Bajaj Finance and Bajaj Finserv Shares Decline on Growth Outlook Concerns

Bajaj Finance and Bajaj Finserv Shares Decline on Growth Outlook Concerns

Bajaj Finance and Bajaj Finserv, two prominent players in India's financial landscape, faced a tumultuous day in the stock market as their shares took a significant tumble. Investors watched anxiously as Bajaj Finance's stock plummeted by 7.78%, hitting a day low of Rs 6,728. Meanwhile, its holding company, Bajaj Finserv, also felt the impact, with its shares dropping by around 4%. What led to this sudden decline, and what does it mean for investors?

The primary reason behind this downward spiral lies in the forecasts provided by Bajaj Finance for the fiscal year starting April 1, 2024. The company anticipated a slower growth rate in its assets under management (AUM), projecting an increase of only 26-28% compared to the previous year's robust 34% growth. This cautious outlook spooked investors, who had been accustomed to the company's stellar performance in recent years.

Adding fuel to the fire, Bajaj Finance also predicted a decline in its net interest margin (NIM) by 30-40 basis points over the next two quarters. This metric, which measures the difference between the interest income generated by the company's assets and the interest expenses paid out, is a crucial indicator of profitability for financial institutions. A decrease in NIM indicates potential challenges in maintaining profitability, further unsettling investors.

Although Bajaj Finance reported a commendable 21% rise in fourth-quarter profit, it tempered expectations for future growth. The company expressed caution about its profit outlook for fiscal year 2025, suggesting that growth might be more "rear-ended" rather than evenly distributed throughout the year. This cautious stance added to investor concerns about the company's long-term prospects.

Interestingly, the woes of Bajaj Finance also spilled over to its holding company, Bajaj Finserv, dragging its shares lower by around 4%. This "rub-off effect" underscored the interconnectedness of these two entities and the broader financial ecosystem.

Brokerage firms offered their insights into the situation, shedding light on various aspects of Bajaj Finance's performance and outlook. Emkay highlighted the company's resilience in the face of challenges such as the Reserve Bank of India's embargo on EMI and e-commerce cards, which affected its pre-tax profit by approximately 4%. Despite these obstacles, Emkay maintained a positive outlook on the company, albeit with slight adjustments to its estimates and target price.

Similarly, Religare Broking emphasized Bajaj Finance's healthy growth in AUM, driven primarily by the secured lending segment. However, the brokerage noted a continued decline in margins, attributing it to an increase in the cost of funds. Looking ahead, Religare Broking anticipated further margin contraction in the first half of fiscal year 2025, fueled by an increasing proportion of secured lending in Bajaj Finance's portfolio. Despite these challenges, Religare Broking remained bullish on Bajaj Finance, maintaining a "Buy" rating with a target price of Rs 8,861.

In conclusion, while Bajaj Finance and Bajaj Finserv may be facing short-term headwinds, their long-term prospects remain promising. Investors should exercise caution and consult with financial advisors before making any investment decisions. The financial landscape is ever-evolving, and staying informed is key to navigating these turbulent times.

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