Vinay attributes Nippon India Banking and Financial Services Fund’s top quartile performance over the last 3 yrs to identifying the turn of the banking cycle early and thus positioning the fund into a basket of index and non-index stocks that would benefit the most from the cycle. Active bets played out well to drive outperformance.
With GDP set to grow at 11% in nominal terms, credit growth should clock 14-15%. Healthy growth in a backdrop of healthy credit quality is a strong recipe for healthy earnings growth for leading banks – which Vinay has as his largest positions in the fund as they are also very reasonably priced at present.
Vinay rode the big PSU bank rally but has more recently booked profits as valuations reached and crossed historical averages.
Vinay does not subscribe to the view of switching from private sector banks to NBFCs in anticipation of the rate cut cycle as he believes NBFC valuations have already factored this in while large private sector banks – perhaps due to the persistent FII selling in past quarters – are still reasonably valued.
He also does not subscribe to the view of going too deep into capital market oriented stocks (brokers, AMCs, depositories, wealth managers, R&T agents) as their businesses are deep cyclical and our stocks bull market is not exactly young or nascent.
Vinay says an investment into a BFS fund like his makes sense for investors now on 3 counts: (1) it is a purely domestic play with strong macro tailwinds (2) it plays the rotation theme of smaller caps to large caps very well as the sector is very large cap heavy, and (3) it plays to rotation theme of manufacturing to consumption/financials on account of lower valuations very well.