Bajaj Finance investors lose Rs 24,000 crore in a week; what’s next?

Shares of Bajaj Finance Ltd fell for the fifth consecutive session today, leaving investors jittery in a volatile market. The Bajaj Finance stock, which closed at Rs 6,136.20 on March 6 fell to an intraday low of Rs 5,720 in the current trading session, translating into a loss of 6.78% or Rs 416 during the period.

With the ongoing correction, market cap of Bajaj Finance has slipped by Rs 24,443 crore to Rs 3,47,060 crore today against the market cap of Rs 3,71,503 crore on March 6 this year. In the afternoon session, the stock was trading 1.90% lower at Rs 5733 on BSE. It fell 2.2% intraday to Rs 5720 against the previous close of Rs 5844.25. Later, the stock ended 1.91% lower at Rs 5732.45 on BSE.

Total 0.81 lakh shares of the firm changed hands amounting to a turnover of Rs 46.76 crore on BSE. Market cap of the NBFC fell to Rs 3.47 lakh crore.

Bajaj Finance's relative strength index (RSI) stands at 33.2 which signals the stock is neither oversold nor overbought. A level below 30 is defined as oversold while a value above 70 is considered overbought. Bajaj Finance stock has a one-year beta of 1.3, indicating very high volatility during the period. Bajaj Finance shares are trading lower than the 5-day, 20-day, 50-day, 100-day and 200-day moving averages.

Shares of Bajaj Finance hit a 52-week high of Rs 7777 on September 22, 2022. On the other hand, Bajaj Finance stock hit a 52 week low of Rs 5,235.60 on June 17, 2022.

Here’s a look at what analysts and brokerages said on the ongoing correction in Bajaj Finance and whether the stock is headed toward Rs 5,500 level.

Abhijeet from Tips2trade said, "Bajaj Finance looks bearish but also in oversold zone on the Daily charts. Rs 5545-5650 will be a strong support zone for long-term buyers. Strong resistance will be at Rs 6000."

Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher Pvt. Ltd said, "The stock has witnessed a decent erosion from the peak level of around Rs 7800 and recently after taking support near the long term trendline zone of Rs 5650 had recovered with a decent pullback to show some improvement in the bias but resisted near the 200DMA level of Rs 6530 and again witnessed a correction again coming back to the long term trendline support zone of Rs 5700 level. We need a confirmation of whether the stock maintains the support or else a decisive breach below Rs 5700 can further intensify the selling pressure with next major support at Rs 5200-5250 zone."

Osho Krishan, Sr. Analyst - Technical & Derivative Research, Angel One said, "Bajaj Finance has corrected nearly 10 percent in the last couple of trading weeks and has plunged near the previous swing low. Technically, the counter is placed below all its major moving averages on the daily chart, adding a bearish quotient. However, the support is placed nearby, around Rs 5600-5500 odd levels, which is expected to cushion the fall. While on the higher end, a series of resistance can be seen from Rs 6100-6300 levels in a comparable period."

On the other hand, Rahul Malani, Analyst Banking & NBFC, Fundamental Research, Sharekhan by BNP Paribas is bullish on the NBFC stock. He listed out the reasons of underperformance in the Bajaj Finance stock.

1. AUM growth is tapering off due to size and higher competition in consumer & other retail loans.
2. Rising share of mortgage would lead to dilution of ROA/ ROE profile.
3. Growth differentials have also narrowed due to faster loan growth acceleration taking place at banks and other NBFCs due to strong sector tailwinds, which is leading to valuation derating.
4. Challenges in faster retail liabilities growth as there is no access to low cost CASA deposits.
5. Additional rate hikes going forward may affect margins negatively as company may not be able to pass additional rate hikes due to steep interest rate hike in the last 10 months.

On the outlook of the large cap stock, Malani said, "Currently, it trades at 6x 1 year forward book value. In the near term, valuations fully reflect the superior franchise growth. However, as far as medium to long-term investment thesis is concerned, we continue to like the franchise built around strong competitive moats, which is difficult to replicate along with strong execution capabilities, underwriting, data analytics and we believe BAF is poised to deliver strong sector-leading ROA/ ROE of 4.7%/ 4.8% 22%/23% in FY24E/FY25E. We remain upbeat about strong earnings growth and longevity of the franchise going forward. We have a buy rating on the stock with target price of Rs 7500."

Rajesh Sinha, Sr. Research Analyst at Bonanza Portfolio Ltd said, "Bajaj Finance, one of the leading NBFC, has fallen over 6% in the last week on concerns of slowing loan growth and compression in net interest margin (NIM). In the recent past, Bajaj Finance has underperformed the market by a huge margin. Bajaj Finance has already built a large market share in MSME/personal loans within NBFCs space, where competition is increasing day-by-day from banks. Growth in home loan for Bajaj Finance is expected to negatively impact RoA/RoE due to low NIM. Further, adequate liabilities scale-up will be a challenge as an NBFC on account of various regulatory caps on deposit mobilization and exposure of capital providers to NBFCs. However, customer acquisitions and the new loan trajectory of Bajaj Finance has been strong and the momentum of new loan will only get stronger going ahead with in-place digital ecosystem like app, web platform and full-stack payment offerings. Investors need to watch out for key factors like evolution of its payments landscape, velocity of the consumer app and the adoption of the web platform, build-out of new product segments like CV, Tractor, MFI that Bajaj Finance plans to launch in the next fiscal. We are cautiously optimistic for Bajaj Finance and advise investors to use any dip to consider investing for long term."

Ravi Singhal, CEO, GCL said, "As we know after SVB of America get closed due to bonds MT, there is a possibility of higher MTM loss in Bajaj Finance as well other NBFCs also. Market conditions are also weak. Due to high interest rates, growth can come down. Our target is Rs 5,000 in the near term but Rs 5000 is a good level to invest for long-term target of Rs 7700."

On March 9, Ambit Capital initiated coverage on Bajaj Finance with a 'Sell' rating and a 12-month target of Rs 5,028. Bajaj Finance's one-year forward valuation implies 25 per cent asset under management (AUM) growth, with 20 per cent return on equity (RoE) over the next decade, Ambit Capital said.

Despite superior technology, analytics, processes and distribution, it's a tall task, Ambit Capital said adding that no Indian lender has grown at over 20 per cent for two decades.

Ambit Capital said Bajaj Finance is the most expensive lender in India, trading at a significant premium over housing finance companies, NBFCs and large-cap private banks. Consistent high growth has led to the stock re-rating over the years.

Also read: Cipla shares hit 52-week low as I-T dept probes potential tax violations

Also read: SVB Domino Effect: Should Indian investors worry after Silicon Valley Bank fallout?