BS Bank Aspirex falls for second month

BS Bank Aspirex, a new index by Business Standard covering 16 companies that have applied for banking licences, declined 7% this month, compared with a 3.3% decline in the S&P BSE Sensex

Shares of companies that have applied for banking licences have underperformed the market for a consecutive month, after a sharp fall in their market price. IDFC, IFCI, Magma Fincorp and Bajaj Finance fell about 10 per cent each in August, after declining about eight per cent each in July.

BS Bank Aspirex, a new index by Business Standard covering 16 companies that have applied for banking licences, declined seven per cent this month, compared with a 3.3 per cent decline in the S&P BSE Sensex. The index has fallen 20 per cent since July 1, the last day of applying for a banking licence with the Reserve Bank of India (RBI).

From its base date of December 31 2012, Aspirex has fallen 34 per cent, compared to a 28 per cent drop in the Bankex and a marginal 3.7 per cent decline in the S&P BSE Sensex.

Among individual stocks, IDFC, IFCI, Magma Fincorp, Bajaj Finance, Edelweiss Financial Services and Srei Infrastructure Finance hit 52-week lows on the BSE. “While the recent sell-off has been broad-based, financials have taken a large hit, as they were impacted most directly by RBI’s policy measures to curb liquidity. The immediate risk is recent policy actions to defend the rupee, if prolonged, have the potential to dent growth further,” said Pankaj Murarka, senior fund manager (equity), Axis MF.

Steep fall
IDFC, which has the highest weightage in Aspirex (15.36 per cent), fell 26 per cent in the past month to Rs 8,215, after the company lowered the foreign institutional investor (FIIs) holding limit. The move was aimed at meeting RBI's norm on foreign investment (at less than 50 per cent for new banks) in case it secures a licence. Currently, FII holding in IDFC is 53.7 per cent, slightly lower than the new cap of 54 per cent.

“While the environment for business growth is challenging, IDFC is effectively dealing with it through stable spreads and operating leverage. While the stance on asset quality remains cautious, it has been prudently making provisions (loan loss provisions of 1.9 per cent of loans). This makes the company better placed compared to its peers in the infra financing space,” said a Motilal Oswal Research analyst.

“After this steep correction, the stock is trading at 0.8x/0.7x FY14/15 P/BV (price/book value) and 0.6x AP/ABV (price adjusted for value of key ventures and book value adjusted for investment in those ventures), the lowest valuation since listing in 2005. Though IDFC faces macro headwinds in the near-to-medium term, current valuations look attractive for long-term investors. We maintain a ‘buy’ recommendation, with a price target of Rs 145,” he added.

“Tightening reversal will remain a key catalyst for housing finance companies. For LIC Hosing Finance and IDFC, valuations do discount margin impact from the recent tightening,” Adarsh Parasrampuria and Pritesh Bumb of Prabhudas Lilladher said in an August 19 report. Muthoot Finance, however, bucked the trend, surging 47 per cent due to higher gold prices. India Infoline and Religare Enterprises, too, gained four-six per cent each in August.