Banking funds bounce back on bellwether surge

The funds returned 3.19% to lead the weekly averages

Banking sector funds outdid other equity fund categories last week. Banking funds returned 3.19 per cent last week to lead the weekly averages.

The previous week, they were at the bottom of the table, posting only 1.42 per cent. Among debt oriented funds, monthly income plans (MIPs) again led the way, with 0.34 per cent returns for the week.

Banking sector fund performances were given a boost by big gains in top banking counters like ICICI Bank, SBI and HDFC Bank. While the ICICI Bank stock advanced 6.28 per cent to close at Rs 511.90, HDFC Bank gained 6.20 per cent to close at Rs 676.55. SBI also advanced 6.26 per cent to close at Rs 856.33.

However, the sectoral fund performance lagged that of the BSE Bankex index, which returned 5.21 per cent for the week.

According to analysts, the outlook for banking sector remains positive considering the growth in both retail and corporate lending. With a slew of capital expenditure plans announced by the industry in recent months, corporate lending is expected to take off in a big way.

Also the growth in retail lending, mainly home loans and auto loans has been phenomenal in the past few years, note analysts.

Auto sector funds (2.29 per cent) and index funds (1.83 per cent) were the next best performers among equity fund categories. Pharma sector funds came in last with 0.52 per cent with technology funds coming above them with 0.83 per cent.

Last week¿s topper petroleum sector funds dropped to mid-table with 1.26 per cent returns for the week.

As far as one-year performances went, FMCG funds continued to top. The category returned 87.14 per cent on an average in the past 12-months. Banking sector funds were not far behind with 82.42 per cent, followed by tax planning funds at 78.25 per cent.

Diversified fund returns for the past year amounted to 65.40 per cent on an average. Petroleum sector funds came in last with 25.95 per cent returns over the past year.

With the Sensex crossing the 8,000 mark last week, the outlook on equities remain bullish. However, some analysts have expressed concern about the high valuations.

"We are bullish on the India equity markets from a long term perspective, given the strong fundamentals of the economy," says S. Naren, vice president - investments at Prudential ICICI Mutual Fund.

"However, we believe that at these levels, the valuations do look a bit stretched in case of some stocks," he adds. Analysts note that at these high levels, there are bound to be some volatility.

"We continue to see good opportunity in this market for a long-term investor who is willing to live with some short term volatility," says Naren.

Among pure debt funds, medium term and short term debt funds performed better last week with 0.11 per cent returns each, followed by floating rate and liquid funds, both of which returned 0.10 per cent on an average.

Income funds were the worst of the lot and managed only 0.06 per cent returns for the week. MIPs dominated the debt category on a yearly basis too, with an average return of 11.43 per cent.

Short term funds and floating rate funds were the next best performers with 5.60 per cent and 5.29 per cent respectively. Income funds again came in last with a yearly return of 3.11 per cent.

Despite the reservations, analysts note that equities will do better than debt going forward. "We believe that from a long-term perspective, equity as an asset class will be able to outperform debt market returns, although at a far higher level of volatility," says Naren.