Street signs: Outlook for banking stocks remains positive, say experts

The outlook for the Bank Nifty remains positive with experts anticipating a move towards 25,750-25,950 for the index in the January series. Private sector banks HDFC and Axis have seen a significant build-up of long positions and are expected to outperform. Public sector banks' woes, however, are expected to continue. In the past five trading sessions, shares of State Bank of India, Bank of Baroda and Bank of India have shed between 0.2 per cent and 3.1 per cent. The downside support for the Bank Nifty is 25,400, say analysts.

Debt fund managers a worried lot 

With bond prices likely to be under pressure for some time due to the increase in fiscal deficit, debt fund managers are worried that inflows in medium- and long-term funds could be adversely impacted. With the government planning to raise more money in the last quarter of the financial year — Rs 500 billion through market borrowings and another Rs 800 billion for recapitalisation bonds of fund-starved public sector banks — fund managers think bond markets could see a rise in bond yields. This would hurt returns and, investor interest.

New benchmark to hit large-cap MFs 

The Securities and Exchange Board of India’s diktat asking mutual funds (MFs) to benchmark their schemes to Total Return Index (TRI) from February 1, instead of a Price Return Index, is expected to impact large-cap schemes the most. According to Morningstar India, for a five-year period ended August 31, 2017, the percentage of large-cap funds beating their benchmark reduced from 85 per cent to 58 per cent if TRI methodology is used.

The TRI norm, along with the one-scheme-per-category mandate, is expected to put significant pressure on fund managers to perform. The inability of large-caps to beat their benchmark might also spur investors to turn to passive funds that cost a lot less than active schemes. It remains to be seen how large this exodus will be.