Bajaj Housing Finance IPO Sparks New Era for NBFCs: Market Poised for Rerating After ₹6,500 Crore Success

The Bajaj Housing Finance IPO has brought new attention to the NBFC (Non-Banking Financial Company) sector, which has been ignored by the market for the past three years. The IPO raised ₹6,500 crore and received a strong market response, with bids exceeding ₹3 lakh crore. This interest was driven by the company’s strong backing, reasonable valuations, and the current excitement around IPOs.

Experts believe this could lead to a revaluation of NBFCs as a whole. Despite delivering steady growth and maintaining strong asset quality, the sector has been underappreciated recently.

Listing gains for Bajaj Housing Finance could go as high as 113%, and analysts predict the IPO could benefit other NBFCs. Krishna Appala, a Senior Research Analyst at Capitalmind Research, said that with anticipated interest rate cuts and attractive valuations, NBFCs are becoming a better investment choice.

The sector has seen strong performance in personal, auto, and mortgage loans, with MSME (Micro, Small, and Medium Enterprises) and business banking portfolios growing as well. Even though rising funding costs and competition in corporate lending remain challenges, overall credit quality in the NBFC sector is stable. Companies are balancing risks while taking advantage of opportunities in MSME, housing, and consumer loans.

In the past two weeks, NBFC stocks have increased by 3-11% due to the possibility of a policy rate cut. However, global brokerage firm Nomura warned that the impact of a rate cut could differ among NBFCs based on their asset and liability structures.

Nomura expects that while a rate cut would benefit NBFCs, it will be important to consider how it affects their net interest margin (NIM) along with growth. The firm also predicts higher credit costs in the second quarter of FY24 for many NBFCs due to increasing financial pressure and low levels of provisioning. Among the companies it covers, Nomura has given a “buy” rating for Shriram Finance, Five Star, and Aadhar Housing Finance.