Shriram Finance rallies 5% as stock is set to enter Nifty50 from March 28

Shares of Shriram Finance rallied 5 per cent to Rs 2,455.10 on the National Stock Exchange (NSE) in Thursday's intraday trade after the exchange decided to include the stock of the non banking finance company in Nifty 50 index, effective from March 28, 2024. 

Shriam Finance will replace UPL in the benchmark index, NSE said in a circular on Wednesday after market hours.

At 10:22 AM, Shriram Finance erased its intraday gain and was trading 0.5 per cent higher at Rs 2,360.05. The stock had hit a record high of Rs 2,535 on Monday, February 26.

In comparison, Nifty 50 was down 0.20 per cent at 21,908. However, shares of UPL were quoting 0.56 per cent down at Rs 473.25, after hitting a low of Rs 467 in the intraday trade.

 

Analyst expects healthy business fundamental and growth outlook to aid valuation of Shriram Finance.

In the past one year, the market price of Shriram Finance has doubled as against 25 per cent rally in the Nifty 50. Thus far in the current calendar year 2024, the stock of the NBFC has surged 16 per cent as compared to 0.12 per cent decline in the benchmark index.

Shriram Finance is the flagship company of the Shriram group which has significant presence in Consumer Finance, Life Insurance, General Insurance, Housing Finance, Stock Broking and Distribution businesses. Shriram Finance is one of India's largest retail asset financing NBFCs with Assets under Management (AUM) above Rs 2.14 trillion.

"Shriram Finance's valuation re-rating led by better growth and asset quality is behind. While Shriram Finance does not expect volatility around elections, its growth trajectory has peaked out and credit costs at 2 per cent are at risk with mix tilting to 2W/MSME/PL/passenger vehicle (as there will be trade-offs between write offs and reported NPAs). Margins should moderate a bit with limited ability to transmit high costs ahead, propping growth. So, RoEs should settle at best to slightly over 16 per cent and RoAs at 3-3.1 per cent in FY24-26E," analysts at Elara Capital said in their Q3 result update.

Analysts at JM Financial Institutional Securities, too, believe Shriram's improving growth trajectory led by healthy macros (and thereby a healthy used-CV cycle), benefits of wider distribution of erstwhile-SCUF products, steady return profile stable asset quality should drive further re-rating for the stock. The brokerage firm values Shriram Finance at 1.6x FY26E BVPS and maintains BUY with a revised target price of Rs 2,680.