Market usually gives a valuation premium to private players and more to the lenders who have quality promoters, clean corporate governance, execution strength and some sort of moat in their business model.
Challenge with REC is that they lend to government entities in power sector that itself is a big deterrent for investors who look for sustainable earning growth and predictable compounding in the stock prices Not only power sector is cyclical but is also one of the biggest contributors to NPAs in lending sectors. Plus recovery from defaulting government customers can be difficult given the political elements involved.
Right now there is a credit frenzy in the system and every lender is trying to grow their loan book. In this phase, stock prices of conservative lenders with high quality risk management suffer. When NPA cycle turns and bad loans start piling up in the books, investors start flocking back to quality names.
PSU stocks have been darling of the street in the past and we have seen similar rallies and rosy outlooks but they have flattered to deceive. Not sure if this time is different.
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