Why Bajaj Finance continues to be a strong buy

There might be a little bit of consolidation but Mahindra & Mahindra Finance in particular stands out because of the capital raise, says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL.

The Q1 commentary by Bajaj Finance is clearly being absorbed very positively by the markets. The volumes have really spiked and the delivery volumes are far lesser at only 20%. What is your own sense on how Bajaj Finance could be looked at by investors right now?
What a spectacular move that we have seen in Bajaj Finance and some of the NBFCs in the last leg of this run up. It is clearly driven by the positive statements coming out from the management in terms of the moratorium numbers and the fact that the overall liquidity situation is exceptionally good, particularly in the month of June. The company has talked about the cross sales, the overall growth in the disbursements and the fact that it has almost come to about 60% to 70% of the normal level, especially when people were doubting whether there is going to be any sort of revival for this whole year.

So in a matter of just one month, things have actually turned around for many of these companies in terms of the statements coming out from the management. There is also an annual report that the company has come out with where there are some concerns on the asset quality side but overall, given the incremental data points that we are seeing, with this being a high beta stock, people definitely would want to buy this. It has run up a bit; so it might cool off. But overall, our view on that space and particularly Bajaj Finance continues to be extremely positive.

Suddenly everybody is excited about owning petrochemicals and fine chemicals. Where are you picking your spots and what is your criteria to buy something in the fine chemical/agrochemical space?
If you look at this space, for almost about two to three years, these companies have continued to deliver a good set of numbers because of the kind of product profile that they have and also due to the China angle. Now in terms of the stocks that we like, there are two companies: one is PI Industries, which also is kind of a contract manufacturer for the global agrochemical companies and they also have their own products, and second of course is SRF that has a very interesting product basket in terms of specialty gas, etc.

So these are the companies where despite the challenges in terms of economy or certain sectors going through cyclical ups and downs, we have seen consistent delivery. Recently PI Industries has also done a QIP and the overall visibility of growth is at about 18-20% for both PI and SRF. So one should definitely have these stocks in the port. Also from an agrochemical angle where people are getting extremely bullish in terms of anything which fits into the rural or monsoon theme where some of these companies will fit in.

Would you look at something like Mahindra & Mahindra Financials? It is a pure play on rural India and there is evidence that things are coming back. They also raised capital a couple of weeks ago. It is from the Mahindra Group. Does it warrant a buy?
Absolutely. When we look at the move that these companies had, we should also reckon that the correction across these names was very sharp. Now that most of that pain is behind, particularly these companies which are rural focussed with a very strong pedigree and the overall growth over the next two or three quarters could really surprise everyone. So yes, they have run up and there might be a little bit of consolidation but Mahindra & Mahindra Finance in particular stands out because of the capital raise. Also the fact that their franchise is extremely good particularly from the rural side. So we continue to be positive on Mahindra Finance. Even L&T Finance, which has remained a bit of a laggard, I think from management pedigree and the kind of positioning which they have in this entire run up can also provide a good upside from current price points.