Sure, Indian banks haven’t reported any troubles. However, even they are facing the music. The banking index lost around 5% in the last week. That is why many investors are wondering whether the recent turmoil would offer a great opportunity to invest in these schemes.
The banking sector category offered around 11% in the last one year. In the last three years, the banking funds category offered around 15%. There are 18 schemes, including active and passive schemes, in the banking category. The toppers in the category, Nippon India ETF Nifty PSU Bank BeEs and Kotak Nifty PSU Bank ETF, have offered over 37% in the last one year. Clearly, the PSU banks were enjoying their spot under the sun. Eight other schemes in the banking category offered double digits (around 10-15%) in the last one year.
The banking sector is extremely regulated and governments and the central banks keep a close watch on them. A run on a bank or any asset-liability mismatch will have a far reaching effect on the economy. That is why the stock market is roiled by the recent bank troubles. Even the bond market is feeling the pressure. Even policymakers are watching the scenario closely. Already the pundits are betting that the US Fed may not go ahead with its half a percentage planned hike. The market was concerned earlier about steeper rate hikes as central banks voiced concerns about stubborn inflation.
So, what should investors do? As you might know that notwithstanding the recent troubles abroad, Indian banks are resilient. Sure, the PSU banks always have troubles with unproductive loans and legacy issues. Private sector banks have been doing better. In short, if you have been investing in banking schemes, you may continue to do so. If you have made a one-time lump sum investment, you may stay invested. If you are planning to make use of the recent turmoil, you should always remember that there could be more troubles. If that happens, there may be more pain. However, mutual fund managers may tell you that banks will always benefit when the economy is doing well. That makes banks a long-term bet.
However, individual investors, especially new and conservative investors, should always remember that these schemes are meant for evolved or sophisticated investors. Sector funds, including banking funds, are risky investments. They go through phases. That is why investment experts believe that it is always important to plan entry and exit in these schemes. An average investor would find it difficult to do that. He would also find downside difficult to handle.
