Banking sector went into a turmoil following NPA’s and bad asset management. Public Sector Banks went out of investor favor. The Private Banks which always commanded rich premium among investors too began to lose attraction because of more and more regulations tightening their hands on growth. While all this was happening and keeping the financial sector at the razors edge, NBFC’s went to become leaders in the financial sector with phenomenal growth in their valuations.
The reasons behind NBFC’a gaining strength were –
- They are healthy on NPA’s.
- March quarter profit growth was 32%, while private banks had 23%.
- Home loan portfolio increased by 12%, all of it grabbed from the private banks.
- Focused approach made them best placed to grab opportunities arising from the base of the pyramid.
- Bountiful monsoon that is expected this year is likely to boost rural income, where NBFC’s are well placed.
- Most of them are positioned in the lower income segment, where the budget provision of more deduction on interest payment for the first time home buyers for loans upto 35 lakhs, came to their advantage.
Investors moved away from richly valued private banks to NBFC’s which shows in their stock growth in the last 1 year. NBFC’s had registered between 20 – 60% growth in the last 12 months. Toppers among them are Chola Finance, GIC Housing, Repco Home, Shriram Transport, Canfin Homes, Bajaj Finance etc.,
In our portfolio, 22% percent of the total equity exposure is in the financial sector and we do not have any banks in our portfolio. We hold all the top names along with stocks like SKS Micro, Edelweiss, which have shown good growth in their top line and bottom line. Our entry into these stocks was fairly early, giving us the edge to capitalize on their growth. Most of our investments have given above 15% growth since we have invested.
As an automatic process, our research identified the stocks in this sector for our investments.