While 2023 has been one of the best years in the history for Nifty 50, the sector which is the top favourite for investors across the fraternity turned out to be the biggest underperformer this year.
The banking and financial services sector failed to run at the same pace as Nifty 50 this year.
The Nifty 50 has given more than 18% returns so far in 2023, whereas Nifty Bank has given 11% returns and Nifty Financial Services 12% returns.
From the 52-week lows touched in March, while Nifty 50 has rallied 28%, Nifty Financial and Nifty Bank have risen 23% and 24%, respectively.
Foreign institutional inflows into this sector have been quite volatile this year and not as much as the weightage they enjoy in the overall FPI portfolio. FPIs have net invested Rs 43,911 crore until the first fortnight of December, and this is the biggest investment by them in a sector in 2023, data by NSDL showed. However, nearly half of this money has come in only in the first fortnight of December.
Stock Movers
Much of the underperformance of the two sectoral gauges has been due to the lack of strength in the heavyweights.
Of the 20 constituents of the Nifty Financial Services index, 12 of them have given double-digit returns and a majority of these stocks are the midcap and smallcap segments.
Two stocks that gave multibagger returns were in the public sector space namely Power Finance Corporation and REC, but their overall weightage in the index is less than the big private names.
Stocks like Kotak Mahindra Bank, HDFC Bank, State Bank of India, Bajaj Finserv, and Bajaj Finance, which have a higher weightage on the Nifty Bank and Nifty Financial Services indices, have given a meagre 3-8% returns year-to-date.
Even insurance companies like HDFC Life Insurance, ICICI Lombard General Insurance, and SBI Life Insurance have given low double-digit returns of 13-14%.
Will They Rebound in 2024?
After the underperformance in 2023, largecap stocks, particularly those in the banking and financial sector are seen rebounding in 2024, according to a majority of money managers.
With interest rates seen declining from the next year, financials is a theme that will play out well in 2024, they said.
“Recent data suggests a change of trend as financials seem to be attracting higher flows. We expect that in a declining interest rate cycle, stocks from the financial space should garner more interest from FPIs,” said ICICIdirect in its report.
Lower interest rates will provide impetus to credit growth in the rate-sensitive sectors such as affordable housing, automobiles and subsequently aid the banking and financial sector.
Further, asset quality for large banks is expected to remain healthy, led by superior underwriting quality and prudent provision reserves, said HDFC Securities.
Axis Bank and Bajaj Finserv are the two stocks that HDFC Securities recommends accumulating in 2024.
From a technical point of view, Nifty Bank, according to ICICIdirect, is in a structural uptrend as it continues to form higher high-low above the 10-month rising average.
Therefore, it expects the banking index to head towards 54000 level over the next 12 months. The target implies an upside potential of 13% from the current levels.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
