NBFC STOCKS: Should You Add Them To Your Portfolio?

NBFCs have corrected sharply in CY18 after outperforming in the previous 3 to 5 years. Yogesh Supekar along with Amir Shaikh analyse the prospects of investing in NBFCs

Non-banking finance companies (NBFCs) have been on the radar of investors over the past few years. Indeed, many of the leading NBFC players have turned out to be multi-baggers, viz., Bajaj Finserv and Bajaj Finance. While the sector has been riding on decent growth trajectory over the past 3 to 5 years, it is worth looking at the sector afresh amidst increasing uncertainty in the financial markets. NBFCs, along with the broader markets, have taken a beating in CY18.

NBFCs, apart from being an integral part of the Indian financial system, play an important role in nation-building by complementing the banking sector in reaching out to the unbanked segments of the populace in the country.

Prasanna Pathak

Fund Manager - Equity Taurus Mutual Fund  

What is your outlook on NBFC stocks?

Currently, NBFCs are witnessing cyclical pressures with respect to their liability resources/profile. This time, however, the situation is peculiar in the fact that the demand pipeline remains strong for majority of them and most of the NBFCs have diversified businesses, competing against other financial institutions. For example, LAP is a product offered by banks, HFCs as well as other NBFCs. So, the segments with demand limits their ability to increase their yields. The availability of information about the basic credit profiles is also quite uniformly available. The better ones have developed good processes to assess the risk and mitigate it. So, to that extent, the entry barrier is low and the demand visibility is high. So, we feel it will be a “survival of the fittest” market.