IL&FS crisis: Was correction in NBFC stocks overdue, given rich valuations?

Second-tier NBFC stocks are trading at 24.4x their trailing earnings, which is nearly twice their 15-year average of 13.9x

A sharp decline in share prices of non-banking finance companies (NBFCs) on Friday is forcing some analysts to ask the obvious question: Was the correction overdue, given the sector’s rich valuation despite the steady rise in bond yields, which is set to raise lenders’ cost of funds, adversely affecting their margins? 

The country's top retail NBFCs are trading at 23.5 times their trailing 12-months earnings nearly 500 basis points higher than the sector's 15-year average price to earnings multiple of 18.4 times. Top non-bank lenders are also trading at a premium to the underlying valuation of the benchmark Nifty 50