A stock like Bajaj Finance now is pricing in a lot of growth forward. But this really could be a flat year and Bajaj Finance in 2022 could be a quarantine stock?
With the numbers which they reported, you can always factor in that if this growth rate continues the way it is and they have a huge opportunity available to them, then even at these levels the stock can be an outperformer. I am not saying that going ahead it will be a multi-bagger as it has been, but within the NBFC and the banking space, it could still deliver the best in class returns given its size and the kind of risk parameters associated with it.
So I would say that right now, it appears to be pretty much well priced but the stock is volatile. It does give corrections of 5-10%, 15% or so as well and those are good entry points. In the banks and NBFC space, one thing is very clear. If one is a long-term investor with a mindset of three to five years, the best returns are coming in the larger companies within the space.
In the banks, the best returns are coming from the likes of HDFC, ICICI Bank, Kotak Bank and in the NBFC space we have seen that Bajaj Finance, HDFC, Cholamandalam have delivered the highest returns on a longer timeframe because whenever there is a banking or NBFC crisis, a lot of value disruption also takes place. This we have seen in the cases of RBL, Yes Bank, IndusInd Bank, Bandhan Bank and so many NBFCs have gone through a very tough patch and predicting when the banking issues will come up and when NPAs will shoot up is very difficult to say. It is best to remain in good quality large companies within the space. There may be periods of underperformance as we have seen in HDFC Bank in the last two-three years but it is my firm belief that over a longer period of time, these companies grow at a faster pace and their returns will be superior compared to the industry.
Source: The Economic Times
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