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MOSL: FINANCIALS-Realigning MOdel Portfolio to ride next leg of recovery; Remain OW on Banks v/s NBFCs; increase weights on ICICIBC and AXSB

FINANCIALS: Realigning MOdel Portfolio to ride next leg of recovery; Remain OW on Banks v/s NBFCs; increase weights on ICICIBC and AXSB

 

The MOFSL BFSI MOdel Portfolio delivered an in-line performance to the underlying benchmark (Nifty Financial Services Index) as banks, insurance, and non-lending financials outperformed. However, this was offset by a sharp underperformance from NBFCs, primarily due to our Underweight stance on the Bajaj Group. However, interestingly, our key OW calls on ICICIBC, SBIN, MUTH, ISEC, and IIFL Wealth have all delivered superior returns. While the earnings outlook remains encouraging, a) concerns around a potential third COVID wave and b) sell-offs by FIIs remain overhangs. Thus, we realign our MOdel Portfolio to navigate these headwinds. In terms of major changes, we increased our Overweight stance on ICICIBC, AXSB (to reflect the price movement), and SBILIFE. We have moderated our weights marginally for SBIN, MUTH, IIFLW, and ISEC (after a sharp outperformance) and reduced our Underweight stance on KMB, HDFC, and Bajaj Group. We have added ANGELONE and removed HDFCLIFE and MAXF from the model portfolio. 

BFSI underperforms Nifty in CY21YTD; stock performance remains divergent

• In CY21YTD, the BFSI sector index (Nifty Financial Services) underperformed the Nifty by ~5%, with a divergent performance witnessed across stocks. This is primarily attributed to several factors, such as (a) the growth outlook, given the revival in economic activity, (b) concerns around the impact of the second COVID wave on asset quality and loan restructuring, (c) mixed trends in loan growth and margins, and (d) the accelerated pace of vaccinations. Thus, the Nifty FIN index has delivered 20% returns in CY21YTD, against 25% returns in the Nifty-50.
• Further analysis indicates a strong outperformance from key stocks such as BFIN (+95%), PIRAMAL (+86%), SBIN (+78%), ISEC (+68%), SHTF (+50%), IIFLW (+48%), ICICIBC (+40%), AUBANK (+40%), FB (+39%), and BAF (+35%). BANDHAN (-22%), DCBB (-21%), RBK (-13%), HDFCAMC (-13%), HDFCLIFE (+2%), KMB (+2%), HDFCB (+6%), IIB (+7%), and AXSB (+10%) were among the major underperformers.