PPFAS view on banking and financials

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The PPFAS view on banking and financials is the body of investment reasoning through which PPFAS Mutual Fund has built and maintained substantial positions in Indian banking and financial-services equities at the Parag Parikh Flexi Cap Fund, including the long-running positions in HDFC Bank, ICICI Bank, Kotak Mahindra Bank Limited and Bajaj Holdings and Investment Limited. The banking-and-financials view is structurally consistent with the broader PPFAS investment philosophy of value investing, margin of safety, focused portfolio construction and the owner mindset framework, and has been articulated through monthly factsheet commentary by Chief Investment Officer Rajeev Thakkar and at the PPFAS Annual Unitholders’ Meet by the broader investment team.

The PPFAS banking-and-financials thesis rests on five principal pillars. The first is the structural sectoral thesis on Indian banking-and-financial-services growth, anchored in the under-penetration of formal financial services in the Indian economy, the household and corporate credit-cycle expansion, and the broader formalisation of the Indian economy. The second is the focus on private-sector banking-and-financials leadership: the principal banking holdings have been concentrated in HDFC Bank, ICICI Bank and Kotak Mahindra Bank, the three principal private-sector banking leaders, with limited exposure to public-sector banking. The third is the valuation discipline in entry-point selection: banking-and-financials positions have been built at periods of valuation compression, with the willingness to add to positions during periods of asset-quality stress or broader-market underperformance. The fourth is the diversified financial-services exposure through Bajaj Holdings: the long-running Bajaj Holdings position provides indirect exposure to the broader Bajaj Finserv financial-services franchise (Bajaj Finance, Bajaj Allianz Life Insurance, Bajaj Allianz General Insurance) at a structural holding-company discount to net asset value. The fifth is the avoidance of asset-quality-stressed exposures: PPFAS has historically maintained limited exposure to the public-sector banks and the asset-quality-stressed non-banking financial company (NBFC) names that have characterised periodic Indian financial-sector dislocations.

As of the April 2026 PPFCF factsheet, HDFC Bank was the largest holding at 7.94 per cent of corpus, with ICICI Bank and other banking-and-financials holdings periodically appearing as substantial portfolio positions. The aggregate banking-and-financials exposure at PPFCF has periodically exceeded 20 per cent of corpus, reflecting the substantive role of the banking-and-financials sectoral thesis within the broader portfolio.

This article is the principal reference on the banking-and-financials view within the broader PPFAS investment philosophy corpus. Related references include the foreign core rationale article, the value investing at PPFAS article and the broader scheme-level treatments at the Parag Parikh Flexi Cap Fund article.

Structural sectoral thesis

Under-penetration of formal financial services

The PPFAS structural sectoral thesis on Indian banking-and-financial-services rests on the long-run under-penetration of formal financial services in the Indian economy. As of the mid-2020s, the principal under-penetration metrics include:

  • Credit-to-GDP ratio: India’s credit-to-GDP ratio remains materially below that of comparable emerging-market economies, providing structural runway for credit-cycle expansion.
  • Banking-product penetration: Penetration of mortgage credit, vehicle credit, personal credit, credit cards and other retail-banking products remains materially below saturated-market levels.
  • Insurance penetration: Both life-insurance and general-insurance penetration remain materially below global average levels, providing structural growth runway for the insurance segments.
  • Wealth-management penetration: Penetration of mutual fund investing, demat-account-based equity investing and other wealth-management products remains materially below saturated-market levels, providing structural growth runway for the asset-management segments.

The under-penetration thesis supports a long-run structural growth expectation for the Indian banking-and-financials sector that the PPFAS investment team has assessed as compatible with multi-year position-building.

Household and corporate credit-cycle expansion

The structural sectoral thesis is reinforced by the household and corporate credit-cycle expansion that has characterised the post-2014 Indian economy. The principal cycle drivers:

  • Household-credit cycle: Mortgage credit, vehicle credit, personal credit and credit-card credit have grown at compounded annual growth rates materially above nominal GDP growth, reflecting the under-penetration runway.
  • Corporate-credit cycle: Corporate credit growth has accelerated through the 2022 to 2026 period as corporate-balance-sheet deleveraging completed and capital-expenditure cycles re-emerged.
  • Government infrastructure credit: Government infrastructure-expenditure programmes have produced incremental credit demand for infrastructure-financing institutions.

Formalisation of the Indian economy

The structural sectoral thesis is further reinforced by the broader formalisation of the Indian economy through the post-2017 Goods and Services Tax framework, through the post-2016 demonetisation transition, through the Aadhaar-and-digital-payments infrastructure and through the formal-employment-and-payroll expansion. The formalisation drivers support sustained banking-and-financial-services penetration growth.

Focus on private-sector banking leadership

HDFC Bank Limited

HDFC Bank at PPFCF has been a long-running anchor position at PPFCF, with the position elevated to the largest portfolio holding at 7.94 per cent of corpus as of the April 2026 PPFCF factsheet. The PPFAS thesis on HDFC Bank rests on the structural leadership position of the bank within Indian private-sector banking (the bank historically operates with the largest retail-deposit franchise, the strongest asset-quality track record and the most consistent earnings-growth profile among Indian banks), the long-track-record management quality and the structural runway for under-penetrated retail-banking products.

