What do you do with Bajaj Finance? CLSA says that it sees the stock heading to Rs 6,000. Should one wait till that level and should one be buying?
It is already at Rs 6,000 – Rs 100 here or there.
Yes at Rs 6,000, should it be a contra buy or should one skip it?
There is no contra buy because it is the most over owned financial stock. Each HNI portfolio, each retail portfolio, large mutual funds, large PMSes, have so much of Bajaj Finance that there is no scope of disappointment and now there is a small disappointment and this fall has happened.
Now if there is a small uptick in NPAs, then what will happen? We need to realise that Bajaj Finance is purely on the retail side. As rates move up, there is a high possibility that there could be an uptick in NPAs also. If you look at it, the difference between Bajaj Finance and the overall financial sector, like credit growth of the system, has reached 17-18%.
At one point of time when credit growth was 5-7% they were growing at 25%, the differential was huge. Now the differential has narrowed. Does it deserve to be at twice the price to book HDFC Bank even at these prices? I do not think so. There is a significant phase of below average returns lying for Bajaj Finance shareholders. If there is a rapid correction maybe for a year and if there is a slow correction, maybe for two years.
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Which are the other stocks which are on the other end of the spectrum in that they have done nothing for the last two to three years and now it is time for them to make a comeback? Bajaj Finance slips into that category where it will not go anywhere for next two or three years but there are lots of stocks which are at the exit gate or at the end of the tunnel after two-three years of hibernation.
When markets are near all-time highs, it is very difficult to find stocks which are in complete hibernation, but relatively there are things working for many companies in auto ancillaries, engineering, capital goods and infrastructure. So, there are many companies out there which could do well. On the largecap side, I still like L&T and M&M. These two have decent steam left, given the way they are performing. What does the profit picture look like over the next one or two years?
Let us break it down. is in insurance. Why both Bajaj Finserv and Bajaj Finance are down at the same time?
I think Bajaj Finserv holds Bajaj Finance, it is the holding company. But typically, they tend to move together. The correlation is very high. It is 97-98% in terms of the correlation to their stock price movement historically.
Everybody in the Street is now hunkering down estimates and when IT managements are coming out and admitting that there is a problem, have not the market factored that in?
We will find out next week itself what is going to happen but markets have partly factored this in and partly because we saw the Microsoft chairman speaking about a definite slowdown. But India technology company managements refused to acknowledge that. has acknowledged it to some extent, tinkered it down by 1% or 2% but then if the kind of concern which US large technology companies are indicting plays out, then the decline in growth will not be 1-2%, it will be much more than that.
I think that is something we need to watch out for. It is only a matter of a week, ten days when we will hear the commentary from all IT companies and then we can take a more considered view.