Markets

NBFCs, small bank stocks hit upper circuit

Our Bureau, Chennai | Updated on July 07, 2020

Bajaj Finance, Bandhan Bank lead the gains; decline in moratorium, deposit growth turn sentiment positive

Shares of non-banking finance and small and microfinance firms hogged the limelight on Tuesday with some of them hitting the upper circuit. A marginal pick-up in overall econmic activity and strong rural demand, thanks to active monsoon, have revived hopes finance sector, said analysts.

The RBI’s liquidity enhancement measures have also infused confidence, they added. As the Covid-19 lockdown is slowly unwinding, most expect demand to pick up for finances ahead of festive season.

Bajaj Finance, an index heavyweight, led the rally, as it announced a sharp dip in the assets under management (AUM) under moratorium. After jumping 10 per cent to ₹34193.95, Bajaj Finance stock finally settled at ₹3,352.75, up 7.84 per cent on the BSE.

The big gainers

Similarly, Bandhan Bank surged as it reported a deposit growth to ₹60,602 crore as on June 30, a healthy 6 per cent quarter. This triggered a 12-per cent rally in the stock to ₹401.95; but it closed slightly lower at ₹394.95, still up 10.65 per cent. Ujjivan Small Finance Bank was locked in the upper circuit of 20 per cent at ₹37; Equitas Holdings and Mahindra & Mahindra Financial Services surged 10 per cent.

Others such as Aditya Birla Money, AU Small Finance Bank, Bajaj Finserv, Cholamandalam Investment and Finance, CreditAccess Grameen, Geojit Financial, HUDCO, IDFC, IIF Finance, MAS Financial Services, Spandana Sphoorty Financial, Ujjivan Financial Services gained between 5 and 9 per cent on the BSE.

Short-covering

Short-covering in some of these stocks such as Bajaj Finance, Equitas, Bandhan Bank, Ujjivan and Chola Finance also pushed up the share price.

The overall funding environment for the sector seems to have improved given high level of liquidity in the banking system and the various fund-raising channels put in place by the government, re-financing schemes and relief measures for the MSME sector among others, said CARE Rating in a note. “This, coupled with expectations of improving collections, should aid the overall liquidity position for the NBFC sector,” it added.

Motilal Oswal Financial said that the sharp reduction in moratorium is a big positive for Bajaj Finance. Better performance in asset quality would result in big delta to earnings via lower credit cost/margin compression. “While QoQ decline in AUM is in line with our expectations, a pick-up in economic activities should lead to better AUM growth, it added. Bajaj Finance is likely to benefit from lower cost of funds from bank loans as well as market borrowings.

According to CARE Rating, trends indicate that the collections have gradually picked up across segments during May and June this year. The extension of moratorium period for further three months till August would mean that the collections may take time to come back to pre-Covid levels.

However, this time around, the NBFCs are likely to reformulate their moratorium policies and are less likely to extend a blanket moratorium to all its borrowers, the rater said.

Published on July 07, 2020

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