You Can Bank On Them
You can bank on UTI, Reliance Banking Fund
8 Oct, 2007, 0544 hrs IST,Bakul Chugan, TNN
The banking and financial services sector has been in the limelight of late, thanks to the sustained momentum in the domestic economy. The sector has gained the confidence of foreign institutional investors (FIIs) and fund managers alike. Even though the sector has been an important component of many equity diversified schemes, currently only two funds completely focus on this space.
This week, ET met up with Gautami Desai, fund manager, UTI Banking Sector Fund, and Sunil B Singhania, fund manager, Reliance Banking Fund, to gauge their views on the sector and the composition of stocks in their respective portfolios. It is interesting to note that while both these funds differ in their stock composition, the returns they have generated are more or less similar. Here are excerpts from the interview:
What is the ideal number of stocks you hold in your portfolio?
GD: On an average, we hold 15-20 stocks.
SS: The ideal number of stocks at any given time is 15-20 stocks.
How come the participation of finance companies appears to be low in your portfolio?
GD: We have non-banking finance companies (NBFCs) in our portfolio, but one may not find brokerage firms, since we feel the valuations are overstretched in that segment.
SS: We invest wherever we find opportunity. The banking sector itself is very huge and the percentage of NBFCs is very small. As such, we look for a proper mix of public and private sector banks, as well as NBFCs.
Reliance Capital has been doing pretty well on the bourses, but it does not appear in your portfolio.
GD: We are not very comfortable with the valuations of this scrip.
SS: Reliance Capital is the immediate parent of the fund holding group. So, we dissuade ourselves from investing in this stock. We believe we are sacrificing our returns by not investing in Reliance Capital, but we intend to maintain our stand on ethical grounds.
How come outperforming stocks like Axis Bank, HDFC and HDFC Bank are not part of the portfolio of Reliance Banking Fund?
SS: Not investing in these stocks was a big mistake on our part. We believe our returns would have been much higher if we had invested in these scrips.
UTI Banking Sector Fund appears to be bullish on Karnataka Bank. It has been in your portfolio since a very long time now.
GD: Karnataka Bank has good valuations and moreover, it is a part of the merger & acquisition story. We expect its merger in the near future.
What is the outlook for public sector banks?
GD: Private sector banks are doing better than PSUs. Hence, we are gradually reducing our exposure to PSU banks. However, State Bank of India (SBI) is an exception and we do intend to hold it since it has attracted a lot of FII interest.
SS: I think public sector banks are doing well. We have PSUs like Dena Bank, South India Bank, Bank of Maharashtra and Andhra Bank in our portfolio, which have generated good returns and SBI is doing exceptionally well too.
What are your expectations from September quarter results?
GD: The second quarter results are expected to be a slight disappointment, mainly on account of the slowdown in credit growth in the past six months. The margins looked good in the previous quarter, but this time round, we expect margins to be a little compressed as the deposits will be re-priced. However, there is a positive element in the market in the form of expectations of rate cuts and people are factoring this in. Thus, stock prices should not be adversely affected.
SS: We do not expect anything negative from the results. The banking sector has to keep pace with the growing economy. We expect at least 15-20% growth in this sector in the next 5-10 years.
What are your views on the current market volatility?
GD: We are a little cautious on the banking sector. Currently, we are holding on to the existing portfolio and gradually look forward to reducing our exposure in PSU banks, but we are not too keen on investing in brokerage firms.
SS: The market will always remain volatile. In fact, volatility is a good opportunity to buy good stocks.