Why the Share Price of L&T Financial Holdings is Falling?

Larsen & Toubro Ltd, commonly known as L&T, is an Indian multinational conglomerate company, with business interests in engineering, construction, manufacturing, technology, and financial services, headquartered in Mumbai. The company is counted among the world’s top five construction companies. The subsidiaries of L&T have been performing exceptionally well in the past few years, but there is one subsidiary i.e., L&T Financial Holding which has yielded negative returns in the last 5 years. So, let’s discuss that what are the reasons behind the fall in the share price of LTFH in this article as we move ahead.

Performance of L&T Subsidiaries:

It has three main subsidiaries.

1. L&T Technological Services (LTTS)

2. L&T Infotech (LTI)

3. L&T Financial Holdings (LTFH)

Share price change of these subsidiaries from 2016-17 to 2021-22:

• Every subsidiary of L&T and the L&T as the parent had performed very well but the L&T financial service has shown a degrowth of 37%.
• L&T Financial Service provides finance to the real estate sector and the real estate sector is not performing well for a few years.
• In 2016 due to demonetization, the real estate sectors got impacted, and in 2017 new regulation of GST also affected the sector. Then, In 2018 infrastructure Leasing & Financial Services (IL & FS) impact the real estate sector and in 2020 the whole economy got impacted by pandemic Covid-19.
• Since 2016 the real estate sector got impacted four times and the sector become weak. For the same reasons, L&T financial services were not able to perform well.
• Also, the real estate sector is a cyclical sector which means first they expand, then peak, recession, depression, trough, and last is recovery, and this cycle continues.
• 7 to 8 years ago when the real estate sector was in a boom, everyone out there got benefited but when the depression and trough came this time it stays for a long time as it got impacted four times and it directly impacted the L&T Financial Services.

What should investors do?

Investors should try to understand that currently what is the phase of the real estate sector. An investor should properly understand the sector cycle and then should evaluate the companies under this sector.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.