Going by news reports, there’s an on ground improvement in the operating climate for non-banking finance
companies (NBFCs). Companies are lately speaking about easing of liquidity squeeze, helping cost of funds incrementally soften from the peak of November 2018. Yet, the Street doesn’t seem to be pleased with these bettering parameters.
Going by a Bloomberg poll of analysts, nearly 22 out of 24 NBFC
stocks are faced with a continued downgrade in their 12-month target prices and over 20 of them have seen a sharper downgrade in likely price appreciation (target prices) in the past six months. While troubled names such as Dewan Housing Finance
has seen a 43 per cent downgrade in its 12-month target price compared to target prices set in September 2018 when the liquidity crisis broke out for the NBFC
sector, its larger peer Indiabulls Housing Finance
(despite its proposed merger with Lakshmi Vilas Bank) has seen its target price being lowered by over 20 per cent. Even names such as LIC Housing Finance, M&M Financial Services and Shriram Transport Finance, which are perceived as less riskier NBFC
stocks, have also seen a 5 – 15 per cent cut in their target prices. PNB Housing’s is down by 28 per cent. Interestingly, despite the market leader – HDFC Limited, recently scaling to a new high, analysts remain pessimistic on the potential upside that the stock can offer in the next 12 months. With nearly a per cent cut in expectations vis-a-vis September 2018 levels, HDFC and Bajaj Finserv too haven’t been spared by the Street.
Interestingly, Bajaj Finance and Muthoot Finance are the only two stocks to witness upgrades in price expectation during this period.