Know Your Investment: Expert takes 'stock' of your stocks!

This weeks moneycontrol.com's initiative, 'Know Your Investment' with Anita Gandhi, institutional head cum whole time director, Arihant Capital Market, brings you answers to the queries you asked us on our Facebook page last week.

Vishal Jain: Will the current rally end soon or continue up to 22,000?

A: Current economic conditions do not imply a one way rally. Over a period of time, a fall in interest rates and improvement in fiscal deficit are required for sustainable rally in the market.

Saikat Das: What will be the future of Manappuram and Muthoot Finance?

A: Muthoot Finance posted good set of numbers for Q3FY12, with strong loan growth and stable asset quality. In the case of Manappuram, the quarter witnessed continued business growth momentum on the back of robust disbursements and large branch network.
 
However, the regulatory hurdles continue to remain for these gold finance businesses making them high-risk-high-return stories. Expect the stocks to remain under pressure. Though they serve a good bet for the medium to long-term considering their high return ratios any change in banking regulations related to gold loans can damage the business model of NBFCs. Proposed securitisation guidelines from the RBI can impact the NBFC funding profile which in turn may lead to increase in borrowing costs.

Further, increasing competition from banks would lead to margin reduction for these companies given that NBFCs charge higher interest rates vis-a-vis banks. Concentration of portfolio for these companies adds to the risk. For instance, Muthoot derives almost 98% of its revenues from its gold loan business.

Anshul Mahajan: What about Karuturi Global. Will it go up?

A: Generally this stock moves up towards Valentine Day as its revenue from the sale of roses increases. But since it