Valuations of non-financials look stretched

Reuters Market Eye - Valuations of Indian non-banking financial companies are beginning to look stretched, after surging this year on hopes parliament will approve a bill laying the groundwork to issue banking licences for the sector, analysts have said.

Likely contenders to obtain banking licences are trading at much higher price-to-book valuations than established private sector banks such as Axis Bank (AXBK.NS) and ICICI bank(ICBK.NS).

For graphic: link.reuters.com/qam64t

Shares of NBFCs have surged this year, with L&T Finance Holdings (LTFH.NS) gaining 109 percent as of Friday's close, and Shriram Transport Finance (SRTR.NS) rising 74 percent. Mahindra and Mahindra Financial Services (MMFS.NS) has risen 78.5 percent.

That's well above the Nifty's 27.2 percent gain, and the gains made by private banks such as ICICI Bank (ICBK.NS), which has risen 65.9 percent.

Passage of the bank amendment bill, which is being debated in the winter session of parliament, due to end on December 20, is a pre-condition for awarding licences.

"Its insanity. I think when the actual licenses are awarded we will sell on news on these counters," said G. Chokkalingam, executive director & chief investment officer at Centrum Wealth Management.