The 2023 merger of Housing Development Finance Corporation Limited (HDFC Limited) with HDFC Bank produced a structural balance-sheet transition that compressed near-term earnings growth and produced market-driven valuation compression in HDFC Bank shares during 2023 to 2024. The PPFAS position was retained through the transition, with the merger considered a long-run-positive structural development.

ICICI Bank Limited

ICICI Bank at PPFCF has been a long-running PPFCF holding, with the position built during multiple cycles. The PPFAS thesis on ICICI Bank rests on the structural top-tier position of the bank within Indian private-sector banking, the post-2018 management transition under Sandeep Bakhshi (who became Managing Director and Chief Executive Officer in October 2018) and the consequent asset-quality and earnings-growth recovery, and the structural runway for retail-banking growth.

The 2017 to 2018 period of corporate-asset-quality stress at ICICI Bank, combined with chief executive officer transition concerns, produced a period of substantial valuation compression that PPFAS used as an entry-point opportunity. The subsequent recovery has produced substantial position-level returns.

Kotak Mahindra Bank Limited

Kotak Mahindra Bank Limited has been a periodic PPFCF holding, with the position built during periods of compressed valuation. The PPFAS thesis on Kotak Mahindra Bank rests on the long-track-record management quality (with founder Uday Kotak having led the institution from its inception through to multiple business-cycle navigation), the strong asset-quality track record, the diversified group financial-services franchise (banking, asset management, securities broking, investment banking, insurance) and the structural growth runway.

The 2024 to 2025 period of Reserve Bank of India regulatory intervention at Kotak Mahindra Bank (the April 2024 Reserve Bank of India action restricting Kotak Mahindra Bank from onboarding new customers through online and mobile-banking channels until specified information-technology remediation was completed) produced a period of compressed valuation that PPFAS evaluated against the structural position thesis.

Bajaj Holdings as diversified financial-services exposure

Holding-company structure

Bajaj Holdings and Investment Limited is the principal investment-holding company within the Bajaj Group corporate structure. The holding company holds substantial equity stakes in:

  • Bajaj Auto Limited: The principal Bajaj Group automotive operating company.
  • Bajaj Finserv Limited: The principal Bajaj Group financial-services holding company, which in turn holds:
    • Bajaj Finance Limited: The principal Bajaj Group consumer-finance non-banking financial company.
    • Bajaj Allianz Life Insurance Company Limited: The life-insurance joint venture with Allianz SE.
    • Bajaj Allianz General Insurance Company Limited: The general-insurance joint venture with Allianz SE.
    • Bajaj Housing Finance Limited: The principal Bajaj Group housing-finance company.
  • Various other operating-company stakes and listed-equity-portfolio holdings.

Holding-company discount thesis

The PPFAS thesis on Bajaj Holdings rests substantially on the holding-company discount: Bajaj Holdings has historically traded at a substantial discount to the aggregate market value of its underlying investments, providing a structural margin-of-safety entry-point relative to direct positions in the underlying operating companies. The PPFAS willingness to accept the holding-company discount (rather than direct positions in Bajaj Finserv or Bajaj Finance) reflects the value-investing principle of acquiring quality businesses at substantial valuation discounts.

Indirect exposure to growth franchises

The Bajaj Holdings position provides indirect exposure to multiple high-growth franchises (Bajaj Finance, Bajaj Allianz Life Insurance, Bajaj Allianz General Insurance, Bajaj Housing Finance) at the structural holding-company discount, with attendant diversification benefits relative to direct concentrated positions in any single underlying operating company.

Valuation discipline in entry-point selection

Cycle-aware position-building

The banking-and-financials positions at PPFCF have been built with cycle-aware valuation discipline. Banking-and-financials equities are exposed to credit-cycle dynamics that produce periodic asset-quality stress and consequent valuation compression. PPFAS has typically used such compression periods as entry-point opportunities, with the willingness to add to positions during periods of broader-market negative sentiment.

Asset-quality stress as entry opportunity

Notable asset-quality stress periods that have produced PPFAS entry-point opportunities have included:

  • The 2017 to 2018 corporate-credit asset-quality stress that produced material valuation compression at ICICI Bank and selected other private-sector banks.
  • The 2018 to 2019 NBFC liquidity crisis following the IL&FS default that produced broad-based financial-sector valuation compression.
  • The 2020 COVID-19 disruption that produced widespread financial-sector valuation compression at the early stage of the disruption.
  • The 2023 to 2024 HDFC Bank merger transition that produced valuation compression at HDFC Bank.

Valuation discipline in trimming

The valuation discipline has also been applied in trimming decisions. Banking-and-financials positions have been trimmed during periods of substantial valuation expansion, with the trimming proceeds redeployed into alternative opportunities offering greater margin of safety.

