Market Mania Grips Housing Finance

The stellar listing of Bajaj Housing Finance has set the Dalal Street ablaze, but is this fire fuelled by genuine value or just market frenzy? The housing finance company’s shares zoomed to their upper circuit for the second consecutive day, leaving many to question if the valuations are running ahead of fundamentals. The IPO, which saw an overwhelming subscription of over 67 times, listed at a staggering 136% premium and continues to climb, pushing its market capitalisation to a hefty ₹1.51 lakh crore.

Valuation Out of Sync?

While the market celebrates, analysts are sounding notes of caution. Comparisons with peers highlight a stark valuation gap. LIC Housing Finance, despite having the largest asset book in the sector, trades at a significant discount to its forward book value. Bajaj Housing Finance, in contrast, is now valued at an eye-watering 6.2 times its estimated FY26 book value. This disparity raises eyebrows and begs the question – is the market getting carried away by the IPO euphoria?

Expert Advice and Market Sentiment

Gaurav Dua, SVP at Sharekhan by BNP Paribas, suggests investors exercise caution. He points out that the stock is trading at a rich 7-8 times price-to-book ratio and advises waiting for better entry points or exploring other IPO opportunities in the pipeline. His view on Ola Electric’s post-listing price correction serves as a pertinent reminder of how quickly market sentiment can shift after the initial excitement of an IPO subsides.

Cheaper Alternatives Exist

For investors keen on the housing finance sector, the market offers more reasonably priced options. Companies like Repco Home Finance, India Shelter, Home First Finance, and Aadhar Housing Finance are trading at a more palatable 2 to 3 times their FY26 estimated book value. Even LIC Housing Finance, trading at less than 1 times its FY26 book value, appears significantly undervalued in comparison.

LIC Housing Finance’s Growth Puzzle

However, the low valuation of LIC Housing Finance reflects investor concerns about its growth trajectory. The company’s asset growth has been modest in recent quarters, and while it aims for double-digit growth in FY25, expectations remain muted. Furthermore, analysts at Nomura warn about potential pressure on net interest margins due to the predominantly floating rate nature of its loan book, which could be negatively impacted by future rate cuts.

Is the Bajaj Housing Finance IPO a case of justified optimism or simply a reflection of the current market frenzy? Only time will tell if these valuations are sustainable. For now, investors would do well to tread cautiously and perhaps look at the broader landscape of housing finance stocks before jumping onto the bandwagon.

Image Courtesy: X (ipo.tank)