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Economic Times
6 days ago
- Business
- Economic Times
Low earnings growth may prompt investors to move away from banks: Dhananjay Sinha
Tired of too many ads? Remove Ads , CEO and Co-Head Institutional Equities,, says the banking sector faces potential investor shift. Low earnings growth may prompt investors to seek sectors with stronger performance. HDFC Bank stands out with a better earnings trajectory. Structural tailwinds and cost optimization efforts are improving margins. The banking sector is currently focused on optimizing costs and overheads to enhance profitability. This strategic shift aims to navigate current economic stock prices have corrected recently, but this sector has demonstrated good performance in terms of operational matrix. There was concern with respect to the infra spending by the government. A certain amount of containment was there. In the recent past, the government has stepped up a lot of these spending which is supportive of the wires and cables industry . And this sector has been doing really well. The correction created an opportunity. So, wires and cables is a sector that most investors are betting on. So, every dip is something that people are actually using as an opportunity. And over the last several years, I would say, the sector has been doing operating performance of the banking sector shows there is a fall in the credit deposit ratio since the March levels which was at its peak. We have seen that credit growth has actually decelerated to somewhere around 9% or thereabout if you look at the overall system and there has been a sort of excess liquidity that has been there, and the RBI has also cut rates. So, the issue is all about the operating matrix and the way the banking sector can grow.A deceleration in credit growth is not very beneficial for the banking sector and with that, with liquidity being excess and RBI cutting rates, the pressure on margins would continue. I would say the earnings growth that we are projecting as a whole for the coverage company is working out to be somewhere around 1.7% year-on-year for the entire first quarter. That basically reflects there is a lack of other income support that is the fee-based income, quite apart from the fact that there is a margin compression. This is notwithstanding the fact that there was easing of the G-Sec yield and as a result, the yield curve may have given a trading profit for the banking sector as a whole. I would say that private banks had actually done well. There has been a significant revival in the investor interest in names such as HDFC Bank, Kotak Bank , etc, and even Bajaj Finance in the NBFC a certain amount of rally was there and, the fact that there was sort of some strengthening in rupee which has given some valuation benefit out there. Going forward, the operating matrix will be very relevant. If you have 1.7% earnings growth for the banking system, it has got a very large weightage in the index, so that is something that people might start to shave off a little bit. So, it is quite possible that investors might actually switch to some other sectors where earnings trajectory is relatively more resilient so that is the view on the banking sector, in our universe of coverage, HDFC Bank looks better in terms of earnings trajectory. There are certain structural tailwinds with respect to their cost of funds and with respect to them hiving off some of the low yielding assets. All that is improving the margins or at least creating tailwinds on the margins. Also, they are optimising on cost and stuff. The overall banking sector is in an optimisation mode. They are trying to draw a certain amount of profitability through optimisation of cost, overhead cost, and that is the view of the banking sector.
Time of India
6 days ago
- Business
- Time of India
Low earnings growth may prompt investors to move away from banks: Dhananjay Sinha
Tired of too many ads? Remove Ads , CEO and Co-Head Institutional Equities,, says the banking sector faces potential investor shift. Low earnings growth may prompt investors to seek sectors with stronger performance. HDFC Bank stands out with a better earnings trajectory. Structural tailwinds and cost optimization efforts are improving margins. The banking sector is currently focused on optimizing costs and overheads to enhance profitability. This strategic shift aims to navigate current economic stock prices have corrected recently, but this sector has demonstrated good performance in terms of operational matrix. There was concern with respect to the infra spending by the government. A certain amount of containment was there. In the recent past, the government has stepped up a lot of these spending which is supportive of the wires and cables industry . And this sector has been doing really well. The correction created an opportunity. So, wires and cables is a sector that most investors are betting on. So, every dip is something that people are actually using as an opportunity. And over the last several years, I would say, the sector has been doing operating performance of the banking sector shows there is a fall in the credit deposit ratio since the March levels which was at its peak. We have seen that credit growth has actually decelerated to somewhere around 9% or thereabout if you look at the overall system and there has been a sort of excess liquidity that has been there, and the RBI has also cut rates. So, the issue is all about the operating matrix and the way the banking sector can grow.A deceleration in credit growth is not very beneficial for the banking sector and with that, with liquidity being excess and RBI cutting rates, the pressure on margins would continue. I would say the earnings growth that we are projecting as a whole for the coverage company is working out to be somewhere around 1.7% year-on-year for the entire first quarter. That basically reflects there is a lack of other income support that is the fee-based income, quite apart from the fact that there is a margin compression. This is notwithstanding the fact that there was easing of the G-Sec yield and as a result, the yield curve may have given a trading profit for the banking sector as a whole. I would say that private banks had actually done well. There has been a significant revival in the investor interest in names such as HDFC Bank, Kotak Bank , etc, and even Bajaj Finance in the NBFC a certain amount of rally was there and, the fact that there was sort of some strengthening in rupee which has given some valuation benefit out there. Going forward, the operating matrix will be very relevant. If you have 1.7% earnings growth for the banking system, it has got a very large weightage in the index, so that is something that people might start to shave off a little bit. So, it is quite possible that investors might actually switch to some other sectors where earnings trajectory is relatively more resilient so that is the view on the banking sector, in our universe of coverage, HDFC Bank looks better in terms of earnings trajectory. There are certain structural tailwinds with respect to their cost of funds and with respect to them hiving off some of the low yielding assets. All that is improving the margins or at least creating tailwinds on the margins. Also, they are optimising on cost and stuff. The overall banking sector is in an optimisation mode. They are trying to draw a certain amount of profitability through optimisation of cost, overhead cost, and that is the view of the banking sector.
