Is it the right time to invest in consumer financiers?

The festive season is set to dawn upon us in about a fortnight. 

With no pandemic blues souring the sentiment this time, the pent-up demand is set to bring cheers to India Inc.

To that effect, demand for consumer loans is likely to get a big leg up in the coming months.

A Crisil report recently pointed out that non-bank lenders’ asset growth is expected to jump to a four-year high of 11-12% this fiscal.

According to the agency “With NBFCs focusing on higher-yield segments, unsecured loans, which have the second-largest share of 16-20% in the AUM pie, may be the only segment to touch the pre-Covid era growth of 20-22% this fiscal.”

The growth, therefore, is keeping analysts upbeat about consumer financiers. 

Siddharth Purohit, Principal Officer and Fund Manager, InvesQ Investment Advisors says festive season to be without Covid-19-related restrictions for the first time in two years. Balance sheet clean-up has happened; no serious asset quality threat. Lower incremental provisions to boost earnings. Consumer financing companies have healthy pricing power; rising interest rates not a concern. 

Analysts say, investors should watch out for any spike in non-performing assets one or two quarters down the line.

Ambareesh Baliga, Independent Market Analyst, says consumer financiers have been doing well. Credit off take has been impressive. There is pain in the lower segment; watch out NPAs levels in the quarters ahead. 

At the end of the June quarter of FY23, Bajaj Finance, which is India’s biggest consumer financier, had gross NPA of 1.25% as against 1.6% in Q4FY22

Net NPA, meanwhile was 0.51%, down from 0.68% sequentially.

For Shriram City Union Finance, GNPA stood at 6.11% in Q1FY23 versus 6.31% in Q4FY22, while NNPA was 3.32% as against 3.30% in Q4FY22.

Yet, analysts believe that consumer behaviour isn’t as bad as feared. Therefore, there isn’t any serious concern on the NPA front for now.

From an investment viewpoint, analysts suggest accumulating Bajaj Finance and M&M Financial Services from a long-term perspective.

This, they said, should be done on dips as valuations look expensive at current levels. 

On Friday, investors will prepare themselves for the US Fed’s meeting, slated next week. Other global cues and stock-specific news flow will guide the markets.