Bajaj Housing Finance’s IPO has created a buzz in the market, garnering a stellar response that signals a potential short-term rally in housing finance stocks. Still, seasoned analysts urge caution, stressing the importance of a company’s fundamentals. They suggest savvy investors look beyond the initial euphoria, strategically accumulating shares during downturns to reap long-term gains.
“While Bajaj Housing Finance’s IPO has fuelled short-term euphoria, sustainable growth depends on fundamental performance and earnings sustainability,” said Kranti Bathini, head of equities at Wealthmills Securities. Most housing finance stocks hover around their fair values, indicating that the real winners will be those adept at managing margins and maintaining asset quality, Bathini added.
Since Bajaj Housing filed its DRHP with Sebi on June 14, 2024, housing finance stocks have had a mixed performance. According to ACE Equity data, PNB Housing Finance gained a whopping 33% in the year to September 11.
India Shelter Finance Corp gained 8.3%, Aadhar Housing Finance gained 4%, Canfin Homes added 3.67% and Home First Finance added 3.4%.
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In contrast, HUDCO declined 13%, Aptus Value Housing Finance declined 8%, LIC Housing Finance gained 7.6%, while GIC Housing Finance declined 5.6%. Meanwhile, the broader market indices, Nifty 50 and Nifty Financial Services, gained 6.2% and 5.2%, respectively.
Known as a “branded” offering, Bajaj Housing Finance’s IPO offered another example of investor bids far outpacing available shares. The Rs 6,560 crore offering attracted bids of over Rs 3.2 trillion, with analysts attributing the frenzy more to the powerful “Bajaj” brand than underlying sector dynamics.
“Investors’ enthusiastic demand for Bajaj Housing Finance’s IPO is linked to the reputation of its parent company Bajaj Finance – a leading NBFC with a wide retail reach. While a part of this interest may stem from the current IPO craze and plentiful liquidity, the stable governance of the Bajaj Group undoubtedly adds to the attractiveness,” Nipun Lodha, head of corporate finance at PL Investment Banking, told IANS.
Analysts agree that Bajaj Housing Finance’s reasonable valuation and strong business outlook have boosted investor sentiment. Still, they caution that future performance will ultimately depend on earnings growth.
In a landscape of consolidation of housing financers driven by a tighter monetary policy environment, any policy change could create opportunities for select players.
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Global analysis by Nomura shows the gap between the 10-year government securities and the repo rate narrowing, now at 0.4%, while the long-term average is 1.2%. This narrowing suggests that the bond market is expecting significant rate cuts from the Reserve Bank of India.
Nomura’s forecast includes a 50 basis point reduction in the repo rate, which could potentially reduce Bajaj Finance’s consolidated funding cost by 25 basis points by FY26, which is also estimated to have a similar impact on LIC Housing and CIFC.
Reflecting this outlook, Nomura adjusted its target prices: Bajaj Finance to ₹7,500 (Neutral), Bajaj Finserv to ₹1,930 (Buy), and CIFC to ₹1,300 (Reduce). It also revised target on LIC Housing to ₹ 700 (Neutral), while maintaining bullish stance on Aadhar Housing Finance at ₹ 550 (Buy).
The initial success of IPOs has brightened the outlook for the sector; however, it remains dependent on macroeconomic factors and individual company resilience, making it important for long-term investors to invest cautiously.
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