2 NBFC stocks to Watch

Introduction:

MSCI standard Index India has made some changes there could be some inclusion and exclusion could happen. MSCI Standard Index has included 6 new stocks and 1 stock has been removed and these changes will be effect after 28^th May 2021.

i) SBI Cards & Payments:

• The first company is SBI Cards and payments. This company could expect an inflow of $ 237 million i.e., around Rs 1,750 Cr. after 27^th May 2021.
• The SBI cards and payments  Market capitalization is hovering between Rs 90,000 Cr. to 92000 Cr. If we see the inflow that is there of Rs 1,750 Cr. It means close to 2% of the market capitalization of the company inflow could be seen in the SBI Cards.
• This inflow expectation can be seen from both active and passive funds.
• If we look at the returns of SBI Cards in the last year from its lowest level, Stock has yielded returns of around 80%.

ii) Cholamandalam Investments:

• The second company is Cholamandalam investments where there could be an inflow of $ 195 million which is around Rs 1,450 Cr. in INR terms.
• Cholamandalam is having a market capitalization of around Rs 43,000 Cr. – Rs 44000 Cr. It is seen that it is more than 3% allocation is being made by the institutional investor.
• This inflow expectation can be seen from both active and passive funds.
• There is a good amount of allocation made by the institutional investors. If we talk about Cholamandalam the stock is up by 250% from the low levels last year.
• Here, If we look at the returns of SBI Cards in the last year from its lowest level, Stock has generated returns of around 250%.

Valuation:

• SBI card gives more comforts as compared to Cholamandalam in terms of valuation.
• Cholamandalam is having the stress of NPA.
• The provision coverage ratio of the company is around 40-45%  which is not very comfortable.
• Provision cover is not adequate after seeing a 3.8% to 3.9% gross NPA.
• In this quarter they have made the provision of Rs 350 Cr.
• This stress can exist till  Sept 2021 because as per the RBI projection there could be an increase in NPAs.
• In that comparison, the SBI card is having strong parentage of SBI. Although Cholamandalam is also having a parentage of the Murugappa group which is also a strong group considering the south Indian market. But there is concern about the valuation for this stock.
  

Other Stocks included in MSCI Index:

• The remaining companies which are part of the MSCI Index are 3 companies from Adani Group: Adani Total Gas, Adani Enterprise, and Adani Transmission.
• The inflow of around $300 million could happen in each of these Adani Group stocks which are around Rs. 2200 to Rs. 2300 Cr in INR terms.
• All of these Adani Group Stocks have given a significant return in the last 1 year like a Return of 1100% in Adani Total Gas, 800% in Adani Enterprise, and 500% in the case of Adani Transmission.
• The main problem with the Adani Group is the lack of domestic allocation rather than foreign institute allocation.
• There is another company included in MSCI Standard Index is Bharat Electronics.
• BEL could witness an inflow of about $ 150 million which is Rs 1000 Cr. This stock has grown by 140% in the last 1 year.
• The market capitalization of BEL is Rs 36,000 Cr. Hence, the inflow of around 3% of the market capitalization of the company is expected.

Stock Excluded:

• Zee Entertainment Ltd. has been excluded from the MSCI Standard Index as per the latest list.
• As have been a lot of issues going on in corporate governance like the resignation of independent directors, Pledging, etc.
• Here, Around $140 million which is close to Rs 1,000 Cr outflow could be seen. As the market capitalization of Rs 18000 Cr. this outflow of Rs 1000 Cr. could be painful for this counter.

Conclusion:

Hene, 6 stocks have been including in MSCI Standard Index and one stock will be removed from the index. Among these 6 stocks, which will be included post 28 May 2021, SBI Cards & Payments and Cholamandalam Investments seems a good choice for Investors to keep on the radar. But investment in these stocks should not be done on the just basis of these inclusions and exclusions, but one should do a deep research analysis before picking any stock for investment.