Home finance stocks surge in 6 days, but Morgan Stanley skeptical of PMAY impact

Under the PMAY scheme, all homes will include basic amenities such as toilets, cooking gas, and electricity

Shares of home financiers have been steadily rising since their drop on June 4, buoyed by expectations of more welfare schemes following the NDA-led coalition government's initiatives. Stocks like Aavas Financiers, Can Fin Homes, Home First Finance, Aptus Value, LIC Housing, and PNB Housing have surged up to 22 percent over six days, compared to a 7 percent rise in the Nifty 50 index.

To further boost sentiment, the newly formed government approved a proposal on June 10 to build 30 million additional homes for the urban and rural poor under the Pradhan Mantri Awas Yojana (PMAY). Over the past decade, 42.1 million houses have been completed under this scheme.

However, analysts at Morgan Stanley caution that the PMAY measures might not significantly enhance the earnings of housing finance companies (HFCs).

"The PMAY announcement is positive for sentiment but may not substantially improve their earnings. A credit subsidy scheme, if announced, could be more beneficial," the brokerage firm noted.

Under the PMAY scheme, all homes will include basic amenities such as toilets, cooking gas, and electricity. This new announcement will revive the older scheme.

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Despite this, Morgan Stanley remains optimistic about most HFCs, considering their attractive valuations relative to their performance.

"Among HFCs, we favor PNB Housing, Aptus Value, Home First, and Can Fin Homes from a 12-month perspective. We maintain equal-weight ratings on LIC Housing Finance and Aavas Financiers," Morgan Stanley added.

In terms of valuation, LIC Housing trades at an 8x price-to-earnings (PE) ratio, PNB Housing at 13x PE, Aptus Value at 26x PE, Aavas Financiers at 30x PE, and Can Fin Homes at 14x PE, compared to the sector's average of 19x PE.