The performance of top NBFC stocks since demonetisation has been diversified. These stocks were in a bull run phase over the last one year and served those who found it difficult to do business with banks. NBFC stocks have given phenomenal returns as compared to bank stocks that had taken a hit due to their asset quality issues in March-April last year.
They had been outperforming the markets earlier, which makes their one-year return much superior to that of banks. However, the micro finance institutions – they operate in a high cash environment – saw their stocks suffer November 8 onwards due to cash crunch following the demonetisation of high-value currency notes.
An analysis of stocks’ performance of top 35 NBFCs by market capitalisation shows two separate sets of impacts following demonetisations. In the first, NBFCs that operate in metros and urban locations saw positive impacts of demonetisation and their share price move up sharply. As a result shares of rural-focused NBFCs fell since demonetisation was kicked off. Their returns since November 8, 2016 showed a huge fall led by Shriram City Union Finance (-17.94 per cent since demonetisation/30.27 per cent in last one year); Mannapuram Finance(-13.57 per cent/154.22 per cent); Cholamandalam Investment & Finance Company (-12.21 per cent/41.39 per cent); Mahindra & Mahindra Financial Services (-10.15 per cent/29.01 per cent); Repco Home Finance(-8.65 per cent/11.55 per cent); Equitas Holdings (-7.77 per cent/Not available); Muthoot Finance (4.89 per cent/94.56 per cent); Ujjivan Financial Services (-2.92 per cent/NA); Shriram Transport Finance(-2.09 per cent/10.71 per cent) and Bharat Financial Inclusion (-1.95 per cent/51.94 per cent).
Vishal Rampuria and Darpin Shah, analysts at HDFC Securities in a report on Repco Home Finance, which deals in small ticket size housing loans mostly to the self-employed category said, “NPAs have shot up post demonetisation, led by slippages in the big ticket LAP (loans against property) book. Management is confident of recovery, as slipped loan against property loans have loan to value (LTV) under 50 per cent."
"The recent demonetisation move has also increased stress, with gross NPAs going up to 4.2 per cent in 3QFY17," the analysts added.
The NBFCs saw their shares move up between November 8 and March 22 along with their record-breaking one-year period performance.
