Please enlighten us with your opinion on funds based on banking and PSU companies?
Banking and PSU funds exist both in the equity as well as debt funds spectrum. When it comes to equity, I don't like banking funds that are dominated by PSUs and I also hate PSU-focused equity funds simply because the government is a bad owner. We have seen value destruction of an unusual kind where great businesses are being managed with a kind of short-termism. Further, whenever the public sector is exposed to competition, we find them to be in great difficulty. There are many examples like MTNL or Air India, etc.
In a monopolistic situation, these companies do very well but they do not have a benchmark and the moment they are exposed to domestic competition of an intense kind, they are unable to combat on the ground in the marketplace. Thus, when it comes to buying stocks of government-owned companies, we have seen long-term value destruction. If you look at the CPSE ETF and Bharat 22 ETF, they have been an unmitigated disaster. One can say that they looked extremely valuable and cheap, but now they have become cheaper. And I do not know when they will turn around. Ideally, they should as there is so much of embedded value in them, their dividend yield is high and they have always looked attractive. But they looked attractive even two years ago and investors have lost a very meaningful sum of money there.
But the same is not true for banking and PSU debt funds. These funds invest in companies that are dominantly government-owned or are perceived as financially strong and creditworthy. Thus, in that sense, banking and PSU debt funds become attractive.