4 NBFC Stocks That Sharekhan Has A Buy Call On For Long-term Investors

Broking firm Sharekhan has a buy call on the stocks of 4 NBFC companies, which according to the brokerage firm are also its preferred picks.

NBFCs: Disbursements continue to be robust

According to Sharekhan, for housing finance companies, disbursements recovered significantly, with economic activities picking up and lesser impact of the third COVID wave. "Disbursements continued to be buoyant across product segments. For HFCs, retail demand continued to remain robust despite disbursements being partly impacted by the third Covid wave in January 2022. While the nonindividual segment's (LRD, construction finance) disbursements witnessed improvement with expectations of upturn in the real estate/housing market going forward. With respect to vehicle finance, strong disbursements were witnessed in used vehicles, while two-wheeler disbursements were lower sequentially after a buoyant festive season. For diversified financiers, disbursements continued to be healthy with segments such as retail book, micro book, personal loans, and SME book. Our HFC's coverage witnessed healthy loan book growth of 13% y-o-y and 5% q-o-q in Q4FY2022," the brokerage has said.

Stocks to buy from the NBFC space

Stock	Current market price	Target price
LIC Housing Finance	378	505
HDFC	2293	3025
Bajaj Finance	6077	9097
Cholamandalam	679	740

HDFC, Can Fin Home see strong loan book

HDFC, Can Fin Homes and LIC housing Finance according to Sharekhan saw strong loan book growth between 8% to 21% y-o-y in Q4FY2022. However, Repco Home Finance (Repco) remained a laggard among peers with a decline in loan book during the quarter. "While vehicle financiers (VF) saw mixed performance, with Cholamandalam Investment and Finance Co. (CIFC) witnessing decent loan growth traction (10% y-o-y) and Mahindra Finance (MMFS) reporting flat y-o-y growth. HFCs and VFs reported NII growth of 13% y-o-y and 4% y-o-y, respectively. Net interest margin (NIM) improved for our coverage by ~10 bps to 50 bps q-o-q," the brokerage has said.

NIMs to moderate

"We expect net interest margins to be moderate on account of continued competition and rising cost of funds. In Q4FY2022, cost of funds declined by ~10 bps to ~30 bps q-o-q. Additionally, asset quality saw significant improvement of 7 bps to 45 bps q-o-q for HDFC, LIC Housing, and Cholamandalam. However, for Repco, asset quality was stable at 7% q-o-q in Q4FY2022 after considering the Reserve Bank of India's (RBI) circular on NPA recognition. MMFS witnessed significant improvement in GNPA ratio, which was followed by CIFC (improvement of ~140 bps to 360 bps q-o-q). For VFs, asset-quality improvement was primarily on account of elevated write-offs. Most companies, except a few, have implemented the RBI's directive on daily recognition of NPAs. Going ahead, given the current environment of rising interest rates, key monitorable would be credit growth of NBFCs and impact of increased interest rates on NIMs," the brokerage has said.

Disclaimer

The above stock is picked from the brokerage report of Sharekhan. Investors are advised caution as the markets have become exceedingly volatile. Neither Greynium Information Technologies, nor the author, nor the brokerage house would be responsible for any lo