Brokerages see opportunity in select microfinance players

While loan collection efficiency has improved, stock valuations are at reasonable levels

Stocks of microfinance institutions (MFIs) and small finance banks (SFBs) gained up to 4 per cent in trade on Wednesday, compared to a flat broader market on reports of improving collection efficiency in most states, barring Maharashtra. With loan collections improving to levels seen prior to demonetisation, brokerages believe the risk-reward ratio has turned favourable in certain stocks. While Ujjivan Financial Services and Equitas Holdings were up about 4 per cent each, Bharat Financial Inclusion (earlier SKS Microfinance) gained 1 per cent.

Analysts at Motilal Oswal Securities highlight management views which indicate that collection efficiency has improved in most states.