying at current prices; we’re just holding on to our bank portfolio. We’ll cash in a portion of it in the next rally,” Ms Iyer added.
About 27 bank stocks have generated more returns than the banking index. UCO Bank, Karur Vysya Bank, IndusInd Bank, Allahabad Bank, OBC, Dena Bank and Canara Bank have gained 90-160% over the past one year. Five out of seven banking funds have beaten the banking index by a decent margin. Leading the mutual fund tally is Reliance Banking fund, which has generated a 62% return in one year. Banking ETFs have also logged robust gains; Kotak PSU Bank ETFs have gained over 65% over the past one year.
Most equity analysts say that Indian banks still have significant upside potentials from current levels. According to a Morgan Stanley research report, the loss in market share — in terms of loans, deposits and fee income — has abated. The international broking is rooting for PSU banks, as it expects these banks to do well, thanks to improving profitability. While most brokers are gung-ho about banking stocks in the long-term, many are apprehensive of a correction over the next few sessions.
“Banking stocks have run up very smartly over the past few months. We are not giving any further target upgrades; most banks are trading at target prices or a wee bit above it. It’s time for investors to book profits in smaller portions; it looks a bit risky to make short-term investments in banking stocks,” said Bhavesh Kanani, banking analyst, Sharekhan.
Source: http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/Investors-in-bank-stocks-are-making-eye-popping-returns/articleshow/6550160.cms
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