NBFCs: NBFCs surge post RBI relief, brokerage outlooks improve

Mumbai: Shares of non-banking finance companies and microfinance lenders firmed up on Thursday in response to Reserve Bank of India‘s (RBI) move to ease bank lending to these entities. CreditAccess Grameen climbed 9%, Shriram Finance rallied 5%, L&T Finance advanced 3% and Cholamandalam Investment and Finance gained nearly 5%. Among banks, Bandhan Bank rose 2% as most analysts said the lender would be among the biggest beneficiaries of the move. ET looks at brokerages’ views on the sector after the central bank’s move.

CLSA

The brokerage described RBI’s decision to ease bank lending to finance companies as ‘Dene Wala Jab Bhi Deta…Deta Chappar Phaad Ke” (God gives abundantly whenever he gives). It was referring to RBI’s move to ease the sector’s woes. CLSA said Bandhan Bank is the biggest beneficiary of the step.

Morgan Stanley
The brokerage said NBFCs with a higher borrowing from banks such as Aditya Birla Capital, M&M Financial Services, Cholamandalam and L&T Finance would benefit from the move. Its preferred stock picks in the wake of the central bank’s move are Aditya Birla Capital, PNB Housing Finance, Shriram Finance and Bajaj Finance.

Motilal Oswal Financial Services
The brokerage said Bandhan Bank, IndusInd, IDFC First, RBL and some small finance banks with sizeable exposure to the microfinance sector will be the key beneficiaries. “The improved capital position will enable some of these banks to operate with optimal leverage, thus supporting their RoE and alleviating the need to raise capital in the short term,” it said.

ICICI Securities
The firm upgraded Bandhan to buy with a price target of ₹170 as the lender is seen gaining disproportionately owing to high exposure to the microfinance industry gains.Emkay Global
The brokerage said fund flows to NBFCs from banks should improve after the RBI move but the cost of funds for NBFCs may not drop much. Emkay said it prefers Shriram Housing and M&M Financial citing favourable risk-reward proposition.