Synopsis: Bajaj Finance and Shriram Finance shares gained after clarity that the RBI is not considering any cap on NBFC CEO tenure. The update removed a key regulatory overhang, easing concerns around leadership continuity. Improved sentiment and reduced uncertainty drove a relief rally in both stocks following recent declines.
Shares of Bajaj Finance and Shriram Finance were trading with an upside as the regulatory environment has become clearer, reducing investor concerns about the tenure of the leadership of NBFCs. These shares were under pressure in the recent past as investors were concerned about the possibility of the RBI enforcing stricter regulations on NBFCs. The news that there is no proposal under consideration by the RBI has helped the shares bounce back.
With a market cap of Rs 5.37 lakh crore, the shares of Bajaj Finance Ltd jumped about 3% in today’s trading session and reached a high of Rs 893.35. When compared to its previous day’s closing price of Rs 868.60. The shares are trading at a PE of 29.5, whereas their industry’s PE is at 16.9, and they have given a return of about 60% in the last 5 years.
With a market cap of Rs 1.90 lakh crore, the shares of Shriram Finance Ltd jumped about 3% in today’s trading session and reached a high of Rs 1,029. When compared to its previous day’s closing price of Rs 1004.95. The shares are trading at a PE of 21, whereas their industry’s PE is at 17, and they have given a return of more than 250% in the last 5 years.
Regulatory clarity helps alleviate investors’ concerns
According to CNBC, the stocks of Bajaj Finance and Shriram Finance recorded an uptrend as investors got clarity that there was no proposal from the Reserve Bank of India for capping the tenure of top management of NBFCs. This comes after some recent media reports had led investors to sell these stocks due to concerns of increased regulation and an impact on top management continuity.
The lack of such a proposal has removed an overhang for these stocks, especially for Bajaj Finance and Shriram Finance, as these were considered more vulnerable due to their long-serving top management. The stocks have recorded an uptrend due to increased clarity and investors’ confidence.
Leadership continuity and regulatory gaps remain intact
NBFCs are in a stronger position as far as flexibility is concerned, as the appointment of CEOs does not need RBI approval and does not come with a strict tenure and age limit. This had created a regulatory gap, and changes were always a possibility, as private sector banks follow a 15-year limit and a maximum age of 70 years for CEOs.
Therefore, with the status quo continuing, leadership stability will remain intact with key NBFCs. Rajeev Jain, CEO of Bajaj Finance, who has been with the firm for over a decade, and Umesh Revankar of Shriram Finance, who has a long tenure with the board, will be able to take the companies ahead without any disruption.
This news will reduce the worries of analysts who had pointed out that changes to the regulatory arbitrage between NBFCs and banks could impact these lenders disproportionately. Overall, the news will improve sentiments about select NBFCs, especially after the recent correction due to the uncertainty surrounding the potential changes.
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