Stating that the banking and financial services sector is a structural long-term theme with potential to grow faster than the economy, domestic brokerage firm WhiteOak Capital said the sector is likely to bounce back soon.
Below are the three reasons why the domestic brokerage firm is bullish on the sector:
Long-term wealth creator
“Financial Services is an important sector contributing to the economy’s long-run growth. Financial services play a crucial role in fostering economic growth as they facilitate the efficient allocation of capital & resources in the economy and help businesses in expansion, innovation & job creation,” said WhiteOak in its report stating how these sectors are long-term wealth creators for the investors.
(Source: White Oak Capital)
As the above table shows, Nifty Financial Services TRI has outperformed key broader market indices represented by Nifty 50 TRI and Nifty 500 TRI by 3.2% and 2.5%, respectively, since its inception
Also read: Nifty bull case target at 27K, says Axis Securities; bets on HDFC Bank, Bharti Airtel, others
Recent underperformance of the theme
Further, the Nifty Financial Services TRI has done better than broader market indices in most of the calendar years. However, the index has been struggling in the last five years, having underperformed in four out of the previous five calendar years, including CYTD 2024.Hence, the domestic brokerage feels that it may be time for the sector to bounce back from its underweighted performance.
Valuation perspective & growth prospects of private banks
Lastly, WhiteOak is betting on the valuation and growth prospects of the sector, stating that the private banks are currently trading at low valuations, near the Covid pandemic lows. Despite various challenges faced by private banks, they offer compelling opportunities with reasonable valuations and earning growth prospects.
The banking sector’s profitability has improved, and healthy balance sheets support it while the financial services sector remains a major PAT contributor to Nifty Total Market Index.
India’s rising weight in the MSCI Emerging Index may also lead to increased foreign investments, which may boost market liquidity and enhance capital inflows, supporting economic growth and benefitting the financial services sector.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
