So how should investors approach the stocks? Nomura has ‘buy’ rating on all MFI-oriented stocks – CreditAccess Grameen, Equitas Holding, Ujjivan Financial Services and Bandhan Bank.
The SFB subsidiaries of Equitas and Ujjivan also enjoy high comfort within the analyst community, and so is Spandana Sphoorthy, second largest MFI player. Therefore, from an attractiveness standpoint, stocks relatively placed the same way.
However, from a risk perspective if it’s important to bifurcate, pure-play MFIs
may do better. With total focus in MFI business, their financial are susceptible only to those risks exclusive the MFI sector – disruption due to natural calamity or a sudden overheating of the lending market. Whereas with bank-led entities, the eminent need to diversify beyond MFI business would not just soften the overall yield but also make the balance sheet vulnerable risks of other businesses. Further, the holding companies
of SFBs – Equitas and Ujjivan are lately gaining traction due to likelihood of collapse of holding company structure. “To that extent, it’s more a tactical bet, than business bet,” said a fund manager. Therefore, if an investor wants to capture the rural and the unbanked and underserved theme in the financial services space, pure-play MFI would be a better pick on growth perspective. “Provisioning costs may remain elevated for 2 – 4 months, there could be a churn within customers and the underwriting standards may improve,” an analyst from a domestic brokerage pointed out. In the process it could eat into the profits of CreditAccess and Spandana which may lead to some correction in coming months, which experts say should be used to accumulate the shares.