Stocks of banking licence aspirants in focus

L&T Finance Holdings, LIC Housing Finance, Indiabulls Housing Finance, Magma Fincorp ended 3-4% higher

Shares of companies that have applied for a banking licence ended higher by up to four per cent, ahead of the Bimal Jalan panel’s recommendations which were given to the Reserve Bank of India (RBI) on Tuesday. RBI had constituted the committee to examine, among other things, the fit-and-proper criteria, business plans and corporate governance practices of applicants. It met first on November 1.

BS Bank Aspirex, a new index by Business Standard, covering 16 companies that have applied for banking licences, outperformed the market by gaining 1.5 per cent on Tuesday, as compared to the benchmark indices – the S&P BSE Sensex and the National Stock Exchange’s CNX Nifty, which recorded a modest gain of 0.2 per cent each. The banking index, the Bank Nifty, closed nearly 0.2 per cent lower.

L&T Finance Holdings, LIC Housing Finance, Indiabulls Housing Finance and Magma Fincorp ended three to four per cent higher. SREI Infra Finance, Tourism Finance Corporation, Bajaj Finance and IDFC gained two per cent each on the BSE.

Says Deven Choksey, managing director and chief executive officer, KR Choksey Shares and Securities: “We are positive on the banking space. We don’t know how many entities will get the licence ultimately but 25 are in the fray and the new licences will be an overall positive for the sector. Acquiring a licence will not be a cakewalk; the sector will have its own set of rules, guidelines and limitations as compared to the non-banking finance company space.”

Adding: “Of the lot, companies belonging to the Bajaj Group, Reliance ADAG Group and Aditya Birla Group are strong contenders. IDFC, L&T Finance Holdings and LIC Housing Finance are also among the few which can get a licence. However, there is nothing suggesting these companies will flourish as soon as they get the go-ahead. Investors can stay put in the stocks of these companies for now,” he adds.

Given the tough economic environment, Santosh Singh of Espirito Santo Securities prefers quality companies over the fast-growing ones. In the NBFC space, he recommends Mahindra Finance and Sundaram Finance as top buys.

“We remain neutral on Bajaj Finance, given its valuation and our negative view on the real and implied costs of securing a banking licence. We downgrade Shriram Transport Finance to neutral, as we think its competitive advantage is being tested. We initiate on Shriram City Union Finance with a buy rating, expecting loan book growth to return in the current year,” he says.