An Open-ended scheme replicating/tracking the NIFTY PSU Bank Index (TRI)
FinTech BizNews Service
Mumbai, January 18, 2024: HDFC Asset Management Co. Ltd., investment manager to HDFC Mutual Fund (HDFC MF), one of India’s leading mutual fund houses, has announced the launch of the HDFC NIFTY PSU Bank ETF. This ETF offers a simple way to gain exposure to the PSU Bank sector. The captioned NFO opened on January 12, 2024, and will close on January 23, 2024.
India’s strong GDP growth, one of the highest among large world economies, is supporting credit growth. Banks are the backbone of economic growth, facilitating loans for various purposes such as capital expenditure, working capital, and individual purchases like homes and automobiles. Public Sector Undertaking (PSU) Banks have shown sustained improvement in their fundamentals over the past several years, including a decade-high Capital Adequacy Ratio (CRAR) and a substantial reduction in Gross Non-Performing Assets (GNPA) ratios. Despite these improvements, the valuations of PSU Banks may not be fully reflecting the improved fundamentals, creating a potential opportunity for investors who have a high-risk appetite.
The HDFC NIFTY PSU Bank ETF is a passively managed scheme that seeks to replicate the performance of the NIFTY PSU Bank Index, subject to tracking error. This ETF will give investors the benefit of diversified exposure to multiple PSU banking stocks through a single instrument. Furthermore, HDFC AMC brings its extensive expertise of managing Index Solutions to this ETF, with a track record of over 20 years of managing Index Solutions.
Commenting on the launch, Navneet Munot, Managing Director and Chief Executive Officer, HDFC Asset Management Co. Ltd. said, “With our ‘Investor First’ approach in mind, HDFC Mutual Fund continues to offer best in class investment solutions to the investors. We remain committed to delivering excellence in Index Solutions, leveraging our 20+ years of expertise in this space. We are pleased to introduce the HDFC NIFTY PSU Bank ETF, providing investors with an avenue to capitalize on the investment opportunities in PSU banks.”
Banks are vital for economic growth, providing loans for capex, working capital, purchasing homes, autos etc. PSU Banks have made several sustainable improvements relative to the previous cycle including strengthening their balance sheet and changing their lending patterns Due to these improvements, several Fundamental metrics for PSU Banks – Capital Adequacy, Return on Assets etc. – are close to their highest levels in a decade Despite this, Valuations are not reflecting improved Fundamentals; PSU Banks’ 1y Forward Price / Book ratio is close to its historical long-term average.
Capital adequacy for PSU banks is at a decade high. A minimum ratio of 8% must be maintained under Basel III regulations, so that the banks can resist future economic crisis PSU banks’ CRAR is at a decade high.
GNPA ratios declining steadily
The Gross Non-performing Assets (GNPA) Ratio^ is a measure of asset quality – a lower GNPA is preferable After peaking in FY18, GNPA ratios have been steadily declining Slippage ratio@ indicates fresh accretion of NPAs over a year Slippage ratio is at a decade low, indicating improving health of PSU banks' balance sheets.
Return on Assets (RoA) is a measure of efficiency RoA for PSU banks is at decade high after troughing in FY18, due to balance sheet improvements and improved profitability.
Loan book
Loan book has diversified away from corporates towards housing & other retail loans. The loan break-up of Leading PSU bank 1 has seen the share or housing and other retail loans increase over the last decade Meanwhile, corporate, SME and agriculture loan’s share has declined over the same period. Share of loans to housing, other retail and agri sector has increased over the last decade Meanwhile, foreign and SME’s share of total loans has declined over the same period.
CASA ratio
For PSU Banks the CASA ratio, ie. ratio of Current Account and Savings Account deposits as a % of Total Deposits, is close to multi-year highs. Cost-of-Funds for PSU banks has declined steadily over the past decade thanks to their strong CASA franchise. PSU banks are well positioned for a higher-for-longer interest rate scenario, as sticky low-cost CASA funding could keep Cost-of-Funds low despite the higher interest rate environment.
Digital Revolution
PSU banks are embracing the Digital Revolution.
Snapshot of NIFTY PSU Bank Index
Captures the performance of the PSU banks. Currently has 12 constituents Stocks capped at 33% each, top 3 stocks capped at 62% in aggregate Index is re-balanced on a semi-annual basis in March and September.
HDFC NIFTY PSU Bank ETF
An open-ended scheme replicating/tracking the NIFTY PSU Bank Index (TRI. PSU Banks have strengthened their balance sheet, changed their lending patterns relative to the previous cycle and are well positioned for a Higher for Longer interest rate scenario. PSU Banks’ 1y Forward Price/Book ratio is close to it’s long term average. Valuations are yet to reflect the improved fundamentals The HDFC NIFTY PSU Bank ETF will give the investor sector exposure to multiple PSU Banking stocks through a single instrument – no need for individual stock selection. HDFC AMC. HDFC AMC has been a trusted fund manager in Index Solutions for 20+ years (HDFC Index Fund – NIFTY 50 Plan and S&P BSE SENSEX Plan were launched in 2002).
The HDFC NIFTY PSU Bank ETF could be suitable for investors who: Seek diversified exposure to the PSU bank sector Have a high risk appetite Prefer a low-cost investment option to earn index linked returns.
Disclaimer: The views expressed herein are as of January 08, 2024 and are based on internal data, publicly available information and other sources believed to be reliable. Any calculations made are approximations, meant as guidelines only, which you must confirm before relying on them. The information contained in this document is for general purposes only and not an investment advice. Neither HDFC AMC and HDFC Mutual Fund (the Fund) nor any person connected with them, accepts any liability arising from the use of this document. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein. MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
