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DSP Top 100 Equity Fund - Regular Plan - Growth 17.09% 12.9% Invest
DSP Flexi Cap Fund - Regular Plan - Growth 21.79% 17.62% Invest
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DSP Midcap Fund - Regular Plan - Growth 19.64% 16.73% Invest
DSP Small Cap Fund - Regular - Growth 34.44% 23.1% Invest
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Dec 05, 2023 4 min read

DSP Banking and Finance Fund

Introduction

The world of finance, comprising banks, non-banking financial companies (NBFCs), insurance, asset management companies (AMCs), and Fintech, plays a crucial role in driving the engine of the real economy.

In India, the banking and financial services sector, often referred to as BFSI, has been a beacon of robust growth, outpacing broader economic trends. The DSP Banking and Finance fund stands at the forefront of harnessing the immense potential within this dynamic sector.

India’s Banking sector, historically a growth leader, has recently underperformed the Nifty 50 Index since September 2019. However, with potential for a turnaround, attractive valuations, and solid balance sheets, it presents a compelling investment opportunity.

You can join the scheme starting from November 20, 2023, and it will be open for you to sign up until December 04, 2023.

Exploring Opportunities

The BSFI sector in India is riding the waves of strong economic growth, increased disposal income, and a surge in consumerism.

Digital payment methods have revolutionized traditional financial instruments, making transactions more efficient.

Initiatives such as the digitalization of Kisan Credit Card (KCC) lending and the reserve bank of India’s (RBI) pilot project on Central Bank Digital Currency (CBDC) are further propelling the sector’s efficiency.

The rise in Return on Equity (ROE) signifies improved profitability, and current valuations in the BFSI sector are deemed reasonable, presenting a flavorable entry point for investors.

Fintech, estimated to reach $150 billion by 2025, fosters financial inclusion, contributing to the sector’s dynamism. India’s lending sector, boasting a profit pool exceeding INR 3.8 trillion, has rebounded and entered a positive phase.

Unexplored potential

The insurance sector, globally ranked 5th, holds substantial room for growth. Booming capital markets, marked by an increase in Demat account and Mutual Fund asset under management (AUM) size, present additional avenues for investments.

Credit expansion, operating profits, and overall earnings of banks and NBFCs reflect consistent improvement.

Corporate expansion through credit cycles or bonds and the rise of credit-backed white goods consumption further underscore the sector’s untapped potential.

Historical Performance

Examining historical performance, the Nifty Financial Services Total Return Index (TRI) has consistently outperformed the broader Nifty 50 TRI over 10-year periods.

From January 2004 to September 2023, the annualized returns of the Nifty Financial Services TRI stood at an impressive 17.6%.

Underperformance and Reversal Potential

Acknowledging recent underperformance compared to Nifty 50 TRI, it’s worth noting that similar levels of underperformance were observed during the global financial crisis (GFC) bottom. Historical data suggest that such periods of underperformance have often been followed by potential reversal.   

Investing strategy of DSP Banking and Financial Services

The DSP Banking and Finance funds adopts a comprehensive approach, investing across various segments of the banking and financial landscape, including Banking, NBFCs, Insurance, AMCs, and Fintech. The fund also extends its reach to international businesses related to the banking and financial sectors, providing investors with a diversified portfolio.

The fund’s strategy encompasses companies of all sizes, from small to mid to large-cap, with a preference for those demonstrating strong fundamental business traits.

With a concentrated portfolio of 20 stocks, the fund aims to deliver sustained growth.

Research Process

DSP’s research process involves a meticulous examination of broader economic trends and policy changes impacting the BFSI sector.

Individual companies within the sector undergo in-depth scrutiny of their financial health, business models, and competitive positioning.

Who should Invest?

This fund is ideal for investors who believe in active money management rather than adhering to buy and hold strategy. It is suited for those who can tolerate the risk of underperformance, possess the patience to hold investments for 2-3 years, and anticipate the potential for quick returns. However, it’s recommended not to allocate more than 10-20% of the portfolio to this sector.

Conclusion

The DSP Banking and Finance Fund offers a strategic gateway into India’s thriving BFSI sector. Fueled by robust growth, digital advancements, and favorable valuations, the sector presents a compelling investment landscape. With a diverse portfolio spanning domestic and international opportunities, the fund positions itself for strategic growth.

Historical patterns hint at potential reversals, emphasizing the sector’s resilience. Untapped sectors like insurance and booming capital markets add to the fund’s growth potential. A focused portfolio of 20 stocks, catering to companies of all sizes, underscores the fund’s commitment to sustained growth.

Tailored for active investors with resilience and patience, the DSP Banking and Finance fund invites participation in the dynamic future of finance. While promising, a prudent approach suggests allocating 10-20% of the portfolio.

In conclusion, this fund isn’t just an investment; it’s a key to unlocking financial success in the evolving landscape of BFSI sector.

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