NBFCs dominate 2017 multi-bagger list

Share of NBFCs in total retail lending has touched all-time high of 36% as on March 2017

Shares of around three dozen companies which are part of the BSE 500 index— accounting for 92 per cent of India’s market capitalisation— have more than doubled this year. Nearly a third of them are financial companies but not banks—non-banking financial companies, or NBFCs in market parlance.  

Buoyancy in lending decline in credit costs along with superior performance of other verticals such as broking, asset reconstruction (ARC), wealth management contributed to stellar run in these stocks. 

Among the best-gainer is Indiabulls Ventures, which has gained 12 times. The company, originally into online trading business has forayed into consumer lending, triggering a re-rating. Other erstwhile pure-play-brokerages-turned-financial-services-firms such as Edelweiss Financial Services, IIFL and Motilal Oswal Financial Services, too, have seen their share price more than double this year. In comparison, the benchmark Nifty has gained 21 per cent and the Bank Nifty index has rallied 34 per cent. Riding on the consumer finance wave, shares of Bajaj Finance too have rallied 2.3 times this year. Housing loan providers Dewan Housing Finance, Indiabulls Housing Finance, GIC Housing Finance and PNB Housing Finance too have seen doubling of their share prices.

This uptrend could be supported with the fact that the share of NBFCs in total retail lending in India has touched an all-time high of 36 per cent as on March 2017. Market participants say NBFCs have found an opportunity due to the slowdown in lending by large banks especially the state-owned lenders, who are plaguing under the stress of increasing non-performing assets (NPAs). Steady fall in cost of funds for the NBFCs has also helped the sector, experts add.

Another key factor behind the rally is the dream run of equity and capital markets during 2017. Companies like Edelweiss, IIFL, Motilal Oswal and JM Financial have strong presence in the broking and investment banking space. Rating agency Icra expects broking industry revenues to grow 20 per cent this fiscal to Rs 19,000 crore on the back of growth in trading volumes. 

The new Insolvency and Bankruptcy Code has also created a big opportunity for ARCs, such as Edelweiss and JM Financial. Other business segments such as loan-against-property are also showing encouraging growth for NBFCs.