Start SIPs in banking, infra funds, says S Naren

While the Nifty is just 7% away from its life time high, many stocks banking and infrastructure space are yet to recover. Banking stocks and infrastructure stocks are sharply down from their yearly highs.

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Mumbai: More than a century ago, John Maynard Keynes had underscored the need to conduct banking “on the safest possible principles” in India, a Crown colony the celebrated economist had described as “so dangerous for banking.” Even a century later, bad loans regularly pile up toward the tail end of every boom-and-bust cycle in India, where the lack of a vibrant corporate bond market makes banking vulnerable to crippling periodic write-downs.

That’s what banks face now. Yet, investors that have the ability to ride out the current cycle of NPAs could look at banking as a potential investment. Capital-intensive infrastructure, crucial to undergird growth and largely funded by these banks, could also get a look-in.

But a risk-reward analysis suggests that the best way to buy into these sectors is through SIPs.


“We believe that SIPs should be started in sectors which are undervalued. At this point in time we believe banking and infrastructure space is undervalued and hence, investors with a three- to five-year horizon should consider SIPs in such funds,” said S Naren, chief investment officer, ICICI Prudential Mutual Fund.

While the Nifty is just 7% away from its lifetime high, many stocks in the banking and infrastructure space are yet to recover. HDFC Bank is down 19% from its 52-week high of 1,305. Similarly, ICICI Bank is down 33%, and Kotak Mahindra Bank 26%. In the infra space, L&T is down 42% from yearly highs. Three-year SIP returns of banking funds are down 11.65%, while over five years, investors have lost 3.73%. Similarly, in the infrastructure space, investors have lost 4.27% and 0.28% over three- and five-year periods.

Many investors have been discontinuing their SIPs due to low returns over the last three to five years. Inflows through such plans fell from their peak of 8,641 crore in March to 7,792 crore in August.
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Returns in many cases are just about 5% for many SIPs. Fund managers believe that with many investors starting SIPs at the peak of a cycle, there is bound to be disappointment if they do not run for 10 years. Hence, for investors with a shorter time frame of three-five years, they believe SIPs in undervalued and beaten-down themes could yield better returns.
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