Banking, financial services funds: Enter via SIPs with a 5-year view

If loan growth does not rise towards the 12-13 per cent range, valuations may shrink

While the Sensex has delivered only 3.5 per cent over the past year, banking and financial services sector funds have returned an average of 11.5 per cent. After this sharp run-up, however, investors need to enter these funds with caution. 

Earnings-driven rally 

An accommodative regulatory environment has strengthened the sector’s fundamentals. “There is lower pressure on liabilities today than last year. The proposed regulatory changes on liquidity coverage ratio (LCR), project provisioning and risk weights have been more supportive of growth than those suggested in the draft regulations,” says Milind Agrawal, fund manager, SBI Banking & Financial Services Fund. 

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