Bank On This One - Reliance Banking Fund

The developing economies, especially India and China, have managed well to come out of the 2007 housing bubble debris as compared to the developed ones. At a time when developed economies are showing slow economic recovery from the recession post 2008, Indian economy seems to be bustling about for growth - pushing IMF to revise India’s GDP growth forecast to 9.7 per cent. This fact is well-acknowledged by the FIIs who have been pumping huge money in the Indian equities over the past few months. But the major hitch is the speed of the implementation of various economic policies and projects. This mainly depends on the financing or credit ability of the country’s bank or financial institutions. Thus the basic need of every industry - banks that have played a very critical role in India’s growth story till date - still has a major task of fuelling the country’s future growth.

Over the last few years banks in our country have grown their businesses at a tremendous pace which have had a positive impact on these bank stocks. This is quite evident from the fact that the CNX Bankex has outperformed the 50 stocks of the CNX Nifty index over the last five, three and one-year periods with huge margins. Being a sectoral fund, the fund manager has his task cut out and has to just focus on the stocks selection within the banking sector. It might sound simple but this itself is a challenging task as any decision on stock selection or percentage allocation going wrong will result in the fund’s extreme underperformance to its peers and benchmark. Like other sectoral funds, even this fund has a concentrated portfolio of 18 stocks wherein the top ten stocks contribute nearly 80 per cent of the total assets. Besides taking calls on banking stocks, the fund manager has to take an active call on the asset classes, i.e. debt as well as cash, depending on his sectoral outlook.

Being the first banking sector fund, this fund has managed to make the most of it since its debut in 2003. This fund in the YTD as well as three-year period has managed to beat the category returns by over 1,020 as well as 1,598 BPS and stood at the first position in the category for almost all time frames owing to such a performance. This surely proves the fund manager’s astute stock selection within the banking horizon. Sunil Singhania, who is one of the most sought after fund managers in the MF industry, has been managing this fund since April 2005. He also manages other four ‘big’ funds (considering the AUM for these funds), of which three funds have outpaced their categories over the long run. Thus, considering the positive banking sector’s outlook, doubled with the fund managers’ expertise, high-risk investors can take limited exposure to this fund through SIP.