Bank On Banks For The Nest Boom

BFSI stocks proved to be the best bet when everything went into a tailspin. A reviving economy pumps enough fuel in them to drive your funds to higher orbits

- Manik Kumar Malakar

When most things ran into choppy waters during the pandemic last year, a clutch of stocks stayed afloat, rather set sail to greener shores.

The stocks from the banking, financial services and insurance sector, clubbed together as BFSI, outperformed the broader equity universe. With enough fuel still left in them, the momentum is likely to continue for the near to medium term as well.

“Nifty and Bank Nifty have been partners in crime for more than a decade and it was hard to imagine Nifty going up or down without contribution from Bank Nifty,” says Rahul Sharma, who heads the technical and derivatives research wing at JM Financial Services. “We must remember that banking stocks have a major share in Nifty 50 and have strong fundamentals.”

The early days of Covid-19 containment measures that had stalled all economic activities across large parts of the world, had taken a toll on the BFSI stocks. But after the initial earnings downgrade, the sector witnessed a steady revival on the back of improving asset quality trends. The stocks garnered good income in the recent months, while credit growth too has been showing signs of recovery.

It’s intriguing to see the BFSI stocks duck the downturn after the pandemic struck. The banking sector has shown a high degree resilience supported by adequate policy and regulatory measures. “The banking sector is expected to outperform most of its peers from here onwards,” says Nitin Agarwal, who is a banking analyst for institutional equities at Motilal Oswal Financial Services Limited (MOFSL).