Banking funds gain 3% in two days. What's happening?

The banking funds have gained around 3% in the last two days as shares of banks, especially public sector banks, rose by over 10% as investors became bullish on the sector after the recent election result. Banking funds were up by 2.67% on Monday and 3.10% on Tuesday.

“HDFC Bank and ICICI Bank and all of them have gone up by 10%. Even PSU banks gone up,” says Chokkalingam Palaniappan, Director of Prakala Wealth, a Chennai-based advisory firm.

The Nifty Bank-TRI index surged by 3.60% on Monday and 1.25% on Tuesday. The share price of banks also rose significantly in the last two days. The share price of ICICI Bank rose by 3.92%. SBI Bank share price rose by 3.48%. Shares of Kotak Mahindra Bank rose by 3.26%. Punjab National Bank shares rose by 2.66%. Bank of Baroda and Bandhan Bank rose by 2.01% and 2.9% respectively. Most of the schemes in the category had high exposure in these banks.


There are 16 schemes in the banking category. Taurus Banking & Financial Services Fund, the topper in the category, gained 3.23% in a day. Mirae Asset Banking and Financial Services Fund gave 3.05%. Around 14 schemes gave approximately 2%.


The category has offered around 17.25% and 17.68% in one year and year-to-date horizons respectively. Out of 14 schemes that have completed one year in the market, three schemes have offered more than 20%. Two schemes offered around 19%. Aditya Birla Sun Life Banking & Financial Services Fund and Mirae Asset Banking and Financial Services Fund gave 18.49% and 17.71% respectively.

How long will these schemes continue to offer similar returns? “In the last one year PSU bank stocks have outperformed. However, if you see private sector banks like Kotak Mahindra Bank, ICICI Bank and HDFC Bank, they all have not done well.. Going forward there could be a good opportunity for private sector banks, a lot of allied financial industry items like insurance industry or Paytm kind of companies, payment gateway companies, financial services sector, they have a great opportunity going forward. All these things should work out and at least give better returns for the next one or two years,” says Chokkalingam

However, he says individual investors are better off with a diversified scheme.If someone wants sectoral funds then probably banking and pharma would be a good bet, he says. He cautions investors: “Sectoral funds allocation not to exceed more than 20% of the overall portfolio. So that you are in tune with the market return at least. If someone wants to take very high risk then he can go with 50-60% in sectoral funds because he knows exactly when to time in and time out. But for normal people it is not advisable to go overboard on sectoral/thematic funds,” says Chokkalingam Palaniappan.