In the wake of a recent Reserve Bank of India (RBI) rate hike, many non-banking financial companies (NBFCs) are facing near-term market pressure. However, market expert Daljeet Kohli suggests that this selloff has created significant valuation opportunities in specific segments, including vehicle finance, housing finance, and microfinance.
Resilience Amidst Rate Hikes
Kohli’s analysis indicates that a 25-basis-point rate increase is unlikely to significantly impact well-positioned lenders. His core argument centers on companies that maintain strong liquidity, clear demand visibility, and improving asset quality trends. He acknowledges a “slightly negative” immediate impact on NBFCs but emphasizes that many stocks are now trading at “very comfortable valuations” after a correction.
Shriram Finance: A Standout Example
Shriram Finance is highlighted by Kohli as a prime example of an NBFC with substantial liquidity. He notes the company is actively seeking to deploy capital for growth, suggesting that minor interest rate fluctuations will not deter its trajectory as long as underlying credit demand remains robust. This perspective shifts focus from the cost-of-funds pressure to the fundamental strength of balance sheets and sustained loan demand.
The stock has seen a correction from above Rs 1,000-1,100 levels to the “nine hundred something” range, making its valuation more appealing relative to its growth prospects. Kohli describes its valuation as “very comfortable” with a “perfectly okay” growth trajectory, positioning it as a strong contender for investors.
Opportunities in Housing and Microfinance
Beyond Shriram Finance, Kohli also sees value emerging in the housing finance sector. This segment has largely underperformed over the past two to three years, leaving several companies trading at attractive levels. Despite market volatility, some housing finance firms continue to demonstrate resilience.
Microfinance and small finance lenders are also poised for a potential cyclical recovery. Kohli observes a complete turnaround in this cycle, with credit costs significantly reduced from previously elevated levels to just a “few basis points.” If this positive trend persists, these institutions could experience a meaningful earnings rebound as they mature into small finance banks and potentially larger banking platforms.
Strategic Stock-Picking
Kohli’s broader market philosophy advocates for selective stock-picking rather than broad, top-down calls, particularly in a volatile environment. For the financial sector, this means looking beyond the headline impact of higher interest rates and instead focusing on key metrics such as liquidity, demand, credit costs, and valuation comfort. For investors, NBFCs may no longer represent a uniform risk trade but rather a source of selective opportunities.
Disclaimer: This article provides general market information and should not be considered investment advice. Consult a qualified financial advisor before making any investment decisions.