Yes it can if they start playing fast and loose with regulations.
For e.g. not issuing payment terms calculations to their borrowers or ignoring KYC requirements etc.
Based on management quality, so far it seems much less viable, but certainly it can happen. Humans are emotional beings, if emotions of greed and feeling powerful/in control ever take over the logic of playing by rules, any management can act stupidly.
This said, recent episodes of IIFL, PayTM and in the past of Bajaj Finance, HDFC Bank, etc. would have caused a lot of managements to introspect their processes and tech stacks to ensure they are in as much compliance as one possibly could in order to avoid regulator’s and investors’ wrath. So this is probably a really good time in invest in quality financials given availability of decent valuations (this doesn’t seem to be the case right now, but valuations are subjective, expensive to me might seem alright to you depending on your time horizon and how far out you are willing to consider growth).
An additional thing that can be used as a gauge of how likely it is that the management would do stupid things is to see how they fared during previous growth outbursts - see 2006-07, 2013-14, etc. If management during those periods stayed calm and didn’t get over excited, it probably is likely that they would stay consistent to their behavior.
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