Shares of Bajaj Finance have been falling consistently of late, making investors of the stock anxious and uncertain whether they should hold the stock or sell it off.
The stock hit its 52-week high of ₹8,043.50 on BSE on January 19, 2022, and in less than two months, it has fallen 35 percent to hit a low of ₹5,958 in intraday trade on March 8.
Such a steep fall in such a short timeframe is a valid reason for investors to panic. But brokerages see it as an opportunity to stay invested or even buy the stock.
Recently, one of the top global brokerage firms Jefferies initiated coverage on Bajaj Finance with a 'hold' rating, with a target price of ₹7,200. The brokerage firm expects the stock to sustain its high growth and sees the loan-growth led 27 percent CAGR in profit over the financial year 2023-2025.
Jefferies believes Bajaj Finance's valuation is at a significant premium to lenders and its past average but the company's superior growth and profitability are perfectly priced.
The stock has given mouth-watering gains in the long term. Its last 10-year return is nearly 7,660 percent and its 5-year return is 4,933 percent, which means, if you had invested ₹1,00,000 in the stock in 2012, you would have got ₹77,60,000 now.
Brokerage firm JM Financial has maintained a buy call on the stock with a target price of ₹9,000 (valuing the stock at 40 times FY24E EPS), which is a 47 percent upside from the stock's closing price of ₹6,122.55 on BSE on March 7.
"As all the major business parameters have reached pre-Covid levels, Bajaj Finance has exhibited its agility and ability to tread through economic shocks largely unscathed. The company has established moats, viz., retail liability machinery, a wide range of lending products, and, a large collection engine," JM Financial said.
"We believe Bajaj Finance is catching up well with fintech players in terms of the digital interface while delivering profitability, hence we remain constructive on this business transformation journey. Incrementally, we would closely track the company’s new-to-Bajaj additions through the digital route and its share in overall user additions," the brokerage added.
JM Financial expects Bajaj Finance to generate AUM CAGR of 27 percent over FY21-24 with PAT CAGR of 45 percent and RoE of 23 percent by FY24.
In the recent selloff, Bajaj Finance has been trading below 200-day simple moving average for the last few days and in an oversold position with RSI oscillators indicating weak momentum for the short term. With ongoing FPI selloff in frontline stocks, there can be a further downfall to continue and test ₹6,150 level as crucial support, said Prashanth Tapse, Vice President (Research), Mehta Equities.
The possibility of rate hikes, as inflation is surging, is a concern for financial stocks as rate hikes will hit their lending and consequently their quarterly performance.
"We believe that corporate earnings of banking and NBFC stocks are expected to be in the negative zone on the expectation of a hike in interest rate as a concern of higher inflation," said Tapse.
Nevertheless, the company's strong market presence and its historical record can give investors confidence that it can still give them healthy returns in the medium to long term.
Market sentiment on the stock is ‘neutral’, according to a MintGenie poll and an average of 28 analysts has a ‘buy’ call on the stock.