Motilal Oswal’s new Financial Services Fund has been launched at a time when credit growth has finally started picking up on the back of fiscal and monetary policy measures aimed at spurring consumer demand.
Sandeep stresses that in financial services, it is all about balance sheet first and not so much about the story / narrative. That’s where his long track record of managing financial sector funds and tracking this space come in handy.
Sandeep will be adopting a cycle based approach to time his investments across diverse verticals within this sector. A rate cutting cycle typically benefits high cost of funds lenders (like NBFCs) more while fee based businesses (like capital market plays) are better plays in a rate hiking cycle. Periods of stable interest rates usually favour those who have better reach and stronger distribution (like private sector banks).
Sandeep is cautious on stock market volume based businesses like brokerages and exchanges as current valuations seem to be pricing in very robust and continued growth in volumes, which he believes may not happen.
He however likes AMCs and wealth businesses which are annuity fee based and where MTM also drives revenue beyond volumes. These businesses in his view are still available at reasonable valuations, especially given the handsome payout ratios.
Among lenders, his pecking order is NBFCs first – as the rate cut cycle is expanding their margins more than others, followed by PSU banks which are reaping the benefits of resurgent credit growth on the back of healthy C-D ratios and clean balance sheets, followed by small finance banks that are riding the recovery in the MFI space and lastly private sector banks that offer steady 12-14% compounding earnings growth (the safe portion of the portfolio).
Expect this new sector fund to have 40-50% in mid and small caps, have a concentrated high conviction portfolio of 20-25 stocks and have a high active ratio vs benchmark.