BFSI sector valuation discount at new high

Valuation re-rating has been much sharper for non-BFSI companies

- KRISHNA KANT

Companies in the banking, finance sector and insurance (BFSI) sector have underperformed on the bourses despite leading the earnings growth charts in the post-pandemic period. This has created a dichotomy between their earnings and share prices.

BFSI companies have never been less expensive than the rest of the equity market. BFSI companies' valuation discount over non-BFSI companies and the broader market is now the highest since at least 2011.

The top listed BFSI companies are currently valued 2.62 times their book value at the end of FY24, less than half the non-BFSI companies' current price to book value ratio of nearly 5.6.

The numbers suggest the segment of the Indian equity market has become expensive over the years but the valuation re-rating has been much sharper for non-BFSI companies in sectors such as information technology services, automotive, consumer goods, defence, industrials, and metals. In contrast banks, non-banking financial companies, and insurance firms saw only a modest rise in their valuation in recent years.

Historically, non-BFSI companies have always traded at a premium to their BFSI peers, but the premium was consistent during the pre-pandemic period and ranged from 50-100 per cent and it averaged 68 per cent between FY11 and FY20.