Banking on Banks

The emotion of fear sometimes becomes more dangerous than the reason for any such fear. When India went through one of the strictest lockdowns to prevent spreading of the corona virus, it impacted the entire economy.  At such a time, the banking sector was hit hardest not directly but indirectly as their customers faced financial problems due to job losses, furlough and pay-cuts. There was a fear that banks would see a huge surge in non-performing assets (NPAs), which would severely impact their performance. This is the reason the banking fund remains one of the worst performing sectoral funds in the first six months of FY21.

Nonetheless, going by the latest high frequency data, we see that the economy is on track to fast recovery and the fear of large NPAs may not turn out to be true. The second quarter results of the bank vindicate that. There is no visible sign of larger stress building in the system. Even the Damocles’ sword of loan moratorium that was hanging for the banking sector is now far away from the heads that it would have fallen on. Besides, there are other factors that we believe will help banking stocks and funds dedicated to this sector to perform.

Our cover story this time goes deep into the subject and gives you a perspective on banking funds and the course that they will chart from here on. In one of our special reports we have tried to understand if date makes a difference in end returns while investing through SIP. For this we selected different dates, different periods and different funds to arrive at a decision. In another special report we have highlighted how the odds are placed against different asset classes, especially equity, going forward. This will help you to rebalance your portfolio accordingly and assign proper weights to different assets.

SHASHIKANT