Buy IDFC; L&T Fin's valuation, return ratio high: Kotak

LIC Housing Finance on the other hand is a challenging call. Chawathe says if the company were to get a banking licence a lot would depend on whether it will be set up as a bank like Axis Bank, which is a private sector bank, or will it be like a bank managed similar to public sector banks.

For Manappuram and Muthoot a few things have worked in their favour. The Reserve Bank has reduced the gold loan-to-value (LTV) ratio from 75 percent to 60 percent and at the same time imposed a LTV cap on banks doing business in the same space. According to Chawathe, RBI is perhaps looking for some sort of regulatory parity between banks and NBFCs. It has relaxed regulations for NBFCs for the first time, which is being considered as a big positive. Broadly he believes this to be an exciting and preferred space in the NBFC segment.

Below is the verbatim transcript of Nischint Chawathe's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: What is your sense, would you buy into any of the potential bank license winners?

A: It is more a function of how we look at the valuations. I would say that I want to look at these stocks as NBFCs rather than these stocks as banks. If at all you are getting a sense that yes possibly the worst is factored in then you may want to look at some of these stocks. Just to give an example, IDFC is trading below book. One can say that yes, over the next few years, if it gets converted to a bank, there will be some pressures because the RoEs could come under pressure etc and it could take some time for IDFC to get into a full-fledged banking model. The fact that today it is trading below book is something that is possibly factoring the worst. So I would want to play it safe and say that okay look at the valuations and since it is already factoring what it can factor in the worst case scenario might as well look at it.

Latha: What about that broad NBFC segment Bajaj Finance, M&M Finance that category?

A: If I look at the asset classes rather than looking at the companies, what one has noticed is that in this December quarter, across all large NBFCs disbursement growth has crashed down to 10 percent or sub-10 percent which was north of 20 percent in the past. This is clearly a sign of weakness in auto finance, to some extent sign of weakness in housing finance as well. We will need to see how things play out here.

In auto finance, what has happened is that you have seen weakness in commercial vehicles (CVs). At the same time in stocks like Mahindra and Mahindra Finance, we have seen weakness in southern part of the country because of which the performance has been affected. Our sense is that there could be some more time before things pick up. We are not getting any signals at the ground level that the CV cycle is turning up or so.

The feedback that we get from the entire commercial segment per se is that people are looking at political stability or the outcome of elections to enter into new capex which will drive the entire commercial segment whether it is infrastructure lending or commercial vehicle. Consumption segment to some extent is hit because of slowdown in South India.