Sundaresha Subramanian

Mumbai: The phrase “bank robbery” has a new connotation these days.

From being the victim in the phrase, banks have metamorphosed into villains.

If you have been following the newspaper headlines over the past few months, you would know. Unable to rob any more of cash from a client, agents of a leading private bank robbed him of his life — harassing the hapless borrower to commit suicide, over a few thousand rupees.

Pink paper headlines would tell you that the new age bank robbery does not end with financially illiterate’ individuals; even chartered accountants and corporate CFOs are among the unsuspecting victims. Banks have now got into an ugly spat with companies they sold ‘exotic’ derivatives to.

While the banks claim they had apprised them of the various risks, the companies accuse them of dirty sales techniques.

From being the sleepy, friendly neighbourhood landmarks manned by balding, bespectacled cashiers and tellers caged in wooden counters, banks have transformed into faceless, paperless, branchless and unfortunately, ruthless commercial entities.

Trust has taken a beating; the thrust is on the turnover.

That being the case with banks, the most regulated among the financial sector entities, one can imagine the state of affairs in the rest of the financial services spectrum — NBFCs, insurance companies and brokerages included. We aren’t even talking about the subprime crisis and the resultant turmoil in the global economy, which are no great advertisements for the financial services industry.

Optimists brush off the subprime issue as a one-off event and the questionable practices discussed above as the side effects of an industry growing rapidly.

However, whether this rapid growth is a result of the same questionable practices that led to the subprime crisis and whether such growth is sustainable in the long run, are unanswered. What you make of these questions will determine whether you like or dislike the latest offering from Sundaram BNP Paribas Mutual Fund.

The fund house has launched an open-ended equity fund that will explore opportunities in the banking and financial services space.

N Prasad, CIO of the fund house said in a statement, “Robust growth in the economy, expected boom in savings, expanding range of financial services companies, quality regulation leading to steady improvement in balance sheet quality and imminent new listings over the next few years from sectors such as insurance asset management and web-based services are factors that will underpin the growth of the financial services space over the next decade.”

The Sundaram BNP Paribas Financial Services Opportunities Fund is the fourth under the fund house’s ‘Select Thematic Funds’ umbrella.

The offering is open for subscription from April 17 to May 14. The banking, financial services and insurance (BFSI) space is poised for a boom, feels the fund house.

With the RBI forecasting a minimum 8% growth, the growth story in the banking sector is almost a given. Despite all their vices, the banks have every chance to do well and as a consequence, their share prices will do well, too.

The rapid pace of growth will lead to increased salaries and a rising trend in savings and investment.

This will cause greater penetration of financial services like banking, insurance, creditcards, home durable loans and mutual funds - across geographies and income classes.

Also, the investible universe in this space is likely to expand beyond banks with mutual funds like UTI already filing for initial public offer. The fund house is confident that in the days to come, one might see entities like stock exchanges approaching the capital market.

A number of brokerages have also entered in the last one year. While this expands the investment universe, it also creates a risk of the unknown.

With no benchmark available to measure up against, these entities are often overvalued. Brokerages, which listed during the market peak, are now trading at half their values. One can only hope that fund managers would be extra cautious while dealing with such new entrants to avoid a dotcom-like fiasco.

If banks and financial entities learn from their past mistakes and mend their ways, they could well live up to the Sundaram BNP Paribas vision. Your concentrated bet on the sector through this fund would then pay off and making money off a bank could indeed be a steal.

On the downside, if the banks continue their unethical and imprudent methods of driving growth, there will be a day they run out of luck. On that day, your concentrated bet may prove to be the proverbial millstone around your neck. Just try asking the shareholders of Bear Stearns, the Wall Street bank, whose highflying $171 share plummeted to $2 in a matter of months.

Banking stocks have taken a beating of late as a result of negative news flow in the past few months.

When prices are falling, the customary slogan of mutual funds is that valuations are cheap and it’s a good time to buy. This fund house also wants us to accept this logic. But, not everyone does.

At a recent seminar, Enam founder Vallabh Bhansali talked about how the century-old Manik Chowk (the original site of share bazaar in Ahmedabad) wisdoms still held good. The first was about the supremacy of the stock price — “patia bhagwan che” (the counter is God).

Forget the fundamentals, forget the valuations, forget the technicals, look at the counter, look at the price, it’s all in there. That’s one for the keeps, all ye investors.

Source : DNA