The perennial "boom-bust cycle" of non-banking finance companies (NBFCs) is again recovering and may last for four to five years, foreign brokerage JPMorgan said in a note on June 19
Both domestic and foreign investors suggest under-allocation to this segment, it said, adding that there is scope to add beta in portfolios through these shadow banks.
Bajaj Finance and L&T Finance remain its top picks, the brokerage said.
Follow our live blog for all the market action
Bajaj Finance along with SBI Cards is also among Morgan Stanley's largecap key picks. Manappuram Finance, PNB Housing and Shriram Finance can give outsized returns, it further said.
Outsized returns are likely in high-quality insurance names like SBI Life, HDFC Life and ICICI Prudential, it added.
NBFC-MFI channel check
Microfinance institutions (MFIs) are witnessing consistent disbursement growth, primarily led by a surge in new customer acquisition, InCred Equities said in a report, based on its interactions with various MFI branches and experts.
“RBI’s guidelines for MFIs, published last year, have been a game-changer. Revising the family income criteria to Rs 0.3 mn against Rs 0.12 mn, allowing MFIs to become the third lender to the same customer, etc. opened a large target customer segment for all MFIs. Our interactions suggest that new customer acquisitions account for ~60% of incremental disbursement (the remaining ~40% comprise existing customers) against ~40% pre-Covid levels,” it noted.
The coronavirus pandemic hit the MFI sector hard, with a sharp surge in delinquencies but the trend has normalised in the past few quarters.
Most MFIs are witnessing collection efficiency in the range of 96-98 percent, it added.
Incrementally, customers are more sensitive towards their credit scores to improve eligibility. Recoveries from written-off accounts have also witnessed growth (though the quantum is still negligible) as customers who had earlier defaulted are repaying to strengthen their eligibility.
“Our channel check suggests that states in the eastern region like Bihar, Uttar Pradesh, Jharkhand, Odisha, Chhattisgarh etc. have been performing better on growth as well as collection fronts compared to states in the western region like Maharashtra, Rajasthan & Gujarat,” InCred said.
The MFI model requires large feet on the street with disciplined lending and collection approach, which is more suitable for NBFC MFIs, as bank branches have their own limitations. The competition from small finance banks or SFBs remains limited as they are more focused on relatively large-ticket size loans (Rs 0.5-1 million).
CreditAccess Grameen remains the market leader in many geographies. Bharat Financial Inclusion has also started witnessing momentum, after a lull last year, while Fusion Micro Finance remains aggressive.
“We remain confident on Spandana Sphoorty’s ability to deliver, as our channel check indicates an improvement in its business momentum and operational efficiency,” it said.
Spandana Sphoorty remains its high conviction bet with an "add" rating and a target price of Rs 850, which represents a 22 percent upside from its current price of Rs 695.
A rise in fresh slippage and resurgence of tussle with the old promoter are key downside risks, it added.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
