Why Shriram Finance Share Price is Rising

The Indian non-banking financial industry is growing rapidly, driven by increased demand for credit across various sectors.

With digital lending and financial inclusion gaining traction, NBFCs have played a vital role in providing easy access to finance.

This sector is crucial in supporting the needs of small businesses and individual borrowers, helping drive India's economic growth.

Shri Ram Finance is one of the leading NBFCs in the country, known for its strong presence in lending and asset financing.

The company offers a wide range of financial products, including loans for commercial vehicles, personal loans, and small business financing.

Recently, NBFC stocks, including Shri Ram Finance, faced some pressure following the stellar listing of Bajaj Housing Finance.

Despite this, on a longer look on the horizon, NBFC stocks have been on an upward trend, and Shri Ram Finance rallied 15% over the past month.

So far in 2024, the stock is up by a significant 72.3%.

Let's explore what is driving the positive sentiment around Shri Ram Finance's share price.

Rate Cut Outlook

With the likelihood of interest rate cuts this year, non-banking financial companies (NBFCs) like Shriram Finance stand to benefit the most. These companies offer a better risk-reward in the current market.

The US Federal Reserve has reduced interest rates. The Reserve Bank of India is expected to follow suit, aligning its monetary policy.

As interest rates begin to fall and rural consumption demand starts recovering, NBFCs like Shriram Finance, especially those focused on consumer finance and vehicle loans, are set to see growth in their assets under management (AUM).

While the impact of rate cuts may vary among NBFCs due to differences in asset and liability structures, overall, the cost of funds is expected to come down after a lag of 1-2 quarters.

When interest rates fall, fixed-rate lenders like NBFCs usually benefit as their borrowing costs decrease, leading to an expansion in their net interest margins (NIMs).

Shriram Finance, with a higher proportion of fixed-rate loans, is expected to experience a positive impact on its NIMs as funding costs decrease.

Meanwhile, NBFCs with more floating-rate loans, such as housing finance companies, may see some moderation in their margins.

This expected drop in borrowing costs and the improved growth outlook have driven up Shriram Finance's share price recently.

What Next?

Shriram Finance is preparing for significant growth with plans to raise US$ 1 billion (bn) from international sources over the next six months. This fundraise will help fuel its business expansion.

The company aims to secure US$ 300 million (m) by October, with the remaining US$ 500-700 m expected to be raised during the current financial year.

The fund sources include development financial institutions like the Asian Development Bank and United States Development Finance Corporation.

The company is focused on diversifying its funding through public deposits, domestic markets, and overseas borrowing.

While many NBFCs are facing funding challenges due to the Reserve Bank of India's stricter capital requirements, Shriram Finance's higher credit rating and varied borrowing sources have insulated it from these pressures.

Shriram Finance's assets under management (AUM) are expected to grow by 15-16% by the end of September, slightly slower than the 21% growth seen in the previous quarter. This is mainly due to higher lending in the new-vehicle segment.

Additionally, the company is actively expanding its gold loan business, planning to add 500 branches over the next two years to complement its existing 1,500 branches.

How Shriram Finance Share Price has Performed Recently

In the past five days, Shriram Finance share price has rallied 4.1%. In the last month, it is up 14.5%.

In 2024, so far its share price rallied 72.3% and it went up 84.1% in the last year.

The stock touched its 52-week high of Rs 3,623.7 on 19 September 2024 and a 52-week low of Rs 1,760.9 on 26 October 2023.

About Shriram Finance

Shriram Finance is the flagship company of the Shriram group which provides financial services such as commercial vehicle finance, passenger vehicle finance, SME finance, and retail lending (personal loans, gold loans, and two-wheeler loans).

It was established in 2022 as the result of a merger of Shriram City Union Finance and Shriram Capital into Shriram Transport Finance.

The Shriram Group is an Indian conglomerate headquartered in Chennai. It was founded on 5 April 1974 by R. Thyagarajan, AVS Raja and T. Jayaraman. The group had its beginning in chit funds business and later on entered the lending and insurance businesses.

For more details about the company, you can have a look at the Shriram Finance factsheet and Shriram Finance quarterly results on our website.

For a sector overview, read our finance sector report.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...