Bandhan MF is launching its Financial Services Fund to tap into the growth prospects across the broad spectrum of banks, NBFCs, capital market participants, insurance businesses and other allied financial services plays.
Buying an AMC’s stock today is a trade off between promise of huge volume growth and the ever-present regulatory risk of margin contraction to lower costs for the investor. Sumit believes volume expansion prospects outweigh margin contraction risks as the industry expands considerably when costs are lowered – especially when we consider that the fund industry has only 3 cr investors today. He will consider buying select AMC stocks in the new fund.
Insurance sector is being nudged by regulatory intervention to get more protection focused rather than investment focused. Growth runway –especially for protection business – is huge. Life insurance companies’ balance sheets are now much better. The new fund will look selectively at insurance plays.
Credit multiplier which used to be 1.7 times GDP growth has now bottomed out at 1.1x and is set to slowly go back to higher levels in the coming quarters thanks to banks now having cleaner balance sheets. This will give a big fillip to credit growth which will augur well for continued profit growth for banks.
NBFCs today offer breadth of choice across housing finance, MFIs, vehicle finance, gold finance, consumer finance etc and we also have multiple players within each segment. The new fund will try to capture 20-25%CAGR growth opportunities at reasonable prices from this wide basket of options.
BSE Financial Services Index has delivered over 3% CAGR alpha above market over last 18 years, resulting in an 18x growth in its index vs 10x growth in market index. Financial services index is now trading at 18xPE against its historical average of 22x – implying a good buying opportunity into a sound growth story.