US bank crisis: Banking sector mutual funds fall 6% in a week

Banking mutual funds have fallen up to 6% in the past week following the collapse of Silicon Valley Bank and Signature Bank, which has dented investor sentiment in the banking and financial services sector.

The failure of two US-based banks sent shockwaves across the global financial system and also weakened sentiment in the banking sector in India, with shares falling and falling 3-13% in the week under review.

However, experts believe that the direct impact on the Indian banking sector was less than negligible.

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The persistent selloff in bank stocks is clearly reflected in banking sector mutual funds, as is evident from the short-term performance returns of 16 schemes under the category.

According to an analysis of data compiled by ACE MF NXT, all of the 16 mutual funds in the banking sector have given negative returns to investors in the range of 1.6% to 6% in the week ended March 17.

Data shows that these funds have given negative returns of 8% to 10% so far this year.

Funds that declined more than five per cent in the last week included Aditya Birla Sun Life Banking & Financial Services Fund, Tata Banking & Financial Services Fund, HDFC Banking & Financial Services Fund, LIC MF Banking & Financial Services Fund and Nippon India Are. Banking and Financial Services Fund.

However, on the nine-month and 1-year time frames, the returns are positive, in fact, all banking and financial services funds have given returns of up to 20% and 12%, respectively, as per the data.

The reasons for the decline in these thematic mutual funds can be attributed to volatile stock market conditions and rising interest rates. FYERS head of research Gopal Kavalireddy said since the rate hike cycle began, expectations of lower net interest margin, higher cost of funds and impact on credit growth have risen.

He added that with the increase in deposit rates by banks higher than the repo rate hike by the Reserve Bank of India (RBI), the effect was delayed but inevitable.

In addition, foreign portfolio investors (FPIs) have been offloading their investment holdings in several banks and financial sector entities since October 2021.

Silicon Valley Bank, a major funding source for startups, collapsed on 10 March. This was followed by the failure of Signature Bank on 12 March. In addition, Zurich-headquartered Credit Suisse is also in trouble.

However, experts are of the view that the Indian banking system is expected to be safe from the troubles at Credit Suisse as it has a much smaller presence in the country.

The banking crisis witnessed in the US and Europe has also had a negative impact on the sentiments of Indian investors. Bank stocks in India also declined, said Alekh Yadav, head of investment products at Sanctum Wealth.

“While we believe the Indian banking system is very robust. Banks are well capitalised, the rate hike action in India has not been as swift as in the US and hence reducing market losses is relatively limited,” he said.

Abhishek Dev, co-founder and CEO of Epsilon Money Mart, said the long-term performance of markets and stocks is ultimately driven by earnings and short-term prices are influenced by news flow and sentiment and perhaps this has played out in banking stocks over the past few years. . last week or two.

“The Indian banking sector as a whole, has strong balance sheets, healthy NIM (net interest margin) and their bad assets at near-decade lows. They may also have negligible exposure, if any, to regional US lenders. For those who are subject to risk restructuring and flows behind these news,” he said. According to him, such short term volatility can also provide buying opportunities for long term investors, there are many well managed banking and financial services mutual funds that one can invest in.

FYERS’ Kavalireddy suggested that investors can start their investments in banking sector funds through a systematic investment plan (SIP) mode as the current interest rate hike cycle is in its final leg, and a high but stable interest rate environment is expected from the second half. Calendar year 2023.

“Banking stocks are highly susceptible to macro and micro economic factors, interest rate cycles, credit and deposit growth rates, among other factors. Hence, these funds are suitable for investors with adequate risk appetite and long-term investment horizon Suitable to equate volatility in stock movements and give stable returns,” he said.


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