Bajaj Finserv has launched its banking and financial services fund at a time when credit growth is at the cusp of a much awaited revival on the back of a cyclical uptick in the economy that is now becoming increasingly visible.
Valuations in the banking space have been below long term averages for the last 2 years due to worries on tepid credit growth and uncertainty on NIM compression levels. With both aspects now behind us, expect banks to start performing better in the market in the coming months.
In addition to the large private sector banks, Sorbh sees value in select PSU banks as the credit environment is conducive and valuations are reasonable. Smaller private sector banks are also now in focus, with RBI permitting entry of large foreign players as significant shareholders.
Among NBFCs, he prefers strong players in segments where banks are not strong – such as consumer finance, second hand trucks, gold loans etc.
Among capital market stocks, he will look for companies that have structural tailwinds that can help cushion cyclical turns – these could be businesses that are gaining market share on the back of a competitive advantage in their segment.
Within insurance, life and health are strong structural stories while auto represents a good cyclical play on the back of robust revival in auto demand. Pricing adjustments due to GST cuts may impact near term earnings – which would be a great opportunity for long term investors to buy into.
Expect the new fund to deploy around 65-70% in lending businesses, 15% in insurance and the rest in capital market related stocks.