Wild gyrations on Dalal Street have battered a once-loved heavyweight segment on Dalal Street: the BFSI or banking, financial services and insurance basket. As central banks around the world line up aggressive hikes from pandemic-era interest rates, the Nifty Financial Services — which tracks a slew of largecap and midcap stocks from the three spaces — sits in the bear zone.
A stock or index is said to be in bear territory once it retreats 20 percent or more from its recent peak. And the Nifty Bank — which has 12 of the country's blue-chip banks from private as well as public sectors as its members — is within two percent of the area.
| Index | Distance from peak (%) |
| Nifty50 | -12.8 |
| Nifty Bank | -18.1 |
| Nifty Financial Services | -20.3 |
| Nifty PSU Bank | -20.8 |
| Nifty Private Bank | -19.9 |
The setup comes as the Nifty50 benchmark has cooled off 12.8 percent from the last of its all-time highs last year — the correction zone as it is known in market parlance (10 percent from peak) — and the Street is once again abuzz with talks of overheated valuations.
Financial services hold the maximum weight in the Nifty50 — at 34.8 percent.
Can you add or accumulate the cream of the blue-chip BFSI pack?
The Street is divided.
Sunil Damania, Chief Investment Officer of MarketsMojo, expects the BFSI space to underperform the market going forward, after being "the darling of investors for a considerable time before the COVID outbreak".
His view is based on three headwinds:
"Investors' appetite for the BFSI space is likely to remain muted for now on account of high valuations and no scope for revaluation," he said.
| Stock | Price to earnings (TTM) |
| SBI | 13 |
| HDFC Bank | 19.6 |
| ICICI Bank | 21.2 |
| Axis Bank | 15.9 |
| Kotak Mahindra Bank | 43 |
| HDFC | 28.7 |
| Bajaj Finance | 55.2 |
| Muthoot Finance | 11.7 |
| Cholamandalam Investment | 25 |
| SBI Cards | 43.8 |
Others are more optimistic.
To Geojit Financial Services' Chief Investment Strategist, VK Vijayakumar, BFSI stocks look attractive despite elevated valuations in the market. He is banking on the fundamentals of the banking pack — especially the private sector, which look good to him and improving.
Where to look for growth?
Vijayakumar finds attractive buys in leading banking, mortgage and fintech stocks, due to impressive demand for bank credit compared with last year, he told CNBCTV18.com.
Yash Gupta, Equity Research Analyst at Angel One, recommends accumulating three stocks from the banking space for the long term:
| Stock | CMP | Target price |
| HDFC Bank | 1,302.9 | 1,859 |
| AU SFB | 1,340.7 | 1,695 |
| Federal Bank | 85.1 | 135 |
Sustained selling by foreign institutional investors (FIIs) has caused a good correction in BFSI stocks over the last three months, rendering Nifty Bank valuations "very attractive in terms of the adjusted price-to-book value along with one of the cleanest balance sheets", Gupta told CNBCTV18.com.
What about the rest of the BFSI world? Jigar Mistry, Co-Founder of Buoyant Capital, is gung-ho on insurance and banking from the interest rate perspective.
Here's his list of most to least favourite stocks at the moment:
The new kid on the block, LIC is among the cheaper names in the insurance basket, according to Mistry.
"We don't own it but earlier, a lot of fear was essentially that people would come in and look at this as a very expensive bet... We have been holding something like SBI Life and Max Financial for a fairly long period of time," he told CNBCTV18.com.
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