DSP Mutual Fund has launched the DSP Banking & Financial Services Fund (DSP BFSF), an open-ended scheme that allows investors to participate in the long-term structural opportunities in the banking and financial services area.
Apart from banks, the industry includes important areas such as NBFCs such as Housing Finance Companies, Life Insurance, Non-Life Insurance, AMC, Exchanges, and Depositories, all of which have risen at a higher rate than India's nominal GDP during the last 15 years. All of this adds up to a profit opportunity worth more than $ 4 trillion.
In India, the Banking and Financial Services sector has been a structural growth story, as seen by its outperformance of the larger Nifty 50 Index over all 10-year periods. When compared to the larger Nifty 50 Index, the sector's returns have also been more steady over time.
However, since September 2019, the sector has underperformed the Nifty 50 Index. As a result, the likelihood of a reversal in underperformance, along with affordable values for the Banking & Financial Services sector, as well as their strong balance sheets, presents investors with an intriguing opportunity.
Over a 7+ year period, the Nifty Financial Services TRI has delivered over 12% returns 90% of the time, compared to 52% for the Nifty 50 TRI. Banking, Financial Services, and Insurance (BFSI) accounts for 38% of the profit pool of India's Top 500 corporations but accounts for only 26% of the market worth. BFSI's recent 10-year profit increase was 17%, compared to 10% for the Top 500 companies excluding BFSI. Bank balance sheets have also improved as a result of decreased NPAs. This could contribute to a persistent increase in credit growth.
DSP BFSF takes a stock-specific approach that prioritizes company fundamentals over market outlook and strives for a high active share relative to the benchmark. It also includes the option for Global Investments, where the Fund Manager can invest in select fundamentally good businesses outside of India.
Under normal circumstances, DSP BFSF's asset allocation would be between 80% and 100% in equity and equity-related securities of companies in the Banking and Financial Services sector, up to 20% in other companies' equity and equity-related securities, up to 20% in debt and money market instruments, and up to 10% in units issued by REITs and InvITs. The DSP BFSF New Fund Offer will be available for subscription on November 20th, 2023, and will conclude on December 4th, 2023.
"Companies in the BFSI sector make a lot of money compared to other industries." The profit pool is also expanding as a result of the addition of different enterprises such as insurance companies, mutual funds, wealth management organizations, industry-supporting internet platforms, payments, and fintech. We like to invest in areas with long-term growth when prices are falling or consolidating. Lenders use leverage as a raw material and so experience instability. Stocks in the BFSI sector have corrected in recent years, boosting an investor's margin of safety. "When valuations are reasonable, we are happy to launch the NFO," says Kalpen Parekh, MD & CEO of DSP Mutual Fund.
