Bajaj Finance Shares Rally 40% In 5 Days: Is There Further Upside Seen?

The shares of Bajaj Finance have staged sharp recovery in this six-straight days rally in the stock markets.

Why the increase in stock price of Bajaj Finance?

It is to be noticed that the stock's performance coincides with the time when the government has slowly ventured into unlocking economy in a phased manner. And as most of its loan book comprises unsecured loans, the start of economic activity has instilled life into the stock.

In a five days run up in the stock, the counter has managed to gain 40% and ended at Rs. 2413 per share on the BSE.

Low prices triggered value buying into the stock during the last week and in the week ago period, the company reported its earnings for the last quarter of FY20. The NBFC company made a provision to the tune of Rs. 900 crore due to Covid 19.

Earlier after the company's earnings were announced Geojit gave a buy recommendation on the stock with a target price of Rs. 2570 on the premise "Recording strong topline performance in the March quarter we believe that the heavy provisioning will give enough buffer in this challenging environment amidst COVID-19, eventually allowing the company to bounce back, we upgrade our rating to BUY," the brokerage said .

"Given its strong liquidity position, healthy CRAR, strong geographical presence, growing AUM, positive outlook, and strong parentage, we upgrade to buy rating on the stock with a revised target price," the brokerage said in a report.

Future outlook for Bajaj Finance Shares

But now as the Insolvency and Bankruptcy code has been amended in the wake of coronavirus pandemic, it is likely that the stock will bounce back and investors should book profits as the sentiment will turn negative for NBFCs.

Here's the IBC amendment that shall take a toll on NBFCs

For preveting large comapnies to enter insolvency proceedings when business sentiment has hurted the most owing to Covid 19, the Cabinet on Wednesday cleared the proposal to suspended IBC proceedings for NPAs or defaults starting March 25 and until a date that shall be notified later by the Center.

Also, given the financial crisis, individuals across the country are unable to meet their ends, thus there could be a pressure on the stock with more NPAs over the time.

On a broader basis too as seen by brokerage house there can be a pause in the rally, "Markets are currently riding on the global buoyancy but the profit-taking in the last hour and scheduled weekly expiry indicate the possibility of a pause on Thursday i.e. June 4. The benchmark may take a breather and see some consolidation before the further surge. Meanwhile, there'll be no shortage of opportunity on the stock-specific front so plan your trades accordingly,"said Ajit Mishra, VP - Research, Religare Broking.

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