Mint
15-07-2025
- Business
- Mint
Why are fund of funds seeing a spike in investor flows?
Fund of funds (FoFs), which invest in other domestic funds, received ₹8,647 crore of investor inflows in June, according to monthly data shared by the Association of Mutual Funds in India (Amfi) recently. In the preceding month, FoFs saw net inflows of ₹5,829 crore. What has sparked this renewed interest? Here's what experts say Income plus arbitrage FoFs Experts attribute the increase in inflows to the innovative products that are being launched in this category. Several fund houses have launched income plus arbitrage FoFs, which invest in a combination of a debt fund and an arbitrage fund. These FoF schemes put 65% of the portfolio in debt and the remaining 35% in arbitrage funds – the exact reverse of what pure arbitrage funds do (35% debt and 65% arbitrage). The idea behind income plus arbitrage FoF is to limit arbitrage exposure to 35% as debt investors may not be comfortable with arbitrage yields, which tend to move a lot more than debt yields. Also read | What's changed for India's mutual fund industry in FY25. Here are the top trends Due to the new tax rules, FoFs now have the benefit of a long-term capital gains tax rate, that is gains from FoFs held for more than 24 months will be treated as long-term capital gains and taxed at 12.5%. There is still one caveat, the FoFs' underlying should not be more than 65% in debt funds, to avail the LTCG tax rate. 'We have seen several fund houses launching income plus arbitrage fund of funds. With the tax issue now resolved, mutual funds could launch more innovative products in this space," said Rushabh Desai, founder of Rupee with Rushabh Investment Services. Earlier, all FoFs — barring those investing over 90% in domestic equities — were considered as non-equity funds for tax purposes. This meant all gains from FoFs were to be taxed at investor's slab rate. More innovations Fund houses are even filing for FoFs in other segments. For example, they have filed for a multi-asset fund of funds, wherein the FoF will invest in a mix of other funds; this could be debt funds, gold ETFs, silver ETFs, equity funds, etc. One of the fund houses has also filed for a multi-factor FoF, which will invest in other factor-based exchange traded funds (ETFs), tracking various factors such as momentum, value, quality, low volatility and growth. Another has filed for a fund of funds that will invest only in ETFs across asset classes — right from equities, gold, debt and even G-Sec read | The ONDC mutual fund pipeline has arrived. Will it take over the industry?Should you invest?New offerings within FoFs can take different forms, given the wide possibilities as these act as feeder funds. Some products can help you create a diversified portfolio, as FoFs can invest in different funds and ETFs. However, new innovations need not always be necessary for your portfolio if it is already well-diversified. So choose FoFs that can truly diversify your portfolio.
