Shares of Bajaj Finance Decline for Fifth Straight Day Amid Concerns of Slowdown in Loan Growth and NIM Compression
On Tuesday, Bajaj Finance shares fell by 1% intra-day to Rs 5,776 on the Bombay Stock Exchange, marking the fifth consecutive day of decline. In the past week, the stock of the non-banking finance company (NBFC) has dropped by 6% due to concerns about a slowdown in loan growth and net interest margin (NIM) compression. In comparison, the S&P BSE Sensex was down by 3% during the same period.
Underperformance Compared to Market
Bajaj Finance has underperformed the market by a significant margin in recent times. In the past month, the stock has slipped by 10% compared to a 4.5% decline in the Sensex. Over the past six months, it has plunged by 23% compared to a 3.4% fall recorded by the benchmark index. In the past year, the stock has declined by 13% compared to a 3% rise in the Sensex. The stock had hit a 52-week low of Rs 5,235.60 on June 17, 2022.
According to analysts at Ambit Capital, achieving Bajaj Finance’s one-year forward valuation would require a 25% growth in assets under management (AUM) with around 20% return on equity (RoE) over the next decade. Despite having superior technology/analytics/processes/distribution, this is a challenging task. No Indian lender has grown at 20% for two decades.
Bajaj Finance already has a large market share in MSME/personal loans within NBFCs, where competition is increasing from banks. Home loan growth would be return on assets/return on equity dilutive due to low NIM. Moreover, commensurate liabilities scale-up would be a challenge as an NBFC due to various regulatory caps on deposit mobilization and exposure of capital providers to NBFCs.
Analysts at Motilal Oswal Financial Services see NIM compression in FY24 as levers on borrowing costs have largely played out, and the competitive landscape will limit any significant yield expansion. Customer acquisitions and the new loan trajectory have been strong. The momentum will only get stronger ahead, with the digital ecosystem – app, web platform, and full-stack payment offerings – in place.
Bajaj Finance seems to be firmly in a bearish grip, with select momentum oscillators in the oversold zone. The stock has been trending along its lower-end of the Bollinger Bands on the daily chart for the last four trading sessions. Sustained trade below Rs 5,730 could further weigh on the stock. On the downside, the stock could slide towards the lower-end of the Bollinger Bands on the weekly chart, indicating a target of Rs 5,490-odd level. In case the stock is able to hold the Rs 5,730-level on a closing basis, a pullback rally towards Rs 5,900 seems likely.
Key Factors to Watch Out for in FY24
Analysts suggest that the evolution of its payments landscape and traction therein, the velocity of the consumer app and the adoption of the web platform, and the build-out of new product segments such as CV, Tractor, MFI that Bajaj Finance plans to launch in the next fiscal year are key factors to watch out for in FY24.