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Should you invest in Nifty Private Bank ETF to take exposure to the banking sector?

An investor will not only get the desired exposure to private sector banks but also need not worry about stock selection or actively managing the portfolio.

Should you invest in Nifty Private Bank ETF to take exposure to the banking sector?
As the economy grows, the banking sector will also witness growth.

Modest revival in credit growth, improvement in asset quality trends, lower credit costs across the sectors, and improvement in the loan growth have contributed to the performance of the banking sector which witnessed an incremental earnings growth during Q4FY22. 

Chintan Haria, Head of product Development and Strategy, ICICI Prudential AMC, says, “Higher rates, relatively inexpensive valuations, asset quality which has improved significantly, moderation in credit cost and NPAs will be positive for banks.”

The Bank Nifty has outperformed Nifty and Nifty Bank TRI has outperformed both Nifty 50 TRI and Nifty 500 TRI in 6 out of 10 years. The increase in the working population and growing disposable income, industry experts say, will further contribute to and help improve the demand for banking.

“The Indian banking sector holds tremendous growth potential given the robust demand for their services, constant innovation in terms of improving operational efficiency along with improving business fundamentals owing to various reforms in this space and investors should consider investing in the Nifty Private Bank ETF to take exposure to the Banking sector,” says Haria. 

Private Bank ETF

The banking sector plays a strong role in a country’s economic reconstruction and growth. It not only bridges the financing gap in the country but also provides a range of other services to retail customers. These include providing different types of accounts and extending the option to invest and generate returns through their investment products. 

Haria points out, India is on track to achieving its ambitious goal of becoming a USD 5 trillion economy by 2025 and the banking sector is likely to play a strong role in enabling this growth. Further still, as the economy grows, the banking sector will also witness growth.” 

Banking on the banks

For the Indian banking sector, experts say the environment is slowly but surely becoming conducive to growth. In the aftermath of the Global Financial Crisis, Indian banks were saddled with defaults and rising Non-Performing Assets (NPAs). However, Haria explains, “with NPAs on a steady decline, newer opportunities are being engendered due to improving credit growth and corporate profitability. In the backdrop of such a landscape, private banks, in particular, have become a compelling long-term investment opportunity.”

However, it is important to note that while the banking sector is poised for growth, you will still need to select the best private banks to harness this opportunity optimally. “Considering that stock selection is a time-consuming and research-intensive process, why not allow professionals to help you here? One of the easiest ways to address this dilemma is by investing in a Nifty Private Bank ETF,” adds Haria.

Private Banks ETF

This ETF by replicating the Nifty Private Bank Index, experts say will invest in the top 10 names from the private bank space. Hence, an investor will not only get the desired exposure to private sector banks but also need not worry about stock selection or actively managing the portfolio. Currently, the index comprises names including HDFC Bank, ICICI Bank, Kotak Bank,  and Axis Bank.

“It goes without saying that as the Indian economy improves, banking stands to gain and one of the easiest ways to reap this gain can be by investing in Private Banks ETF schemes. Do remember, the investment must be in alignment with your overall equity and asset allocation strategy,” concludes Haria. 

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