Mint
06-07-2025
- Business
- Mint
Trading strategy to future outlook: LGT Wealth's Chirag Doshi points out four key things for Indian bond investors
India's fixed-income market is entering a defining phase. With inflation comfortably within the RBI's target band and growth on track, the current setup presents a compelling opportunity for investors to lock in attractive real yields with a prudent mix of quality and risk. Macro indicators continue to paint a favourable backdrop. Headline inflation has cooled to ~3%, GDP growth is tracking around 6.5%, and the Reserve Bank of India has front-loaded policy easing, cutting the repo rate by 100 bps so far in 2025 to 5.50%. A sharp reduction in the cash reserve ratio (CRR) has further eased systemic liquidity. While the RBI's stance has turned neutral, the overall tone remains accommodative. The government bond yield curve has flattened at the long end but remains steep in the 3- to 7-year segment. As of early July, the 5-year G-Sec trades near 6.00%, while the 10-year benchmark hovers around 6.30%. State Development Loans (SDLs), offering a 25–30 bps premium, remain attractive for incremental yield without compromising credit quality. We continue to find value in the 5–7-year part of the curve, where investors can capture both decent carry and roll-down potential. Long-duration positions are best approached selectively, especially considering global cues and potential domestic supply pressures. In the corporate bond market, shorter maturities (up to 5 years) dominate new issuance as issuers and investors both gravitate toward lower duration amidst falling rates. AAA-rated NBFCs and PSUs are raising capital at 6.60–6.80% for 5-year tenors—offering spreads of around 80–100 bps over corresponding G-Secs. For investors comfortable with slightly higher risk, selectively allocating to well-researched high-yielding credits in the A to A- category can meaningfully enhance portfolio carry. The key here is to remain cautious, focus on issuers with strong cash flows, seasoned promoters, and transparent governance, and avoid overexposure to any single name or sector. In this phase of the cycle, we recommend a laddered portfolio approach that combines duration and credit quality thoughtfully. The objective should be to build a robust carry while maintaining resilience against unexpected macro shifts. Liquidity sleeve (0–1 year): Deploy into liquid and ultra-short funds or short G-Secs for parking and capital preservation. Core carry (3–7 years): Focus on 5–7-year G-Secs and AAA-rated corporates to optimize yield and manage duration risk. Yield enhancement (2–4 years): Add select high-yielding A/A- rated bonds in moderation for portfolio lift, with strict attention to credit selection and size limits. The RBI's August policy review, which could provide clarity on the pace and extent of further easing. Inflation trajectory, particularly in food prices post-monsoon. Global rate trends and commodity prices, especially crude oil. Government borrowing calendar and potential changes to the fiscal glide path. Any of these factors could influence bond yields, particularly at the long end of the curve. With policy easing largely behind us and inflation under control, fixed income investors are well-placed to lock in real returns that look increasingly attractive on a risk-adjusted basis. The opportunity is not about chasing yield, but about building carry, layering quality, and being intentional with credit. At this juncture, prudently structured portfolios—anchored in core quality, with calibrated exposure to high-yielding credits—can deliver consistent performance through the cycle. The bond market, in short, is offering a window worth stepping into—cautiously, but confidently. The author, Chirag Doshi, is the CIO at LGT Wealth India. Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
Time of India
03-07-2025
- Business
- Time of India
NFO Alert: Invesco Mutual Fund launches Income Plus Arbitrage Active Fund of Fund
Live Events Invesco Mutual Fund has announced the launch of its new fund Invesco India Income Plus Arbitrage Active Fund of Fund , an open-ended fund of fund scheme investing in units of actively managed debt-oriented schemes and equity arbitrage new fund offer or NFO of the fund is open for subscription and will close on July Read | Record inflow of over Rs 15,000 crore in May. What is making arbitrage mutual funds gain investors' interest? The fund is designed to provide investors with a smarter and simpler alternative to traditional debt investments, according to a press release by the fund fund aims to generate income by investing in a dynamic mix of actively managed debt-oriented schemes and equity arbitrage schemes, offering a unique blend of stability, tax efficiency, and operational ease. The fund is ideal for investors seeking low-risk income with enhanced tax efficiency in the long term, the release 60-65% will be invested in debt-oriented schemes, with a primary focus on Invesco India Debt Fund, based on market opportunities in high-quality corporate bond funds that invest in AAA-rated corporate bonds and sovereign the current market dynamics, large allocation will be done in Invesco India Corporate Bond Fund (allocation to debt schemes will be less than 65%) which as of now provides participation in AAA rated corporate bonds largely in 2-5 year space and G-Sec in 5-15 year fund will invest 35–40% in Invesco India Arbitrage Fund, which captures price differentials between cash and derivatives markets with fully hedged equity held for over 24 months are taxed at a 12.5% long-term capital gains rate, compared to traditional debt funds taxed at slab rates, the release Read | JioBlackRock launches mutual fund access on MyJio, calls it a new era of investing 'With the evolving investment landscape, conservative investors are seeking options that align with their risk tolerance while enhancing tax efficiency. As the fixed income market remains in a sweet spot, the Invesco India Income Plus Arbitrage Active Fund of Fund offers a smart alternative to traditional debt investments—an efficient combination of arbitrage and fixed income strategies that provides relatively lower risk & a better tax efficiency,' said Vikas Garg , Head of Fixed Income & Fund Manager, Invesco Mutual minimum investment amount during the NFO is Rs 1,000 and in multiples of Re 1 thereafter. For SIP investments, the minimum application amount is Rs 1,000 and in multiples of Re 1 thereafter. No exit load will be charged to investors.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
