DSP Mutual Fund launches Banking and Financial Services Fund

DSP Mutual Fund recently announced the launch of the DSP Banking and 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 market.

Apart from banks, this sector includes important areas such as NBFCs including Housing Finance Companies, Life Insurance, Non-Life Insurance, AMC, Exchanges, and Depositories, all of which have grown 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 broader Nifty 50 Index overall a decade 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 possibility of a reversal in a lack of performance along with affordable values for the Banking and Financial Services sector, as well as their strong balance sheets, presents investors with an interesting opportunity.

Over a 7+ year time span, 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) comprise 38% of the profit pool of India’s Top 500 companies but represent only 26% of the market worth.

BFSI’s recent 10-year profit boost was 17%, compared to 10% for the Top 500 companies excluding BFSI. Bank balance sheets have also improved as a result of lowered NPAs. This could contribute to a persistent increase in credit growth.

DSP BFSF adopts a stock-specific approach that emphasises business fundamentals over the market outlook and strives for a high active share compared to the benchmark. It also includes the flexibility for Global Investments, where the Fund Manager can invest in select fundamentally good businesses outside of India.

Under normal conditions, DSP BFSF’s asset allocation would be between 80% and 100% in equity as well as equity-related securities of companies in the Banking and Financial Services sector, up to 20% in equity and equity-related securities of other companies, 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 (NFO) will be available for subscription on November 20th, 2023, and will conclude on December 4th, 2023.

According to the DSP Mutual Fund’s MD and CEO, Kalpen Parek, profits in the BFSI sector are high in comparison to other sectors. The profit pool is also expanding as a result of the addition of different businesses such as insurance companies, mutual funds, wealth management firms, 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 will happily launch the NFO.