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Shares of companies that have applied for a banking license have underperformed the market for second month in a row after a sharp fall in their market price.
IDFC, IFCI, Magma Fincorp and Bajaj Finance were down over 10 per cent each in August, after falling more than 8 per cent each during the previous month.
BS Bank Aspirex, a new index by Business Standard that covers 16 companies that have applied for banking licence, has declined seven per cent during the current month, as compared to 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).
Aspirex has fallen 34 per cent from its base date of December 31, 2012 compared to a 28 per cent drop in 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 hits 52-week low on BSE.
“While the recent sell-off has been broad-based, financials have taken a large hit as they were most directly impacted by RBI's policy measures to curb liquidity. The immediate risk is that recent policy actions to defend the rupee – if prolonged – have the potential to further dent growth,” said Pankaj Murarka, senior fund manager (equity) at Axis MF.
Steep fall
IDFC, IFCI, Magma Fincorp and Bajaj Finance were down over 10 per cent each in August, after falling more than 8 per cent each during the previous month.
BS Bank Aspirex, a new index by Business Standard that covers 16 companies that have applied for banking licence, has declined seven per cent during the current month, as compared to 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).
Aspirex has fallen 34 per cent from its base date of December 31, 2012 compared to a 28 per cent drop in 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 hits 52-week low on BSE.
“While the recent sell-off has been broad-based, financials have taken a large hit as they were most directly impacted by RBI's policy measures to curb liquidity. The immediate risk is that recent policy actions to defend the rupee – if prolonged – have the potential to further dent growth,” said Pankaj Murarka, senior fund manager (equity) at Axis MF.
Steep fall
IDFC, which has the highest weightage of 15.36 per cent in Aspirex, has fallen 26 per cent in past one month to Rs 8215 after the company lowered foreign institutional investors (FIIs) limit.
The infrastructure finance company imposed these restrictions to help it meet the RBI’s restriction on foreign investment (at less than 50 per cent for new banks) in case it gets a license. The current 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 it with 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 with its peers in infra financing space,” said an analyst from Motilal Oswal Research.
“Post this steep correction, the stock is trading at 0.8x/0.7x FY14/15 P/BV and 0.6x AP/ABV, at 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 '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,” pointed out Adarsh Parasrampuria and Pritesh Bumb of Prabhudas Lilladher in an August 19 report.
Muthoot Finance however, bucked the trend by surging 47 per cent on back of higher gold prices. India Infoline and Religare Enterprises, too, gained in the range of four – six per cent during August.
The infrastructure finance company imposed these restrictions to help it meet the RBI’s restriction on foreign investment (at less than 50 per cent for new banks) in case it gets a license. The current 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 it with 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 with its peers in infra financing space,” said an analyst from Motilal Oswal Research.
“Post this steep correction, the stock is trading at 0.8x/0.7x FY14/15 P/BV and 0.6x AP/ABV, at 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 '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,” pointed out Adarsh Parasrampuria and Pritesh Bumb of Prabhudas Lilladher in an August 19 report.
Muthoot Finance however, bucked the trend by surging 47 per cent on back of higher gold prices. India Infoline and Religare Enterprises, too, gained in the range of four – six per cent during August.
| Company | 31/07/2013 | 30/08/2013 | %chg |
| LOSERS | |||
| IDFC | 109.40 | 80.90 | -26.05 |
| Magma Fincorp | 82.50 | 69.90 | -15.27 |
| IFCI | 21.90 | 18.80 | -14.16 |
| Bajaj Finance | 1145.09 | 1025.50 | -10.44 |
| L&T Finance Holdings | 61.35 | 55.45 | -9.62 |
| GAINERS | |||
| Muthoot Finance | 76.65 | 114.35 | 49.18 |
| India Infoline | 49.65 | 52.65 | 6.04 |
| Religare Enterprises | 309.85 | 321.80 | 3.86 |
| Closing price on BSE in Rs | |||
| Data complied by BS Research | |||
