NBFC shares in focus; Bajaj twins, Cholamandalam Investment surge up to 9%

MOSL said it continues to favour players with strong balance sheets and least impacted by the COVID-19 lockdown from the NBFC sector
Shares of non-banking financial companies (NBFC) were in focus in Tuesday's session as the Bajaj twins – Bajaj Finance and Bajaj Finserv - rallied 9 per cent and 6 per cent, respectively, while Cholamandalam Investment and Finance Company, too, surged 9 per cent on the BSE in intra-day trade on the back of heavy volumes.

L&T Finance Holdings, Indiabulls Housing Finance, IIFL Finance, REC, Shriram Transport Finance Company, Power Finance Corporation, LIC Housing Finance and Housing Development Finance Corporation (HDFC) were up between 3 per cent and 9 per cent on the BSE in intra-day trade.

At 02:00 pm, the S&P BSE Finance index was up 2 per cent as compared to a 1.6 per cent rise in the S&P BSE Sensex.

Bajaj Finance and Bajaj Finserv are slated to announce their December quarter numbers on Wednesday, January 20. According to brokerage Narnolia, Bajaj Finance's NII growth is expected to contract by 10 per cent year-on-year (YoY) in the December quarter on the account of lower AUM growth as the firm focussed more on collections rather than growth. AUM growth is expected to be at -1 per cent YoY. The brokerage, however, expects PAT (profit after tax) growth of 48 per cent YoY due to high credit cost.

Meanwhile, the Rs 4,500 crore offering by the Indian Railway Finance Corporation’s (IRFC), the first by an NBFC in the public sector, garnered good response and was subscribed 95 per cent on Day 2 of the issue so far, largely supported by retail investors. The IPO received bids for 1,221 million equity shares against offer size of 1,248 million equity shares (excluding anchor book portion), the subscription data available on the exchanges showed.

The board of L&T Finance Holdings, on Monday, approved Rs 3,000 crore rights issue at Rs 65 per share (including a premium of Rs 55). The current Tier 1 capital is 17.8 per cent, which is likely to increase to 19.6 per cent post the rights issue. Analysts at Emkay Global Financial Services upgraded the stock to 'Hold' from 'Sell' last quarter on the back of improving rural outlook, reduction in defocused book and increase in provisioning buffers.

Meanwhile, the October-December quarter (Q3FY21) is the first quarter post lifting of the moratorium. Across product segments, there is expected to be month on month (MoM) improvement in collection efficiency (CE). Adjusted for arrear collections, on-time CE is only marginally below pre-Covid levels. In addition, a large portion of customers who had not paid a single EMI during the moratorium period has started making payments in Q3, according to analysts at Motilal Oswal Securities.

"Over the past six months, steady improvement across all important parameters has been encouraging. Continued excess liquidity at the system level should be positive for margins going forward. On the asset quality front, we expect companies to make elevated provisions for another 1-2 quarters, post which credit costs should revert to normal. Disclosures on restructuring will be a key monitorable. We continue to favour players with strong balance sheets and least impacted by the COVID-19 lockdown," the brokerage firm said in NBFCs December 2020 quarter results preview.

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