Safety in a ‘champion’ index

Banks’ unique position that allows access to low-cost capital makes them a safe investment option, but threats lurk

When it comes to investing in Indian stocks, a few names such as TCS, HUL, Britannia, Nestle and ITC constantly provoke interest. However, interestingly over the last decade, it is neither the FMCG industry nor the IT sector that has outperformed the Nifty 50 index, but rather the banking sector. As seen in the accompanying graph, the Nifty Bank index has predominantly outpaced the Nifty 50 since 2008.

According to the RBI, the number of scheduled commercial Indian banks includes 22 private sector banks, 11 small finance banks, and 12 public sector banks. In stark contrast, the U.S., which has merely one-third of our population, has 2,108 banks in total. Additionally, it should be noted that the top five banks in India dominate the share of the total deposits and transactions.