Despite recent interest rate hikes by the Reserve Bank of India (RBI) and a volatile equity market, market expert Daljit Kohli believes a significant valuation opportunity has emerged within the Non-Banking Financial Company (NBFC) sector. Kohli argues that a 25-basis-point rate increase is unlikely to derail well-capitalized lenders, particularly those with strong liquidity, visible demand, and improving asset quality.
Shriram Finance Highlighted Amidst Market Correction
Kohli specifically points to Shriram Finance as a prime example of a company that is "flush with so much of money" and actively seeking to deploy capital for growth. He asserts that a marginal rate adjustment will have little impact on such institutions, provided underlying credit demand remains robust. This perspective shifts the focus from mere cost-of-funds pressure to the fundamental strength of a lender's balance sheet and its ability to generate loans.
The market's indiscriminate punishment of lenders during tightening cycles may have overlooked the resilience of well-funded NBFCs. Shriram Finance, having corrected from above Rs 1,000-1,100 levels to "nine hundred something," now presents a more reasonable valuation relative to its growth trajectory, according to Kohli.
Broader Opportunities in Housing and Microfinance
Beyond vehicle finance, Kohli also sees value in housing finance companies. This segment has, in his view, "not done too much in last two, three years," leading to several names trading at attractive levels despite their ability to navigate market volatility.
Furthermore, microfinance and small finance lenders could be poised for a sharp cyclical recovery. Kohli notes that the cycle in this segment has "totally turned," with credit costs significantly falling from previously elevated levels. A sustained improvement in this trend could lead to substantial earnings rebounds as these institutions mature.
Selective Stock-Picking Over Sector-Wide Fear
Kohli's broader message for investors is to adopt a selective stock-picking approach rather than making sweeping top-down calls. In the financial sector, this means looking beyond the immediate impact of higher interest rates and instead focusing on individual company strengths, including liquidity, demand, credit costs, and valuation comfort. For those navigating a turbulent market, NBFCs may represent a nuanced opportunity for discerning investors.