Investors lap up NBFCs than commercial banks

MUMBAI: Investors are lapping up stocks of non-banking financial companies (NBFCs) as these companies look better poised to grow than commercial banks amid rise in consumer spending. Bajaj Finance, an analyst favourite, has doubled in a year — it has risen 37% in the last month alone. Other NBFCs like Power Finance Corporation, Rural Electrification Corporation, Bajaj Finserv and Indiabulls Housing Finance have gained between 10% and 22% in the last month. The BSE Mid-cap index has risen 9.40% and BSE Small-cap index has climbed 5.30% during the same period.

"There is lot of optimism in the NBFC space," said Ajay Bodke, CEO, Prabhudas Lilladher. "Those franchises dependent on wholesale rates, like NBFCs, have been the biggest beneficiaries of wholesale rates plunging. Further, as NBFCs are essentially into retail lending and as retail asset quality has held up well, they are in a better position. Finally, the regulatory burden is relatively lower on these entities when compared to banks."

Some analysts advise investors to pick urban-oriented finance companies, like Bajaj Finance, over rural-focussed microfinance companies as they provide more scalability.

Bodke feels valuations are forbidding. But some analysts investors are willing to pay for companies that are growing and feel they are a risk worth taking. "These companies have been consistently doing well because of the opportunity they provide. Though they might look expensive in the short-term, they make for a good long-term bet,” said Pankaj Pandey, head of research at ICICI Securities.