Why should you invest in Banking Funds during economic crisis?

Banks represent Indian Economy. They are the final beneficiary of any sector turn-around.

During COVID, Bank Nifty Index dropped from 32,000 highs to ~17,000 levels which is almost 50% drop. Why? Because banks will be worst affected if economy falls.

Steep fall of banks ~45% from top due to economic impact fear

I made huge investment in following banking funds when Banking Index was near 18,000 level and made others invest too.

1. Nippon India Banking Fund.
2. SBI Banking and Financial Services Fund
3. Tata Banking and Financial Services Fund
4. Motilal Oswal Nifty Banking Index Fund
5. Aditya Birla Sunlife Banking Fund
6. ICICI Banking and Financial service fund etc.

Rationale of Investing in Banking Fund:

1. Economic Cycle:

• Banks earn when they provide loan. Loan are broadly in two category retail & corporate.
• If there is a demand in market, corporates aspire to expand their business. For capital, they take ‘Loan’ from banks.
• Corporate employ more people who in turn get salary and ‘Deposit’ or take Car Loans (Automobile Sector) or Home Loans (Real Estate)!
• As lending activity improves, banks make more money.
• Hence final beneficiary of any sector’s progress are Banks. So best is to invest in banks.

2. History of leading Nifty.

1. Historically, bank nifty has always lead the NIFTY. Hence it is always advisable to follow Blue when its down.

Blue line (Banks) lead Red (Nifty)

Returns after Investment:

After 3months I see spectacular returns.

Learnings from Investment Style:

1. Follow top 5 banks of India: HDFC Bank, ICICI Bank, Kotak Bank, SBI and Axis bank for its asset quality, Net Profit, Net Interest Margin etc.
2. When economy goes down, banks will be hammered. Keep a watch. Fall will be super steep. Remember, the more you fall, the more you rise.
3. There is a relationship quote, If your relationship starts Quick, it will end Quick. Same with a fall in market. Though it may not apply to bankrupt or fundamentally mis-governed companies.
4. If Bank Nifty Lags Nifty by 30–50%, close your eyes and start putting extra money in Banking Funds.
5. Sector funds give highest return than normal fund.