Avoidance of asset-quality-stressed exposures

Limited public-sector banking exposure

PPFAS has historically maintained limited exposure to Indian public-sector banking, reflecting the structural concerns over asset quality, capital allocation and management dynamics at public-sector banks. The asset-quality track record at public-sector banks through the 2014 to 2020 period (with cumulative gross non-performing assets at public-sector banks materially higher than at private-sector banks) reinforced the limited-exposure positioning.

Limited stressed-NBFC exposure

PPFAS has also historically avoided exposure to non-banking financial companies that subsequently experienced asset-quality stress, including the IL&FS-cycle stressed NBFCs (Dewan Housing Finance Corporation Limited, Indiabulls Housing Finance and others) that experienced substantial valuation deterioration through 2018 to 2020. The avoidance of stressed-NBFC exposures has been a notable contributor to PPFCF’s risk-adjusted returns through the period.

Operational evolution at PPFCF

Early period (2013 to 2017)

During the early years of PPFCF, the banking-and-financials exposure was concentrated in HDFC Bank and selected additional private-sector banking-and-financials positions. The early-period banking-and-financials allocation reflected the structural sectoral thesis combined with conservative valuation discipline.

Middle period (2018 to 2022)

The middle period of PPFCF was characterised by progressive banking-and-financials position-building, particularly during the 2017 to 2019 period of corporate-credit asset-quality stress and the 2020 COVID-19 disruption. PPFAS built positions in ICICI Bank, Kotak Mahindra Bank and selected other private-sector banking-and-financials names at materially compressed valuations.

Post-cap period (2022 to 2026)

The post-cap period has been characterised by elevated banking-and-financials exposure at PPFCF, with HDFC Bank emerging as the largest portfolio holding by the April 2026 factsheet at 7.94 per cent of corpus. The banking-and-financials exposure has partially substituted for the structurally constrained foreign-core exposure under the SEBI overseas-cap framework.

Recent developments

April 2026 PPFCF factsheet

The April 2026 PPFCF factsheet shows HDFC Bank as the largest holding at 7.94 per cent of corpus. The combined banking-and-financials exposure at PPFCF has periodically exceeded 20 per cent of corpus, reflecting the substantive role of the banking-and-financials sectoral thesis.

HDFC Bank merger transition

The 2023 to 2024 HDFC Bank merger transition (the merger of HDFC Limited with HDFC Bank effective 1 July 2023) produced substantial balance-sheet and earnings-profile shifts at the combined entity. The PPFAS commentary has discussed the merger transition and the long-run structural implications.

Regulatory developments

The 2024 to 2026 period has been characterised by multiple regulatory developments affecting Indian banking-and-financials, including the April 2024 Reserve Bank of India action at Kotak Mahindra Bank, the evolving liquidity-coverage and capital-adequacy requirements, and the asset-classification framework for the priority-sector lending segment. The PPFAS commentary has discussed the regulatory implications for the banking-and-financials holdings.

Criticism and debates

Sectoral concentration

The aggregate banking-and-financials exposure at PPFCF has been argued to represent excessive sectoral concentration. PPFAS has responded that the structural sectoral thesis on Indian banking-and-financial-services supports the elevated exposure and that the within-sector diversification across HDFC Bank, ICICI Bank, Kotak Mahindra Bank and Bajaj Holdings reduces idiosyncratic concentration risk.

Bank-holding overlap

The position structure with HDFC Bank, ICICI Bank and Kotak Mahindra Bank produces overlapping exposure to the Indian retail-banking thesis. PPFAS has acknowledged the overlap while maintaining that the differentiated business-mix and management-execution profiles at each holding support the within-sector diversification rationale.

Limited NBFC exposure

The PPFAS limited exposure to non-banking financial companies (including the high-growth Bajaj Finance and Cholamandalam Investment and Finance Company) has been argued to forgo substantial returns. PPFAS has responded that the indirect exposure through Bajaj Holdings provides participation in the Bajaj Finance franchise at the structural holding-company discount, and that the broader NBFC valuation profile has typically been less compatible with the margin-of-safety framework than the private-sector banking valuation profile.

See also

External references

References

  1. PPFAS Mutual Fund monthly factsheets, various months 2013 to 2026 (Rajeev Thakkar commentary on banking-and-financials holdings).
  2. PPFAS Mutual Fund Annual Unitholders’ Meet presentations, 2014 to 2025.
  3. HDFC Bank Limited, ICICI Bank Limited, Kotak Mahindra Bank Limited and Bajaj Holdings and Investment Limited, Annual Reports and investor presentations, various years.
  4. INDmoney, “PPFAS Flexi Cap April 2026 portfolio update.”
  5. AngelOne, “Parag Parikh Flexi Cap Fund crosses one lakh crore AUM,” 2025.
  6. Reserve Bank of India, Financial Stability Reports and Trend and Progress of Banking in India reports, various years.
  7. PrimeInvestor, “An update on Parag Parikh Flexi Cap,” 2022.
  8. BusinessToday and MoneyControl coverage of HDFC Bank merger and related developments, various months.
  9. Reserve Bank of India press releases on Kotak Mahindra Bank action, April 2024.
  10. SEBI, Mutual Funds Regulations 1996.

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