Even wondered why Bajaj Finance was one of the worst performing stocks post the RBI governors announcements last week ? The stock slid from 2050 odd levels to sub 1800 in a matter of 3 days even when the nifty did not fall as much.
Its actually quite simple, Bajaj Finanace is one of the few companies that gives out 0% interest loans to consumers, primarily for consumer durable items. So when the RBI governor announced a further moratorium on all loans for 3 extra months, this meant that the principal in these already ‘very low margin’ items would take even longer to recoup than that was originally planned. This coupled with the already 3 months moratorium that the borrowers have received has led the stock price to slide consistently and be such a laggard over the past few months. The increase in Moratorium is actually a double whammy for this stock which people reckon will lead to seeing a sharp rise in defaults. The sharp rise in defaults for Bajaj Finance is also attributed to the fact that these companies tend to lend to ‘tier 2 borrowers’ and hence even have higher interest rates than most banks. These higher interest rates and higher emi’s could therefore further create problems for the borrowers in this Covid environment, thus in turn creating problem for Bajaj Finance itself.
Now coming to the all important question of should we buy this stock now at 1950 ? To be honest, I’m still staying away ! I would rather wait for this stock to cross 2500 decisively and sustain over there or head to lower levels of sub 1700 for me to be more comfortable to get into it. If you actually notice the daily chart of Bajaj Finance, you will see that every time the stock hits the 20 EMA (As circled), it retraces back.
It just doesn’t seem to sustain over it. A lot of fundamental guys keep talking about this one on the news actually. I had mentioned the same about this in my earlier post as well. But believe me when I say this, “one is more clueless than the other !” I think If finance is your cup of tea or area of interest , you would rather look at ICICI bank or a Hdfc bank. ICICI at levels of around 265 to 280 for a first tranche entry. Standard Disclaimers apply !
