NBFCs in focus; Bajaj Finance, LIC Housing, GIC Housing hit record highs

Bajaj Finserv and M&M Financial Services from the BSE500 index hit record highs on the BSE.

Shares of non-banking financial companies (NBFC) are on a roll with most stocks trading at their respective 52-week highs on the BSE today.

Bajaj Finance, LIC Housing Finance, GIC Housing Finance, Bajaj Finserv and Mahindra & Mahindra Financial Services from the BSE500 index hitting record highs, while Bharat Financial Inclusion (formerly SKS Microfinance), Gruh Finance and Shriram Transport Finance are trading their multi-years highs on the BSE.

Bajaj Finance has surged 6% to Rs 8,704, also its fresh lifetime high on the BSE, after the company announced that its board will meet on July 26 to consider sub-division of equity shares of the company and bonus issue.

Stock split or sub-division of equity shares is meant to infuse liquidity and make shares affordable for retail investors who could not invest earlier due to the high stock price.

Thus far in 2016, the stock of Bajaj Finance has appreciated by 43%, as compared to 6% rise in the S&P BSE Sensex.

Most NBFCs especially auto financiers/ micro-financiers and gold lending companies have outperformed significantly and some investors were surprised by the strong move.

Nomura maintains ‘buy’ rating on Shriram Transport Finance, as the improving rate and CV cycle have led to a PPOP surprise, and stability in rural economy will likely lead to a reduction in credit costs and profitability improvement.

“The LIC Housing Finance stock has consolidated a bit owing to its weak core mortgage growth in 2HFY16. We believe LIC Housing Finance is concentrating on more mortgages again and that will likely drive stock performance from 2QFY17 onwards,” brokerage firm said in a report.

According to Edelweiss Securities, NBFCs will maintain earnings momentum on higher-than banks’ credit growth and better asset quality. However, seasonally Q1 is relatively weak in terms of growth and asset quality.

“Microfinance, housing finance, consumer finance as well as vehicle finance NBFCs are expected to register strong growth, stable asset quality and sustained profitability,” Antique Stock Broking said in Q1 results preview.

Borrowing cost benefit will accrue to the entire universe, and enable margins to sustain at Q4 levels (baring seasonality). Both the gold loan NBFCs, are expected to report strong profitability on the back of business transformation, added report.