Again circling back to my post which was a bit unpopular at the time since stock had just made all time high start of May 2024, delivering handsome returns to their investors.
Since then stock is 13% down in 7 months despite all the euphoria, positive news flow and positive management commentary that we have seen in the same period.
Nothing really changed much in fundamentals except drying up of liquidity and valuation mean reversion. There was too much liquidity till 1st half of last year and everyone was justifying stretched valuations offering some positive narrative.
Now those who booked profit in the REC counter 6 months ago did the right thing. While those who got sucked into the counter at ATHs purely based on news flow and narrative will have to settled down with very modest return.
REC is in a space where customers are known for defaulting and there is inherent cyclicity to the business. RBI can only impose guidelines but they can’t run businesses of borrowers’ on their behalf. That business hasn’t changed in last several years. And that’s the reason this business has never got the multiples which other private lenders have been getting.
So stocks like REC may be good for short term trades, but they will never deliver long term compounding that we have seen from private lenders. Even a stock like HDFC bank with most pessimism has managed to keep its investors happy during current correction.
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