2 NBFC shares to buy; one may double stock investor money in 24 months, says Emkay Global

Emkay Global in a fresh note said NBFCs are likely set to outshine banks going ahead. It said any pro-growth policy measure usually augurs well for the markets, unless valuations are out of sync and that its banking analyst Anand Dama now expects net impact of the recent RBI moves -- drag from lower rates on EBR-linked loans offset by release of idle CRR funds -- to result in about 15-20bps impact on banks’ NIMs – limiting earnings growth to a high single digit. 

Also, the pain will be more front-loaded as deposits reprice with a lag. A few banks—with high-yield fixed rate products like credit cards, personal loans and MFI— will benefit significantly, also helped by tapering credit costs and an expected reversal in the business cycle, it said.

"Meanwhile, the construct for NBFCs looks promising – they were growing fast to begin with, and the policy surprise is an added booster. We like Shriram Finance and AB Capital; the latter could see its price double in about 18-24 months," the brokerage said.

Emkay Global said the aggressive RBI moves on the policy front have been calibrated with a change in stance, back to ‘neutral’ mode. The earlier switch to an accommodative stance was done only in the prior policy meet. 

While the official version is that under the present circumstances, there is limited space to lower rates further, a more practical reasoning is simply to wait out the usual 6-9 months of the transmission impact to play out, remain data-dependent, as well as firmly communicate the RBI's inflation fighting credentials – dovish actions completed with a mildly hawkish signaling. 

"In our view that the hallmark of this government has been several small, albeit relevant, incremental policy changes (against big-bang reforms), and remaining data dependent which allows course correction. We believe as inflation remains anchored at lower levels, the RBI will continue to gradually lower rates, although at longer intervals. We are probably in a long-term bond bull market as well," Emkay Global said. 

Historically, the domestic brokerage said, policy rate moves in increment of 50bps reflect economic duress. The recent surprise cut is a catch up on an unusually restrictive policy in the last fiscal and resets the trajectory of economic growth higher, it said adding that this action also reflects confidence in conducting the monetary policy to align with the domestic economic reality – a decoupling of monetary policy is a pre-cursor to a decoupled economic growth.

Emkay Global said the had a 4 oer cent CRR benchmark since FY13, barring a 1 per cent cut during the pandemic which then reverted with recovery taking hold. CRRs during the late nineties and early 2000s were the preferred monetary tool used to influence liquidity and rates. 

Over the last decade – especially since FY12, the RBI’s ownership of government bonds has consistently exceeded the CRR deposits. As of FY25, the RBI owned nearly Rs 15 lakh crore of government bonds against CRR deposits of only Rs 10 lakh crore. 

"This reflects the RBI’s use of OMO as a primary liquidity lever, apart from important but indeterminate forex flows. Meanwhile, the cost of idle CRR reserves – assuming opportunity cost of yield at 8 per cent – is a staggering Rs 80,000 crore. Again, we applaud the Governor’s resolve to question the basics and purge the antiquated policies. We believe that over the next several years, the RBI will progressively lower the reserve requirements – keeping a very low threshold, and only for savings/low duration time deposits," it said.

Emkay Global said the the next stage of reforms demands gradual withdrawal of lending restrictions to corporates for land, against shares and such. Real estate in aggregate accounts for one third of investment activity in the country without access to low cost funds for most developers. 

"After RERA implementation, builders consolidation, and timely and transparent data availability, etc, the underwriting risk is no longer systemic or disproportionately higher than that for any other industrial project finance. Likewise, lending against shares is a critical need – especially as new-age companies have more intangible assets than hard physical collaterals. It is about time that we start respecting market assessment of equity value as much as the due consideration we give to replacement cost of physical assets," it said.