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Saturday, November 26, 2022

How to step up your portfolio via investments in financial heavyweights

Synopsis

With the financial services sector performing well in the recent past, and indicating a potentially sharp upside over the long term, as a savvy investor, you may consider moving beyond banking stocks and stepping up your portfolio by building positions in these financial services heavyweights.

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Often, when investors think of the financial sector, they end up focusing solely on the banks. Such an approach tends to exclude an array of heavyweight financial sector performers, including major life and general insurance companies, housing finance companies, asset management companies, and financial technology platforms, among others. With the financial services sector performing well in the recent past, and indicating a potentially sharp upside over the long term, as a savvy investor, you may consider moving beyond banking stocks and stepping up your portfolio by building positions in these financial services heavyweights.

An untapped opportunity

The Nifty Financial Services Ex-Bank can be best termed as an opportunity waiting to be tapped into and there are many reasons leading up to this conclusion. The financial services sector has played and continues to play an enormous role in helping India become the fastest-growing major economy in the world. Further, the ex-bank sector is currently in the middle of a technological and regulatory revolution, making this an ideal time to enter this burgeoning space. As a result of the increased credit uptake by all segments of society, the investment and insurance sector is poised to experience an unprecedented boom and you can choose from brokerages, investment banking firms, wealth management companies, mutual funds, and loan companies to insurers.

Financial services—a sunrise sector

India’s financial services industry has made its mark as a sunrise sector that strives to be ahead of its time. Thanks to significant investments in digitisation and technological upgrades, the sector has remained relevant over time while also nimbly adapting to the new normal. Its keen eye on the future is bolstered by its rapid growth, as shown by important parameters, such as the fact that the compounded annual growth rate of the mutual fund industry was 11% between FY16 and FY22. In the same period, the NBFC and insurance sectors registered a CAGR of 9% and 10%, respectively. Further, depositories have grown at a CAGR of 36% between FY19 and FY22. More importantly, the Nifty Financial Services Ex-Bank index has outperformed both Nifty50 and Nifty Bank in each of the last 10 years, clearly indicating the sector’s potential.

Where can you invest?

If you are keen on participating in this robustly-growing sector, you need not look very far. The Nifty Financial Services Ex-Bank index can be a good starting point. By investing in an ETF based on this index, you can build positions across major private and public names in the financial services space. You don’t have to worry about missing out on the potential in certain stocks while investing in others since with the Nifty Financial Services Ex-Bank ETF you get the best of the lot in a hand-picked basket that is well-positioned to harness the opportunity in the financial services sector.

Future developments will be supported by various enabling factors, including the rising wealth in the country, prompted by the shift in the workforce from agriculture to industry and services, growth in the financialisation of savings, unprecedented innovation in the sector, and constant internet accessibility. This is an ideal time for you to begin your exploration of this theme due to the ongoing policy support, including tax exemptions and the FDI relaxations, the strong performance of recently-listed companies, the surge in dematerialised accounts as a sign of investor awareness and participation, and the lower volatility within the sector as compared to banks.

If you are an investor willing to remain invested for a long-term timeframe, then the Nifty Financial Services Ex-Bank ETF can be an interesting investment option for you. Apart from the standard equity-related risks, since the offering is thematic in nature there could be periods of up and down cycles. However, the theme appears comfortably placed in the medium to long term. It is advisable to consult your financial advisor to learn about the suitability aspect.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com .)

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Michael Maren
Michael Maren
Former marine biologist who likes to spend as much time in the tropics as possible, due to a horrible time I once had in Alaska. Brrrr.

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