The Next Big Nifty Bet Can Be Micro Finance

Jul 2017
Global, July, 28 2017 - Microfinance could well be your next big bet even as investors struggle to chart out their next course of action after the broader index Nifty hit a record high on Wednesday.

Shares of Ujjivan Finance, Equitas Holdings and Satin Creditcare have not participated in the latest rally, eroding shareholders' value by up to 1.5 per cent in the past two days as they are yet to recover from the effects of last November's demonetisation.

But those stocks, available at cheap valuation, may double your investment returns in the next three years amid the government's drive for financial inclusion."While the government's push for financial inclusion will offer huge opportunities for such companies, Digital India will help them lower input costs, thus improve margins," said Sanjiv Bhasin, EVP-markets & corporate affairs, IIFL group.

"The demonetisation impact has impaired the prospect of these companies. Their receivables are scattered all across the rural belt, but the negative effect will get over by September or so," he said, adding, "Investors could see their investment returns doubling in three-four years' time."

Between Tuesday and Thursday, Ujjivan and Equitas shares fell 1.31 per cent while Nifty Bank rose 1.63 per cent. Though Satin CreditCare's, a micro finance company, stock rose 2.38 per cent to close at Rs 305 on Thursday , it is still way below its 52-week high of Rs 716.

For those three companies - Ujjivan, Equitas, and Satin Credit - price-to-book value, a measure of stock valuation ranges be tween 1.90x and 2.51x, is considered cheap or reasonable to start investing in.

Two of the companies are run by efficient managements with an additional feather in their cap: a small banking licence. Overall collection efficiency has improved in the micro finance industry with de monetisation shock fading away, said Vishal Rampuria, analyst at HDFC Securities.

"It needs to be seen how some of these MFIs that has converted into banks(including SFB) manage the transition to their new avatars. "MFI companies will take another one or two quarters to get rid of all negative impact as some loan write offs are still expected."

Source : Economic Times

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