Canara Robeco has launched its Banking & Financial Services Fund.
Shridatta says BFS funds deserve a prime place as a core holding in investor portfolios as the category and each of its components (other than general insurance) are growing profits significantly higher than market average – from banks to NBFC to exchanges to asset managers to wealth managers and life insurers.
When a large sector (30%+ of index) is exhibiting this kind of sustained growth across verticals and is therefore garnering more share of overall profit pool, there is every reason to own the sector in a meaningful way.
He says BFS space is seeing gradual migration of profit pools from traditional lending businesses (banks, NBFCs) to savings related businesses (capital markets, asset & wealth management).
While this structural long term shift will play its part in portfolio construction, from a nearer term perspective, focus need to also be on relative attractiveness of these two main categories.
Over the last 3 years, savings related plays have outperformed lenders and that’s amply reflected in relative valuations too.
Presently, lenders are looking relatively more attractive as NIMs have stabilized and credit growth is picking up – both of which are earnings positive.
Banks are also likely to be beneficiaries of AI diffusionas it will impact more on the cost side rather than the revenue side.
The biggest action longer term however is in the savings plays – we will see many more fintechs getting listed in the coming years with diverse business models apart from secular growth fueling existing capital market plays – making this an exciting space for alpha focused stock picking.
Within the lending space, Shridatta’s pecking order of preferences now are private banks followed by PSUs, followed by NBFCs and lastly regional banks/SFBs/MFIs.
Within non-lending, his structural preferences are exchanges first as they are monopolies, then select AMCs with strong brands and distribution reach, then select fintechs, then RTAs and then insurers.