Why investors are turning to development banks and finance companies scrips

ShareSansar, February 3:

If we look at the performance of the sectors over the past one month or so, we can see that the demand for the scrips of development bank and finance companies is in the rise, besides, of course, the insurance group, which has been fairing well even before the November 19 Constituent Assembly  election.

Though the banking index tumbled down by 63.70 points or 7.70 percent since December 22, the indices of class B and C BFIs remain in upward trajectory (see Table 1). The development bank group has risen by 54.19 points or 12.64 percent and the finance group has surged by 16.94 points or 5.10 percent.

It is not difficult to understand why there is a growing demand for the shares of development banks and finance companies if we look at the sectoral trend over the past few months, especially after the election. The reason is clear: The scrips of most of the commercial banks, especially those offering dividends, have surged drastically over the period, pushing the investors to book their profit and move on to class B and C BFIs for faster capital gain, considering lower value of their scrip -- despite the dividends they have been offering. For instance, the top ten gainers among the BFIs over the recent months are only from the development bank and the finance companies. Now most of the biggest gainers are those whose scrip was priced below Rs 200 even after the election. (See Table 2).

The banking indices surged by 252.49 points or 43.95 percent in a month time after the election, inflating the price of the scrips of the group. It’s not that the price of shares of the development banks and finance companies also did not surge in this period – in fact all the sub-indices rose buoyed by the hope of political stability in the country — but the growth in price of the shares of commercial banks is magnified owing to its higher price and capital base.  

 

Table 1: The general market trend over the recent months

 
If we look at the table below, in which we have the top BFIs in terms of percent gain from a month before the election, a month after the election and the past one month, we do not even have to rack our mind to understand that the class B and C BFIs are the best performing scrips now.

 Table 2: Top BFIs in terms of percent gain