Rebalance instead of chasing momentum after recent runup

PSU BANK ETFs AND INDEX FUNDS

- SANJEEV SINHA

The Nifty PSU Bank Index has surged 25.2 per cent over the past year. Several exchange-traded funds (ETFs) from fund houses, including Nippon India, Kotak, DSP, HDFC, ICICI Prudential, and Mirae Asset, track this index. SBI Mutual Fund offers an index fund based on the BSE PSU Bank Total Return Index (TRI).

Key drivers of the rally

Improving fundamentals fuelled the rally. “Asset quality has improved while nonperforming assets (NPAs) have declined significantly over the past few quarters. PSU banks now outpace private banks in credit growth. Reduction in policy rates and the cash reserve ratio has lowered funding costs and supported credit expansion and margins,” says Satish Dondapati, fund manager - ETF, Kotak Mutual Fund.

Supportive initiatives by the government, such as increasing the foreign direct investment (FDI) limit and the merger of PSU banks, have contributed to positive sentiment.

Will the rally sustain?